##### Table of Contents

United States

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

For the fiscal year ended December 31, 2004

or

[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

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
    Incorporation or organization) |  | (I.R.S. Employer Identification
    Number)
|                                                                  
|1311 ORLEANS DRIVE, SUNNYVALE,
    CALIFORNIA                      |  | 94089                                      
|(Address of principal executive
    offices)                       |  | (Zip code)                                 





















sm











|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes approximately 7,839,809 shares of common stock
    held by directors, officers and holders of 5% or more of the
    Registrants outstanding Common Stock at June 30,
    2004. 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.



---

table of contents

molecular devices corporation

|              |  |                                                                                                                      |    |  |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|              |  | part I                                                                                                               |    |  |    | 
|Item 1.       |  | Business                                                                                                             |    |  | 1  | 
|              |  | The Company                                                                                                          |    |  | 1  | 
|              |  | Industry
    Background                                                                                              |    |  | 1  | 
|              |  | G-Protein
    Coupled Receptors                                                                                      |    |  | 2  | 
|              |  | Kinases                                                                                                              |    |  | 2  | 
|              |  | Ion
    Channels                                                                                                     |    |  | 2  | 
|              |  | Our
    Products                                                                                                     |    |  | 2  | 
|              |  | Drug Discovery
    Products                                                                                          |    |  | 3  | 
|              |  | Life Sciences
    Research Products                                                                                  |    |  | 5  | 
|              |  | Other Software
    and Customer Service                                                                              |    |  | 7  | 
|              |  | Research and
    Development                                                                                         |    |  | 8  | 
|              |  | Marketing and
    Customers                                                                                          |    |  | 8  | 
|              |  | Manufacturing                                                                                                        |    |  | 8  | 
|              |  | Patents and
    Proprietary Technologies                                                                             |    |  | 8  | 
|              |  | Competition                                                                                                          |    |  | 9  | 
|              |  | Government
    Regulation                                                                                            |    |  | 9  | 
|              |  | Employees                                                                                                            |    |  | 9  | 
|              |  | Business
    Risks                                                                                                   |    |  | 10 | 
|              |  | Available
    Information                                                                                            |    |  | 20 | 
|Item 2.       |  | Properties                                                                                                           |    |  | 20 | 
|Item 3.       |  | Legal
    Proceedings                                                                                                |    |  | 21 | 
|Item 4.       |  | Submission of
    Matters to a Vote of Security Holders                                                              |    |  | 21 | 
|              |  | part II                                                                                                              |    |  |    | 
|Item 5.       |  | Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities |    |  | 21 | 
|Item 6.       |  | Selected
    Consolidated Financial Data                                                                             |    |  | 23 | 
|Item 7.       |  | Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations                        |    |  | 24 | 
|Item 7A.      |  | Quantitative
    and Qualitative Disclosures About Market Risk                                                       |    |  | 32 | 
|Item 8.       |  | Financial
    Statements and Supplementary Data                                                                      |    |  | 33 | 
|Item 9.       |  | Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure                         |    |  | 33 | 
|Item 9A.      |  | Controls and
    Procedures                                                                                          |    |  | 33 | 
|Item 9B.      |  | Other
    Information                                                                                                |    |  | 34 | 
|              |  | part III                                                                                                             |    |  |    | 
|Item 10.      |  | Directors and
    Executive Officers of the Registrant                                                               |    |  | 34 | 
|Item 11.      |  | Executive
    Compensation                                                                                           |    |  | 34 | 
|Item 12.      |  | Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters               |    |  | 34 | 
|Item 13.      |  | Certain
    Relationships and Related Transactions                                                                   |    |  | 34 | 
|Item 14.      |  | Principal
    Accountant Fees and Services                                                                           |    |  | 34 | 
|              |  | part IV                                                                                                              |    |  |    | 
|Item 15.      |  | Exhibits and
    Financial Statement Schedules                                                                       |    |  | 35 | 
|SIGNATURES    |  |                                                                                                                      | 39 | 
|EXHIBIT 10.43
|EXHIBIT 10.44
|EXHIBIT 10.45
|EXHIBIT 10.46
|EXHIBIT 10.47
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 1








part I





Item 1.    Business





THE COMPANY

Except for the historical information contained herein, the
following discussion contains forward-looking
statements. For this purpose, any statements that are not
statements of historical fact may be deemed to be
forward-looking statements. Words such as believes,
anticipates, plans,
predicts, expects,
estimates, intends, will,
continue, may, potential,
should and similar expressions are intended to
identify forward-looking statements. There are a number of
important factors that could cause our results to differ
materially from those indicated by these forward-looking
statements, including, among others, those discussed in this
item under Business Risks as well as in
Item 7A  Quantitative and Qualitative
Disclosures About Market Risk and the risks detailed from
time to time in the Companys future SEC reports.

We are a leading supplier of high-performance bioanalytical
measurement systems that accelerate and improve drug discovery
and other life sciences research. Our systems and consumables
enable pharmaceutical and biotechnology companies to leverage
advances in genomics, proteomics and parallel chemistry by
facilitating the high-throughput and cost-effective
identification and evaluation of drug candidates. Our solutions
are based on our advanced core technologies that integrate our
expertise in engineering, molecular and cell biology, and
chemistry. We enable our customers to improve research
productivity and effectiveness, which ultimately accelerates the
complex process of discovering and developing new drugs.





INDUSTRY BACKGROUND

In recent years, research in the life sciences industry has
accelerated as funding from major private and public sources has
significantly increased. This expansion of research activity has
yielded discoveries that are currently fueling a revolution in
our understanding of human health and disease. One major
milestone, the sequencing of the human genome, was widely
celebrated not only as an important scientific advance in
itself, but also as a starting point for a much broader
exploration of fundamental biological processes. The genome map
is significant because genes provide the code that cells use to
make proteins, and proteins play a central role in every aspect
of the bodys function. Learning which genes code for
various proteins, which proteins are involved in different
biological events, and how these proteins function or
malfunction are all challenges that are now being tackled by
scientists on an unprecedented scale. By better understanding
biology at the level of genes, proteins and cells, researchers
hope to discover the underlying causes of human disease and
determine new ways to treat them.

Because of their critical role in the body, proteins that
malfunction or are present in abnormal quantities can cause
problems that are manifested as diseases. Drugs typically fight
illness by binding to such proteins, known as
targets, and modifying their behavior to reduce
their disease-causing effects. Collectively, all of the drugs
currently on the market are aimed at approximately 400 distinct
protein targets in the human body. The human genome map has
revealed the existence of an additional 3,000-5,000 targets that
may be associated with a variety of diseases. This expansion in
the number of potential drug targets is driving increased
activity in two areas of scientific inquiry, basic life sciences
research and drug discovery.

Understanding the role of genes and proteins in human health is
a goal of basic life sciences research, which is conducted by a
wide variety of pharmaceutical, biotechnology, academic and
other organizations. Once a proteins link to a disease is
understood, the task of finding a drug that acts on the protein
and treats the disease is undertaken primarily by pharmaceutical
and biotechnology companies. These companies typically own
libraries of drug candidates comprising hundreds of
thousands, or even millions, of chemical compounds. In order to
determine which compounds are effective against a particular
target, a test, or assay, must be developed to detect whether a
compound has modified the behavior of the target, then this test
must be repeated for each compound in the library. In recent
years, this screening process has become
industrialized as companies have invested in automated,
high-throughput equipment to handle the increasing numbers of
new targets and compounds. The type of technology researchers
use when they screen drug candidates depends upon the class of
target that they are investigating.



---



##### Table of Contents

2 / MOLECULAR DEVICES 2004


Drug targets can be grouped into several classes based on their
biological characteristics. The targets in a particular class
tend to share similar behaviors, such as their ability to bind
to small drug molecules. Researchers, particularly in
pharmaceutical companies, tend to focus their efforts on those
classes that are most involved in important health conditions
and most readily modified by drugs. Because they fulfill these
key requirements, three target classes known as G-protein
coupled receptors, kinases and ion channels are the subject of
over 60% of all drug discovery research.





G-PROTEIN COUPLED RECEPTORS

More than half of existing drugs act on G-protein coupled
receptors, or GPCRs, and more than 30% of current research
activity is focused on this target class. Residing on the
surfaces of cells, GPCRs are proteins that are involved in
critical biological processes such as cardiovascular and central
nervous system functioning. Diseases of these systems have been
linked to GPCRs, and GPCRs are also known to play a role in a
variety of other conditions such as diabetes and cancer.
Scientists have identified and characterized over 100 GPCRs.
However, genomic data now suggests that the number of distinct
human GPCRs may be as great as 1,000. This information has
resulted in increased research efforts to characterize the
hundreds of unknown GPCRs and understand their disease
associations.

We offer products that enable a full range of GPCR-related
research, from identifying new GPCRs to screening drug
candidates for GPCR activity. In drug discovery, the most widely
accepted GPCR test involves the detection of a calcium release
that occurs in cells when a GPCR is activated. We were the
pioneer in automating this assay and remain the industry leader
in GPCR screening. We provide customers with complete instrument
and reagent solutions including the Fluorometric Imaging Plate
Reader (FLIPR®), the FlexStation® and proprietary
assay kits for performing GPCR analysis.





KINASES

Kinases are enzymes that control many of the pathways through
which cellular signals are conducted. Because signaling is a key
aspect of cell activity, kinases are centrally involved in a
large number of biological processes. Genomic research indicates
that humans have approximately 500 different kinases, and errors
in their function can result in conditions such as cancer,
inflammation and diabetes. Kinases, along with their counterpart
phosphatases, account for over 21% of research activity, and
every pharmaceutical company is currently developing
kinase-inhibiting drugs.

We offer solutions for kinase screening that avoid some of the
major drawbacks of other technologies. Many existing methods for
testing kinases involve multiple steps and require radioactive
labels or the production of antibodies, a time-consuming and
expensive process. Our approach uses a technology called
fluorescence polarization (FP) to perform kinase assays in a
single step and without radioactivity or antibodies. This
technique is enabled by our Analyst® instrument, which is
the industry standard for FP detection, and our proprietary
IMAP® reagent kits.





ION CHANNELS

Ion channels comprise proteins that reside in cell membranes and
control the flow of charged atoms through these membranes.
Disorders of the cardiovascular and central nervous systems, as
well as conditions such as diabetes and asthma, have been linked
to ion channels. Additionally, some severe and even fatal side
effects of drugs result from their unintended interference with
ion channel activity. In recent years, the withdrawal of a
number of high-profile drugs from the market due to their impact
on ion channels has dramatically increased the interest of
pharmaceutical companies in testing for this safety problem
early in the development process.

The influence of chemical compounds on the activity of ion
channels is difficult to test. While some indirect methods are
available, the most valuable information is provided by direct
approaches called patch clamping and voltage
clamping which conventionally are slow and tedious. To
address this problem, we offer a series of electrophysiology
systems, which include
IonWorkstm,
PatchXpress® and OpusXpress®, a family of automated
patch and voltage clamping systems that dramatically increase
ion channel assay throughput.





OUR PRODUCTS

We offer a full range of high-performance bioanalytical systems
including specialized screening solutions for the three major
target classes and a variety of general-purpose research
instruments. We group our product offerings into two categories,
drug discovery and life sciences research, to reflect the
markets they primarily address. In July 2004, we



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 3


completed our acquisition of Axon Instruments, Inc., which
enabled us to broaden both our drug discovery and life sciences
research product offerings. We had revenues of
$148.5 million in 2004, $115.6 million in 2003 and
$102.2 million in 2002. Most of our products use optical
technologies to detect the results of biological tests that
occur in microplates. A microplate is a disposable vessel
comprised of a standardized array of 96, 384 or 1,536 wells
that are similar to small test tubes. This format has been
widely adopted by scientists because it allows many experiments
to be performed in parallel, enhancing the efficiency of
research efforts. In recent years, customers have increasingly
sought the cost and throughput benefits of the higher-density
384 and 1,536 well configurations, a trend that we expect
to continue.





DRUG DISCOVERY PRODUCTS

Our drug discovery systems, which represented 41% of our total
revenues in 2004 and 45% of our total revenues in 2003 and 2002,
are used to screen large numbers of chemical compounds to assess
their effects on disease targets. This category includes our
FLIPR, Analyst, electrophysiology systems and imaging systems
product families.

FLIPR System and Reagent Kits

Since its introduction in 1995, our FLIPR system has become the
industry standard for GPCR screening. FLIPR addresses a key
market need for automating a common GPCR test based on the
phenomenon of calcium flux. The activation of many types of
GPCRs triggers a release of calcium within the cell, an event
that can be detected using a calcium-sensitive fluorescent dye.
Because this assay requires live cells and produces only a brief
signal, it cannot be performed on standard bioanalytical
instruments. FLIPRs optical and fluidic systems are
specialized for this type of assay, automating the process and
enabling multiple experiments to be performed simultaneously in
microplates. Because of its unique configuration, FLIPR is also
able to perform other complex live cell assays, such as
detecting changes in cellular membrane potential. Our FLIPR
instrumentation is complemented by our FLIPR reagent kits, which
use a proprietary technology to reduce the number of steps
involved in GPCR or membrane potential testing.




    FLIPRTETRA.
    This product is the fourth generation FLIPR instrument. It
    combines all of the benefits of preceding versions of FLIPR with
    new capabilities in a completely redesigned, compact platform.
    FLIPRTETRA
    features simultaneous liquid transfer of samples in 96, 384 and
    1,536 well microplates, allowing customers to screen as
    many as 250,000 samples daily with little human intervention. In
    addition, the instrument reads multiple wavelengths, enabling a
    broader set of applications, and incorporates interfaces that
    allow it to integrate into automated screening lines.
    FLIPR Assay Kits. This product family includes the FLIPR Calcium
    Flux Kit, the FLIPR Calcium Plus Kit, the FLIPR Calcium 3 Kit
    and two formulations of the FLIPR Membrane Potential Kit. By
    eliminating a step in the assay protocol, these kits can
    significantly increase throughput, reduce costs and increase
    screening efficiency. The FLIPR Calcium Flux Kit addresses the
    most popular assay performed on the FLIPR system for detecting
    the activation of GPCRs. The FLIPR Calcium Plus Kit and the
    FLIPR Calcium 3 Kit extend the applicability of this assay by
    allowing researchers to test problematic but important targets
    such as chemokines and other small peptides. In addition, these
    kits offer a significant improvement in data quality compared to
    traditional methods. The FLIPR Membrane Potential Kits allow
    researchers to measure changes in the electrical potential
    across live cell membranes, a key indicator of ion channel
    activity.Analyst System and Reagent Kits

Our Analyst family of products provides a novel solution for
kinase screening as well as industry-leading flexibility and
throughput for a wide range of other assays. Instruments in this
family feature several different detection technologies,
allowing customers to choose the one that is optimal for their
particular screen. One of these detection modes, fluorescence
polarization (FP), has become popular in recent years because it
enables assays to be performed with greatly simplified
protocols. We were pioneers in developing the market for FP and
we have successfully applied this technology to the area of
kinase screening. Traditionally, tests of kinase activity have
been performed using multi-step protocols that involve
radioactive labels or highly specific antibodies. Because
radioactivity is hazardous and antibody production is practical
for only a small number of kinases, customers have sought better
assays as the popularity of kinase targets has increased. To
address this, we developed IMAP, a simple, non-radioactive,
antibody-free technology that allows accurate determination of
enzyme activity for a wide variety of kinases and phosphatases.



---



##### Table of Contents

4 / MOLECULAR DEVICES 2004





    Analyst GT. This multi-mode system features seven detection
    options and the ability to read 96, 384 and 1,536 well
    microplates. With the capacity to test over 400,000 wells
    per day, Analyst GT is designed to address the high throughput
    screening needs of the drug discovery market.
    ScreenStationTM.
    This instrument integrates the detection capabilities of the
    Analyst platform with assay assembly, providing a highly
    automated screening system.
    IMAP Assay Kits. A proprietary bead-based platform, IMAP allows
    researchers to determine the activity of kinases, phosphatases
    and phosphodiesterases in a simple, non-radioactive format. We
    currently offer 23 kits that feature the most popular kinases
    for screening. In addition to the kits, the IMAP platform is
    also available to customers through our technology access
    program, which allows researchers to apply this extremely
    flexible technology to a wide variety of protein kinase targets.Electrophysiology Systems

We are an industry leader in ion channel screening, offering a
complete range of first-of-a-kind products that allow automated
testing of this important target class. Traditionally, the most
valuable information on ion channel activity has been obtained
through patch clamping, a time-consuming, low-throughput method
that is best performed by highly skilled scientists. The few
higher-throughput alternatives that were available used indirect
methods to assay ion channels, an approach that yields less
useful data than patch clamping. Our electrophysiology products
are automated systems that obtain the same high-quality
information from cells as conventional patch clamping, but at a
much faster rate and requiring far less operator skill. While
traditional patch clamping may allow researchers to test only
5-15 compounds per day, our electrophysiology systems operate at
speeds ranging from hundreds to thousands of compounds per day.




    IonWorks HT. IonWorks HT is our original high throughput
    electrophysiology system. It is a turnkey system consisting of
    an instrument and a proprietary consumable plate.
    IonWorks Quattro. This system expands on the capabilities of the
    IonWorks HT, offering up to a four-fold increase in throughput
    and a 50% reduction in cost per compound tested. IonWorks
    Quattro is compatible with the IonWorks HT consumable, and also
    features its own consumable plate that enables enhanced
    performance.
    PatchXpress 7000A. This system offers automated patch clamping
    with a high degree of flexibility. It is capable of performing
    tests on the two major types of ion channels, voltage-gated and
    ligand-gated, and generating an entire response curve for each
    cell tested. Like the IonWorks HT, this system operates using
    its own proprietary consumable plate.
    OpusXpress 6000A. OpusXpress 6000A is an automated solution for
    the early-stage process of ion channel target identification,
    and enables efficient pharmacological testing in the later
    stages of drug discovery research.Imaging Systems

We offer a family of imaging systems that enable customers to
conduct microscope studies in an automated, high-throughput
fashion. Following the completion of the human genome map, the
acceleration of efforts to study the activity of proteins within
cells and to characterize the many unknown drug targets has
created a need for better ways to visualize cellular events.
Life sciences researchers generally use microscopes to view
activity inside a cell; however, in a drug screening
environment, greater throughput is required than can be achieved
through traditional microscope studies. Our imaging systems
automate the process of acquiring detailed images of individual
cells and allow researchers to do so in the automation-friendly
format of a microplate.




    ImageXpress® 5000A. ImageXpress 5000A is an integrated
    hardware and software system capable of very rapid image
    acquisition and sophisticated image analysis. The system is
    easily upgradeable to allow environmental control and liquid
    handling, both of which enable live cell imaging applications.
    Discovery-1TM.
    Discovery-1 features the unique flexibility and analytical
    robustness of our industry-leading MetaMorph® software. The
    system includes patented optics that enable the high-throughput
    imaging of 96, 384 and 1,536 well microplates and is
    compatible with a variety of laboratory automation equipment.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 5






LIFE SCIENCES RESEARCH PRODUCTS

Our life sciences research products, which represented 59% of
total revenues in 2004 and 55% of total revenues in 2003 and
2002, encompass our microplate detection, genomics, imaging
software, cellular neurosciences, liquid handling and
Threshold® product lines.

Microplate Detection

Our microplate detection products consist of our
SpectraMax® and FlexStation® families of advanced
microplate readers. 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. Because of the productivity gains offered by their
multi-sample format, microplates have largely replaced test
tubes and cuvettes for many life sciences applications.

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
either before and after, or just 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. One
type of measurement, known as optical density, is proportional
to the concentration of the substance that is being measured.
Other important types of light intensity measurement are
fluorometry and luminometry, both of which provide quantitative
information comparing the different samples in a microplate with
each other.

SpectraMax

Our SpectraMax strategy has been to continue to introduce new
products that include first-of-a-kind features, as well as to
offer varying feature sets and price points to address different
market segments. We have historically focused on the premium end
of the microplate reader market through offering products with
advanced capabilities. Some of the first-of-a-kind features that
we have 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, we believe that the innovation helped expand the
utility of microplate readers and, more broadly, the available
market for microplate readers. Our SpectraMax family currently
includes the following products:




    EMax®. This product is aimed at the market for traditional
    microplate readers that do not require kinetic capability. We
    introduced it to provide a reader for customers in academia and
    other customers with restricted capital budgets.
    VMax®. This was the first microplate reader to offer
    kinetic read capability and is designed to address the needs of
    biochemists.
    VersaMaxTM.
    The VersaMax is our low cost variable wavelength offering that
    provides kinetic capability and temperature control.
    SpectraMax
    340PC384.
    This product is a visible range microplate spectrophotometer,
    offering tunability and the additional capability of our
    patented PathCheck® Sensor technology, which corrects
    common variability problems across wells of microplates.
    SpectraMax 190. The predecessor to this product 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 SpectraMax 190 also includes our
    patented PathCheck Sensor technology.
    SpectraMax
    Plus384.
    The SpectraMax
    Plus384
    combines the high-throughput of a microplate reader with the
    performance of a cuvette-based spectrophotometer as a result of
    our patented PathCheck Sensor technology. It is capable of
    reading wavelengths as short as 190 nanometers and as long
    as 1,000 nanometers, the equivalent range to a
    spectrophotometer, and is compatible with both 96-well and
    384-well microplates.
    Gemini XPS. Gemini was the worlds first dual-scanning
    microplate spectrofluorometer, a configuration that allows the
    user to automatically optimize the instrument for particular
    assays. The Gemini XPS, introduced in 2004, is the



---



##### Table of Contents

6 / MOLECULAR DEVICES 2004


most sensitive version of Gemini
    yet and is capable of fluorescence, luminescence and
    time-resolved fluorescence measurements.
    Gemini EM. The Gemini EM features
    the ability to read microplates from either the top or the
    bottom, a capability that enables it to perform complex
    cell-based assays.
    LMaxTM II
    and
    LMax II384.
    LMax was our first reader to offer customers sensitive
    luminescence detection in a bench-top instrument. The second
    generation of LMax adds improved sensitivity and the capability
    to integrate with laboratory robots.
    SpectraMax M2. This instrument
    incorporates the dual-scanning monochromator technology of the
    Gemini family into a multimode reader with both absorbance and
    fluorescence detection. SpectraMax M2 can read 96 and
    384 well microplates using any of four different scanning
    techniques. This combination of features makes the SpectraMax M2
    a highly versatile instrument capable of a wide range of
    applications.
    SpectraMax M5. Introduced in 2004,
    this instrument expands our multimode reader family by offering
    the performance features of the SpectraMax M2 with the
    flexibility of five different detection modes. Our most
    versatile benchtop reader, the SpectraMax M5 is capable of
    absorbance, fluorescence intensity, fluorescence polarization,
    time-resolved fluorescence and luminescence measurements.FlexStation

Our FlexStation system is a benchtop workstation that integrates
liquid handling and detection and has applications in drug
discovery as well as life sciences research. This product offers
flexibility to address a wide range of research applications by
combining both multi-channel, plate-to-plate fluid transfer and
fluorescence measurement in one system. For drug discovery
applications, FlexStation provides a convenient means of
developing assays for later transfer to higher-throughput
screening. For basic and applied research in life sciences, the
flexibility of this system enables scientists to develop,
optimize and run their assays on one system with the same small
footprint as a standard benchtop microplate reader. In 2003, we
introduced a new generation of FlexStation comprising two
instruments, FlexStation II and
FlexStation II384.

We offer five proprietary reagent kits that are based on our
successful FLIPR assay technology and are optimized to perform
on the FlexStation system. These products are our FlexStation
Calcium Flux Assay Kit, FlexStation Calcium Plus Assay Kit,
FlexStation Calcium 3 Assay Kit and two formulations of the
FlexStation Membrane Potential Assay Kit.

Microarray Systems

Because of the central role that genes play in human health and
disease, the study of genes, or genomics, is a fundamental area
of life sciences research. By studying the varying levels of
gene expression among members of a population or between healthy
and diseased tissues, researchers can learn the functions of
tens of thousands of genes that constitute the genomes of humans
and other complex organisms. Microarrays, which allow the
high-throughput identification of large numbers of genes, have
been an enabling technology in this field. Our GenePix®
family, a complete line of instruments and software for
analyzing microarrays, includes the following products:




    GenePix 4000B. The GenePix 4000B is the fastest and most compact
    microarray scanner on the market today. Unlike most commercially
    available scanners, this instrument acquires data simultaneously
    at two wavelengths, resulting in superior speed and a low error
    rate. Like all of our microarray scanners, the GenePix 4000B
    comes with our popular and user-friendly GenePix Pro software
    for data acquisition and analysis.
    GenePix Professional 4200A. This instrument offers the
    performance of the GenePix 4000B with additional features such
    as four-color scanning and enhanced flexibility. An optional
    accessory, the Autoloader 4200AL, automates the process of
    introducing microarrays to the instrument, an important feature
    for high-volume laboratory environments.
    GenePix Personal 4100A. This instrument offers the superior
    performance of the GenePix family in a lower-cost, more compact
    version that addresses the needs of the individual researcher.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 7





    Acuity® 4.0. This software package provides applications
    for advanced users, including data warehousing, sophisticated
    data analysis and visualization applications. It is compatible
    with the GenePix family of scanners as well as other
    commercially available microarray platforms.Imaging Software

We offer software that works in tandem with microscope and
camera systems to enable researchers to acquire images of cells
and quantify and analyze the images in a variety of ways. This
product family consists of the following software packages:




    MetaMorph®. MetaMorph software is a state-of-the-art
    software package for capturing and analyzing cellular images.
    MetaMorphs functions include control of a wide variety of
    imaging devices as well as a large menu of tools for image
    processing and analysis.
    MetaFluor®. MetaFluor software allows researchers to image
    and analyze ratiometric indicators of intracellular events.
    MetaVueTM.
    A lower-cost version of MetaMorph, MetaVue is an entry-level
    product tailored to common imaging applications.We sell our imaging software either as a stand-alone product or
as part of an integrated system including a camera, software and
peripherals. We are an authorized reseller of cameras and
peripheral equipment for several major manufacturers, including
Nikon and Roper. Additionally, we have authorized several
value-added resellers, who integrate multiple components to
create complete imaging systems, to distribute our imaging
software.

Cellular Neurosciences

We are a leading supplier of signal amplification instruments
and related software for cellular neurosciences research,
offering a range of products for voltage recording, current and
voltage clamping and patch clamping. Our microelectrode
amplifiers are more sensitive than any competing product,
enabling scientists to perform experiments that would otherwise
be impossible. In addition, we offer software packages for the
acquisition and analysis of electrophysiological data and
various accessories for the electrophysiology workstation.

Liquid Handling

We offer a line of liquid handling systems that includes a
variety of cell and plate washers with 96, 384 and
1,536 well dispensing and washing capabilities. Washers are
used to dispense and remove fluid from microplates and are used
as an integral step during the course of many assays. Our liquid
handling systems bring a complete line of state-of-the-art
microplate washers and other related tools, including cell
harvesters, to the life sciences research product family.

Threshold System

As a result of the growing number of biopharmaceutical
therapeutics both entering clinical trials and receiving
regulatory approval for commercial sale, there is demand for
systems that can quantitate contaminants in the manufacturing
and quality control of bioengineered products. Our Threshold
system, which comprises a detection instrument and reagents,
incorporates a proprietary technology to quantitate a variety of
biomolecules such as DNA, proteins and mRNA rapidly and
accurately. 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. The Threshold family
of products includes a workstation, software and consumable
reagent kits.





OTHER SOFTWARE AND CUSTOMER SERVICE

All of our instrument products incorporate internally designed
and developed software that is sold as an integral part of the
instrument system. We believe that our software is an important
differentiator for our instrument products relative to the
competition based on its ease-of-use and advanced data analysis
and validation capabilities.

Our service and support offerings include field service,
customer support, applications assistance and training through
an organization of factory-trained and educated service and
application support personnel around the world. We offer
services to our installed base of customers on both a contract
and time and materials basis and we offer a variety of post-



---



##### Table of Contents

8 / MOLECULAR DEVICES 2004


warranty contract options for all our instrument offerings that
customers may purchase. Our installed base provides us with
stable, recurring after-market service and support revenue, as
well as product upgrade and replacement opportunities.





RESEARCH AND DEVELOPMENT

Our research and development team included 139 full time
employees as of December 31, 2004. We have typically
invested 15% to 18% of our revenues in research and development,
which has resulted in a strong track record of technological
innovation. In 2004, 69% of our revenues were derived from
products that we introduced in the last three years. Our
research and development expenditures, excluding in-process
research and development charges in 2004, were approximately
$22.0 million in 2004, $18.7 million in 2003 and
$18.0 million in 2002.

Our research and development activities are focused on:




    broadening our technology solution, including development of new
    proprietary reagent kits and additional solutions for automated
    cell electrophysiology measurements;
    providing more sensitive quantitative evaluation of biological
    events;
    providing greater throughput capability, especially with smaller
    sample volumes; and
    developing increasingly sophisticated data management and
    analysis capability.



MARKETING AND CUSTOMERS

Our sales and marketing organization included 207 full time
employees in North America, Europe, Asia and Australia as of
December 31, 2004. We distribute our products primarily
through direct sales representatives in North America. We have
subsidiaries in the United Kingdom, Germany, Japan and South
Korea responsible for selling and servicing our products. Our
direct sales effort is supported by a team of service, technical
and applications specialists employed by us. We also sell our
products through international distributors, most of which enter
into distribution agreements with us 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 our products.

Our customers include leading pharmaceutical and biotechnology
companies as well as medical centers, universities, government
research laboratories and other institutions throughout the
world.

Sales to customers outside the United States accounted for 42%
of total revenues in 2004, and 39% in 2003 and 2002, and total
sales denominated in foreign currencies accounted for 31%, 32%
and 31% of total revenues in 2004, 2003 and 2002, respectively.
We anticipate that international sales will account for an
increasing percentage of revenues in the future. We expect to
continue expanding our international operations in order to take
advantage of increasing international market opportunities
resulting from worldwide growth in the life sciences industry.





MANUFACTURING

We manufacture our products at our facilities in Sunnyvale and
Union City, both in California, and in Norway. Our Sunnyvale and
Norway facilities are both ISO 9000:2000 certified. We assemble
the Discovery-1 system at our facility in Downingtown,
Pennsylvania, which is also ISO 9000:2000 certified. We
manufacture our own components where we believe it adds
significant value, but we rely on suppliers for the manufacture
of selected components and subassemblies, which are manufactured
to our specifications. We conduct all final testing and
inspection of our products. We have established a quality
control program, including a set of standard manufacturing and
documentation procedures intended to ensure that, where
required, our products are manufactured to comply with good
manufacturing practices.





PATENTS AND PROPRIETARY TECHNOLOGIES

We protect our proprietary rights from unauthorized use by third
parties to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as
trade secrets. Patents and other proprietary rights are an
essential element of our business. Our policy is to file patent
applications and to protect technology, inventions and
improvements to inventions that are commercially important to
the development of our business. As of



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 9


December 31, 2004, we were maintaining 106
U.S. patents and other corresponding foreign patents based
on our discoveries that have been issued or allowed. These
patents expire at various dates between 2004 and 2025. In
addition, as of December 31, 2004, we had 58 patent
applications pending in the United States and had filed several
corresponding foreign patent applications.

We are a party to various license agreements that give us rights
to use certain technologies. We pay royalties to the parties
from which we licensed or acquired the core technologies.

We also rely on trade secret, employee and third-party
nondisclosure agreements and other protective measures to
protect our intellectual property rights pertaining to our
products and technology.





COMPETITION

The market for bioanalytical instrumentation is highly
competitive, and we expect competition to increase. We compete
for the allocation of customer capital funds with many other
companies marketing capital equipment, including those not
directly competitive with any of our products. Some of our
products also compete directly with similar products from other
companies.

The drug discovery market is characterized by intense
competition among a number of companies, including Amersham
Biosciences (a subsidiary of GE Healthcare), Applied Biosystems,
PerkinElmer and Tecan, that offer, or may in the future offer,
products with performance capabilities generally similar to
those offered by our products. We believe that the primary
competitive factors in the market for our products are
throughput, quantitative accuracy, breadth of applications,
ease-of-use, productivity enhancement, quality, support and
price/performance. We believe that we compete favorably with
respect to these factors.

The life sciences research market is also very competitive and
includes a number of companies, such as Agilent, Bio-Tek
Instruments, PerkinElmer, Tecan and Thermo Electron, that offer,
or may in the future offer, products with performance
capabilities generally similar to those offered by our products.
We expect that competition is likely to increase in the future,
as several current and potential competitors have the
technological and financial ability to enter the markets we
serve. Many of our life sciences products are priced at a
premium; in these markets, we compete primarily on the basis of
performance and productivity. Many companies, research
institutions and government organizations that might otherwise
be customers for our products employ methods for bioanalytical
analysis that are internally developed.

Many of our competitors have significantly greater financial,
technical, marketing, sales and other resources than we do. In
addition to competing with us with respect to product sales,
these companies and institutions compete with us in recruiting
and retaining highly qualified scientific and management
personnel.





GOVERNMENT REGULATION

In the United States, the development, manufacturing,
distribution, labeling and advertising of products intended for
use in the diagnosis of disease or other conditions is
extensively regulated by the U.S. Food and Drug
Administration, known as the FDA. These products generally
require FDA clearance before they may be marketed, and also are
subject to postmarket manufacturing, reporting and labeling
requirements. With the exception of certain of our SpectraMax
microplate readers, none of our products is intended for use in
the diagnosis of disease or other conditions, and, therefore,
they are not currently subject to FDA regulation. The SpectraMax
readers intended for diagnostic uses are the subject of an FDA
marketing clearance. If we were to offer any of our other
products for diagnostic uses, those products would become
subject to FDA regulation.





EMPLOYEES

As of December 31, 2004, we employed 542 persons full time,
including 139 in research and development, 145 in manufacturing,
207 in marketing and sales and 51 in general administration and
finance. Of these employees, 150 hold Ph.D. or other advanced
degrees. None of our employees is covered by collective
bargaining agreements, and we consider relations with our
employees to be good.



---



##### Table of Contents

10 / MOLECULAR DEVICES 2004






BUSINESS RISKS

Our business faces significant risks and the risks described
below may not be the only risks we face. Additional risks that
we do not know of or that we currently think are immaterial may
also impair our business operations. If any of the events or
circumstances described in the following risks actually occurs,
our business, financial condition or results of operations could
be harmed and the trading price of our common stock could
decline.

VARIATIONS IN THE AMOUNT OF TIME IT TAKES FOR US TO SELL OUR
PRODUCTS AND COLLECT ACCOUNTS RECEIVABLE AND THE TIMING OF
CUSTOMER ORDERS MAY CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

The timing of capital equipment purchases by customers has been
and is expected to continue to be uneven and difficult to
predict. Our products represent major capital purchases for our
customers. The list prices for our instruments range from $5,000
to $419,500. Accordingly, our customers generally take a
relatively long time to evaluate our products, and a significant
portion of our revenues is typically derived from sales of a
small number of relatively high-priced products. Purchases are
generally made by purchase orders and not long-term contracts.
Delays in receipt of anticipated orders for our relatively
high-priced products could lead to substantial variability from
quarter to quarter. Furthermore, we have 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 affect on results of operations for that
quarter.

We expend significant resources educating and providing
information to our prospective customers regarding the uses and
benefits of our products. Because of the number of factors
influencing the sales process, the period between our initial
contact with a customer and the time when we recognize revenues
from that customer, if ever, varies widely. Our sales cycles
typically range from three to six months, but can be much
longer. During these cycles, we commit substantial resources to
our sales efforts in advance of receiving any revenues, and we
may never receive any revenues from a customer despite our sales
efforts.

The relatively high purchase price for a customer order
contributes to collection delays that result in working capital
volatility. While the terms of our sales orders generally
require payment within 30 days of product shipment and do
not provide return rights, in the past we have experienced
significant collection delays. We cannot predict whether we will
continue to experience similar or more severe delays.

The capital spending policies of our customers have a
significant effect on the demand for our products. Those
policies are based on a wide variety of factors, including
resources available to make purchases, spending priorities and
policies regarding capital expenditures during industry
downturns or recessionary periods. Any decrease in capital
spending by our customers resulting from any of these factors
could harm our business.

WE DEPEND ON ORDERS THAT ARE RECEIVED AND SHIPPED IN THE SAME
QUARTER AND THEREFORE HAVE LIMITED VISIBILITY OF FUTURE PRODUCT
SHIPMENTS.

Our net sales in any given quarter depend upon a combination of
orders received in that quarter for shipment in that quarter and
shipments from backlog. Our products are typically shipped
within ninety days of purchase order receipt. As a result, we do
not believe that the amount of backlog at any particular date is
indicative of our future level of sales. Our backlog at the
beginning of each quarter does not include all product sales
needed to achieve expected revenues for that quarter.
Consequently, we are dependent on obtaining orders for products
to be shipped in the same quarter that the order is received.
Moreover, customers may reschedule shipments, and production
difficulties could delay shipments. Accordingly, we have limited
visibility of future product shipments, and our results of
operations are subject to significant variability from quarter
to quarter.

MANY OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY
GREATER RESOURCES THAN WE DO, AND INCREASED COMPETITION COULD
IMPAIR SALES OF OUR PRODUCTS.

We operate in a highly competitive industry and face competition
from companies that design, manufacture and market instruments
for use in the life sciences research industry, from genomic,
pharmaceutical, biotechnology and diagnostic companies and from
academic and research institutions and government or other
publicly-funded agencies, both in the



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 11


United States and abroad. We may not be able to compete
effectively with all of these competitors. Many of these
companies and institutions have greater financial, engineering,
manufacturing, marketing and customer support resources than we
do. As a result, our competitors may be able to respond more
quickly to new or emerging technologies or market developments
by devoting greater resources to the development, promotion and
sale of products, which could impair sales of our products.
Moreover, there has been significant merger and acquisition
activity among our competitors and potential competitors. These
transactions by our competitors and potential competitors may
provide them with a competitive advantage over us by enabling
them to rapidly expand their product offerings and service
capabilities to meet a broader range of customer needs. Many of
our customers and potential customers are large companies that
require global support and service, which may be easier for our
larger competitors to provide.

We believe that competition within the markets we serve is
primarily driven by the need for innovative products that
address the needs of customers. We attempt to counter
competition by seeking to develop new products and provide
quality products and services that meet customers needs.
We cannot assure you, however, that we will be able to
successfully develop new products or that our existing or new
products and services will adequately meet our customers
needs.

Rapidly changing technology, evolving industry standards,
changes in customer needs, emerging competition and frequent new
product and service introductions characterize the markets for
our products. To remain competitive, we will be required to
develop new products and periodically enhance our existing
products in a timely manner. We are facing increased competition
as new companies entering the market with new technologies
compete, or will compete, with our products and future products.
We cannot assure you that one or more of our competitors will
not succeed in developing or marketing technologies or products
that are more effective or commercially attractive than our
products or future products, or that would render our
technologies and products obsolete or uneconomical. Our future
success will depend in large part on our ability to maintain a
competitive position with respect to our current and future
technologies, which we may not be able to do. In addition,
delays in the launch of our new products may result in loss of
market share due to our customers purchases of
competitors products during any delay.

IF WE ARE NOT SUCCESSFUL IN DEVELOPING NEW AND ENHANCED
PRODUCTS, WE MAY LOSE MARKET SHARE TO OUR COMPETITORS.

The life sciences instrumentation market is characterized by
rapid technological change and frequent new product
introductions. In the year ended December 31, 2004, 69% of
our revenues were derived from the sale of products that were
introduced in the last three years, and our future success will
depend on our ability to enhance our current products and to
develop and introduce, on a timely basis, new products that
address the evolving needs of our customers. We may experience
difficulties or delays in our development efforts with respect
to new products, and we may not ultimately be successful in
developing or commercializing them, which would harm our
business. Any significant delay in releasing new systems could
cause our revenues to suffer, adversely affect our reputation,
give a competitor a first-to-market advantage or cause a
competitor to achieve greater market share. In addition, our
future success depends on our continued ability to develop new
applications for our existing products. If we are not able to
complete the development of these applications, or if we
experience difficulties or delays, we may lose our current
customers and may not be able to attract new customers, which
could seriously harm our business and our future growth
prospects.

WE MUST EXPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO
DEVELOP NEW PRODUCTS, AND IF THESE PRODUCTS DO NOT ACHIEVE
COMMERCIAL ACCEPTANCE, OUR OPERATING RESULTS MAY SUFFER.

We expect to spend a significant amount of time and resources to
develop new products and refine existing products. In light of
the long product development cycles inherent in our industry,
these expenditures will be made well in advance of the prospect
of deriving revenues from the sale of new products. Our ability
to commercially introduce and successfully market new products
is subject to a wide variety of challenges during this
development cycle that could delay introduction of these
products. In addition, since our customers are not obligated by
long-term contracts to purchase our products, our anticipated
product orders may not materialize, or orders that do
materialize may be canceled. As a result, if we do not achieve
market acceptance of new products, our operating results will
suffer. Our products are also generally priced higher than
competitive products, which may impair commercial acceptance. We
cannot predict whether new products that we expect to introduce
will achieve commercial acceptance.



---



##### Table of Contents

12 / MOLECULAR DEVICES 2004


WE OBTAIN SOME OF THE COMPONENTS AND SUBASSEMBLIES INCLUDED IN
OUR SYSTEMS FROM A SINGLE SOURCE OR A LIMITED GROUP OF
SUPPLIERS, AND THE PARTIAL OR COMPLETE LOSS OF ONE OF THESE
SUPPLIERS COULD CAUSE PRODUCTION DELAYS AND A SUBSTANTIAL LOSS
OF REVENUES.

We rely on outside vendors to manufacture many components and
subassemblies. Certain components, subassemblies and services
necessary for the manufacture of our systems are obtained from a
sole supplier or limited group of suppliers, some of which are
our competitors. Additional components, such as optical,
electronic and pneumatic devices, are currently purchased in
configurations specific to our requirements and, together with
certain other components, such as computers, are integrated into
our products. We maintain only a limited number of long-term
supply agreements with our suppliers.

Our reliance on a sole or a limited group of suppliers involves
several risks, including the following:




    our suppliers may cease or interrupt production of required
    components or otherwise fail to supply us with an adequate
    supply of required components for a number of reasons, including
    due to contractual disputes with our suppliers or due to adverse
    financial developments at or affecting the supplier;
    we have reduced control over the pricing of components and
    subassemblies, and our suppliers may be unable or unwilling to
    supply us with required components and subassemblies on
    commercially acceptable terms, or at all;
    we have reduced control over the timely delivery of components
    and subassemblies; and
    our suppliers may be unable to develop technologically advanced
    products to support our growth and development of new systems.Because the manufacturing of certain of these components and
subassemblies involves extremely complex processes and requires
long lead times, we may experience delays or shortages caused by
suppliers. We believe that alternative sources could be obtained
and qualified, if necessary, for most sole and limited source
parts. However, if we were forced to seek alternative sources of
supply or to manufacture such components or subassemblies
internally, we may be forced to redesign our systems, which
could prevent us from shipping our systems to customers on a
timely basis. Some of our suppliers have relatively limited
financial and other resources. Any inability to obtain adequate
deliveries, or any other circumstance that would restrict our
ability to ship our products, could damage relationships with
current and prospective customers and could harm our business.

WE MAY ENCOUNTER MANUFACTURING AND ASSEMBLY PROBLEMS OR DELAYS,
WHICH COULD RESULT IN LOST REVENUES.

We manufacture our products at our facilities in Sunnyvale and
Union City, both in California, and in Norway. We assemble the
Discovery-1 system at our facility in Downingtown, Pennsylvania.
Our manufacturing and assembly processes are highly complex and
require sophisticated, costly equipment and specially designed
facilities. As a result, any prolonged disruption in the
operations of our manufacturing facilities could seriously harm
our ability to satisfy our customer order deadlines. If we
cannot deliver our systems in a timely manner, our revenues will
likely suffer.

Our product sales depend in part upon manufacturing yields. We
currently have limited manufacturing capacity and experience
variability in manufacturing yields. We are currently
manufacturing high-throughput instruments in-house, in limited
volumes and with largely manual assembly. If demand for our
high-throughput instruments increases, we will either need to
expand our in-house manufacturing capabilities or outsource to
other manufacturers. If we fail to deliver our products in a
timely manner, our relationships with our customers could be
seriously harmed, and our revenues could decline.

As we develop new products, we must transition the manufacture
of a new product from the development stage to commercial
manufacturing. We cannot predict whether we will be able to
complete these transitions on a timely basis and with
commercially reasonable costs. We cannot assure you that
manufacturing or quality control problems will not arise as we
attempt to scale-up our production for any future new products
or that we can scale-up manufacturing and quality control in a
timely manner or at commercially reasonable costs. If we are
unable to consistently manufacture our products on a timely
basis because of these or other factors, our product sales will
decline.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 13


IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE
HARMED AND THE SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL
DECREASE.

Our products are complex and have at times contained errors,
defects and bugs when introduced. If we deliver products with
errors, defects or bugs, our credibility and the market
acceptance and sales of our products would be harmed. Further,
if our products contain errors, defects or bugs, we may be
required to expend significant capital and resources to
alleviate such problems. Defects could also lead to product
liability as a result of product liability lawsuits against us
or against our customers. We have agreed to indemnify our
customers in some circumstances against liability arising from
defects in our products. In the event of a successful product
liability claim, we could be obligated to pay damages
significantly in excess of our product liability insurance
limits.

WE HAVE SIGNIFICANTLY EXPANDED OUR INTERNATIONAL OPERATIONS,
WHICH EXPOSES US TO RISKS INHERENT IN INTERNATIONAL BUSINESS
ACTIVITIES.

We maintain facilities in the United Kingdom, Germany, Norway,
Japan and South Korea, and in July 2004, through our acquisition
of Axon Instruments, we began operations in Australia. In
addition to the increase in our international operations, we are
also deriving an increasing portion of our revenues from
customers located outside of the United States. Sales to
customers outside of the United States accounted for
approximately 42% our revenues in 2004, and we anticipate that
international sales will continue to account for a significant
portion of our revenues. A key aspect of our business strategy
has been and is to expand our sales and support organizations
internationally in order to take advantage of increasing
international market opportunities resulting from worldwide
growth in the life sciences industry.

Our reliance on international sales and operations exposes us to
a number of risks associated with conducting operations
internationally, including:




    political, social and economic instability;
    trade restrictions and changes in tariffs;
    the impact of business cycles and downturns in economies outside
    of the United States;
    unexpected changes in regulatory requirements that may limit our
    ability to export our products or sell into particular
    jurisdictions;
    import and export license requirements and restrictions;
    difficulties and costs of staffing, managing and monitoring
    geographically disparate operations;
    difficulties in maintaining effective communications with
    employees and customers due to distance, language and cultural
    barriers;
    disruptions in international transport or delivery;
    difficulties in protecting our intellectual property rights,
    particularly in countries where the laws and practices do not
    protect proprietary rights to as great an extent as do the laws
    and practices of the United States;
    difficulties in enforcing agreements through non-U.S. legal
    systems;
    longer payment cycles and difficulties in collecting
    receivables; and
    potentially adverse tax consequences.If any of these risks materialize, our international sales could
decrease and our foreign operations could suffer.

In addition, all of our sales to international distributors are
denominated in U.S. dollars. Most of our direct sales in
the United Kingdom, Germany, France, the Benelux, Canada, Japan
and South Korea are denominated in local currencies and totaled
$46.6 million (31% of total revenues) in 2004. To the
extent that our sales and operating expenses are denominated in
foreign currencies, our operating results may be adversely
affected by changes in exchange rates. Historically, foreign
exchange gains and losses have been immaterial to our results of
operations. However, we cannot predict whether these gains and
losses will continue to be immaterial, particularly as we
increase our direct sales outside



---



##### Table of Contents

14 / MOLECULAR DEVICES 2004


North America. For example, we cannot predict whether other
foreign exchange gains or losses in the future would have a
material effect on our income. Owing to the number of currencies
involved, the substantial volatility of currency exchange rates,
and our constantly changing currency exposures, we cannot
predict the effect of exchange rate fluctuations on our future
operating results. We do not currently engage in foreign
currency hedging transactions, but may do so in the future.

MOST OF OUR CURRENT AND POTENTIAL CUSTOMERS ARE FROM THE
PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES AND ARE SUBJECT TO
RISKS FACED BY THOSE INDUSTRIES.

We derive a significant portion of our revenues from sales to
pharmaceutical and biotechnology companies. We expect that sales
to pharmaceutical and biotechnology companies will continue to
be a primary source of revenues for the foreseeable future. As a
result, we are subject to risks and uncertainties that affect
the pharmaceutical and biotechnology industries, such as
availability of capital and reduction and delays in research and
development expenditures by companies in these industries,
pricing pressures as third-party payers continue challenging the
pricing of medical products and services, government regulation,
and the uncertainty resulting from technological change.

In addition, our future revenues may be adversely affected by
the ongoing consolidation in the pharmaceutical and
biotechnology industries, which would reduce the number of our
potential customers. Furthermore, we cannot assure you that the
pharmaceutical and biotechnology companies that are our
customers will not develop their own competing products or
in-house capabilities.

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS
OF OTHERS, WHICH MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION
AND, IF WE ARE NOT SUCCESSFUL, COULD ALSO CAUSE US TO PAY
SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR PRODUCTS.

Third parties may assert infringement or other intellectual
property claims against us. We may have to pay substantial
damages for infringement if it is ultimately determined that our
products infringe a third partys proprietary rights.
Further, any legal action against us could, in addition to
subjecting us to potential liability for damages, prohibit us
from selling our products before we obtain a license to do so
from the party owning the intellectual property, which, if
available at all, may require us to pay substantial royalties.
Even if these claims are without merit, defending a lawsuit
takes significant time, may be expensive and may divert
management attention from other business concerns. There may be
third-party patents that may relate to our technology or
potential products. Any public announcements related to
litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline. We believe
that there may be significant litigation in the industry
regarding patent and other intellectual property rights. If we
become involved in litigation, it could consume a substantial
portion of our managerial and financial resources.

WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR
PATENTS, WHICH WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US
TO LOSE SOME OF OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD
REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

We rely on patents to protect a large part of our intellectual
property and our competitive position. In order to protect or
enforce our patent rights, we may initiate patent litigation
against third parties, such as infringement suits or
interference proceedings. Litigation may be necessary to:




    assert claims of infringement;
    enforce our patents;
    protect our trade secrets or know-how; or
    determine the enforceability, scope and validity of the
    proprietary rights of others.Lawsuits could be expensive, take significant time and divert
managements attention from other business concerns. They
would put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not
issuing. We may also provoke third parties to assert claims
against us. Patent law relating to the scope of claims in the
technology fields in which we operate is still evolving and,
consequently, patent positions in our industry are generally
uncertain. If initiated, we cannot assure you that we would
prevail in any of these suits or that the damages or other



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 15


remedies awarded, if any, would be commercially valuable. During
the course of these suits, there could be public announcements
of the results of hearings, motions and other interim
proceedings or developments in the litigation. If securities
analysts or investors were to perceive any of these results to
be negative, our stock price could decline.

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY
UNDERLYING OUR PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE
THIRD PARTIES TO USE OUR TECHNOLOGY AND WOULD REDUCE OUR ABILITY
TO COMPETE IN THE MARKET.

Our success will depend in part on our ability to obtain
commercially valuable patent claims and to protect our
intellectual property. Our patent position is generally
uncertain and involves complex legal and factual questions.
Legal standards relating to the validity and scope of claims in
our technology field are still evolving. Therefore, the degree
of future protection for our proprietary rights is uncertain.

The risks and uncertainties that we face with respect to our
patents and other proprietary rights include the following:




    the pending patent applications we have filed or to which we
    have exclusive rights may not result in issued patents or may
    take longer than we expect to result in issued patents;
    the claims of any patents which are issued may not provide
    meaningful protection;
    we may not be able to develop additional proprietary
    technologies that are patentable;
    the patents licensed or issued to us or our customers may not
    provide a competitive advantage;
    other companies may challenge patents licensed or issued to us
    or our customers;
    patents issued to other companies may harm our ability to do
    business;
    other companies may independently develop similar or alternative
    technologies or duplicate our technologies; and
    other companies may design around technologies we have licensed
    or developed.In addition to patents, we rely on a combination of trade
secrets, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual
property rights. Nevertheless, these measures may not be
adequate to safeguard the proprietary technology underlying our
products. If these measures do not protect our rights, third
parties could use our technology, and our ability to compete in
the market would be reduced. In addition, employees, consultants
and others who participate in the development of our products
may breach their agreements with us regarding our intellectual
property, and we may not have adequate remedies for the breach.
We also may not be able to effectively protect our intellectual
property rights in some foreign countries. For a variety of
reasons, we may decide not to file for patent, copyright or
trademark protection or prosecute potential infringements of our
patents. We also realize that our trade secrets may become known
through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual
property, our competitors may design around our proprietary
technologies or may independently develop similar or alternative
technologies or products that are equal or superior to our
technology and products without infringing on any of our
intellectual property rights.

WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.

We expect to experience significant growth in the number of our
employees and customers and the scope of our operations,
including as a result of potential acquisitions. This growth may
continue to place a significant strain on our management and
operations. Our ability to manage this growth will depend upon
our ability to broaden our management team and our ability to
attract, hire and retain skilled employees. Our success will
also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other
systems, to manage multiple, concurrent customer relationships
and to hire, train and manage our employees. Our future success
is heavily dependent upon growth and acceptance of new products.
If we cannot scale our business appropriately or otherwise adapt
to anticipated growth and new product introductions, a key part
of our strategy may not be successful.



---



##### Table of Contents

16 / MOLECULAR DEVICES 2004


WE RELY UPON DISTRIBUTORS FOR PRODUCT SALES AND SUPPORT OUTSIDE
NORTH AMERICA.

In 2004, approximately 13% of our sales were made through
distributors. We often rely upon distributors to provide
customer support to the ultimate end users of our products. As a
result, our success depends on the continued sales and customer
support efforts of our network of distributors. The use of
distributors involves certain risks, including risks that
distributors will not effectively sell or support our products,
that they will be unable to satisfy financial obligations to us
and that they will cease operations. Any reduction, delay or
loss of orders from our significant distributors could harm our
revenues. We also do not currently have distributors under
contract in a number of significant international markets that
we have targeted and will need to establish additional
international distribution relationships. There can be no
assurance that we will engage qualified distributors in a timely
manner, and the failure to do so could have a material adverse
affect on our business, financial condition and results of
operations.

IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES,
PRODUCTS OR TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES,
WE MAY BE UNABLE TO COMPLETE THESE ACQUISITIONS OR MAY NOT BE
ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED BUSINESS OR
TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.

Our success depends on our ability to continually enhance and
broaden our product offerings in response to changing
technologies, customer demands and competitive pressures. To
this end, from time to time we have acquired complementary
businesses, products or technologies instead of developing them
ourselves, and we may choose to do so in the future. For
example, we recently acquired Axon Instruments, Inc. and we
acquired Universal Imaging Corporation in June 2002. We do not
know if we will be able to complete any additional acquisitions,
or whether we will be able to successfully integrate any
acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we
acquire, both in connection with the acquisition of Axon and
other potential future acquisitions, involves considerable
operational and financial risks and strains, including:




    the potential disruption of our ongoing business and distraction
    of our management;
    the potential strain on our financial and managerial controls
    and reporting systems and procedures;
    unanticipated expenses and potential delays related to
    integration of the operations, technology and other resources of
    acquired businesses;
    the impairment of relationships with employees, suppliers and
    customers as a result of any integration of new management
    personnel;
    greater than anticipated costs and expenses related to
    restructuring, including employee severance or relocation costs
    and costs related to vacating leased facilities; and
    potential unknown liabilities associated with any acquisition,
    including higher than expected integration costs, which may
    cause our quarterly and annual operating results to fluctuate.We may not succeed in addressing these risks or any other
problems encountered in connection with the acquisition of Axon
or other potential future acquisitions. If we are unable to
successfully integrate the operations, products, technology and
personnel of acquired businesses in a timely manner or at all,
or if we do achieve the perceived benefits of any acquisition as
rapidly or to the extent anticipated by financial analysts or
investors, the market price of our common stock could decline.

In addition, in order to finance any acquisitions, we might need
to raise additional funds through public or private equity or
debt financings. In that event, we could be forced to obtain
financing on terms that are not favorable to us and, in the case
of equity financing, that may result in dilution to our
stockholders. In connection with the acquisition of Axon, we
borrowed $30 million on our revolving credit facility in
order to pay the cash portion of the merger consideration to be
paid to Axon shareholders and optionholders. The revolving
credit facility has no outstanding balance at December 31,
2004. While management believes that our cash flows will be more
than adequate to service new debt, there may be circumstances in
which required payments of principal and/or interest on new debt
could adversely affect our cash flows and operating results, and
therefore the market price of our common stock. In addition, any
impairment of goodwill and



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 17


amortization of other intangible assets or charges resulting
from the costs of acquisitions could harm our business and
operating results.

DUE TO THE AXON ACQUISITION, MOLECULAR DEVICES IS A
SUBSTANTIALLY LARGER AND MORE COMPLEX ORGANIZATION, AND IF
MOLECULAR DEVICES MANAGEMENT IS UNABLE TO SUFFICIENTLY
MANAGE THE COMBINED COMPANY, ITS OPERATING RESULTS WILL SUFFER.

On July 1, 2004, Molecular Devices acquired a global
business, which includes approximately 128 employees based at
Axons office in Union City, California and at its
facilities in San Luis Obispo, California and Melbourne,
Australia. The combined company continues to face challenges
inherent in efficiently managing an increased number of
employees over large geographic distances, including the need to
implement appropriate systems, policies, benefits and compliance
programs. The inability to successfully manage the substantially
larger and internationally diverse organization, or any
significant delay in achieving successful management, could have
a material adverse effect on the combined company and, as a
result, on the market price of Molecular Devices common stock.

THE ACQUISITION OF AXON COULD CAUSE US TO LOSE KEY PERSONNEL,
WHICH COULD MATERIALLY AFFECT THE COMBINED COMPANYS
BUSINESS AND REQUIRE US TO INCUR SUBSTANTIAL COSTS TO RECRUIT
REPLACEMENTS FOR LOST PERSONNEL.

As a result of the acquisition of Axon, our current and
prospective employees could experience uncertainty about their
future roles within Molecular Devices. This uncertainty may
adversely affect our ability to attract and retain key
management, sales, marketing and technical personnel. Any
failure to attract and retain key personnel could have a
material adverse effect on our business.

WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR
OUR ABILITY TO COMPETE.

We are highly dependent on the principal members of our
management, engineering and scientific staff. The loss of the
service of any of these persons could seriously harm our product
development and commercialization efforts. In addition,
research, product development and commercialization will require
additional skilled personnel in areas such as chemistry and
biology, and software and electronic engineering. Our corporate
headquarters are located in Sunnyvale, California, where demand
for personnel with these skills is extremely high and is likely
to remain high. As a result, competition for and retention of
personnel, particularly for employees with technical expertise,
is intense and the turnover rate for qualified personnel is
high. If we are unable to hire, train and retain a sufficient
number of qualified employees, our ability to conduct and expand
our business could be seriously reduced. The inability to retain
and hire qualified personnel could also hinder the planned
expansion of our business.

CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAY AFFECT OUR RESULTS
OF OPERATIONS AND CAUSE US TO CHANGE OUR BUSINESS PRACTICES.

We prepare our financial statements to conform with
U.S. generally accepted accounting principles. These
accounting principles are subject to interpretation by the
American Institute of Certified Public Accountants, the
Securities and Exchange Commission and various bodies formed to
interpret and create appropriate accounting principles. A change
in those principles can have a significant effect on our
reported results and may affect our reporting of transactions
completed before a change is announced. Changes to those rules
or the questioning of current practices may adversely affect our
reported financial results or the way we conduct our business.
For example, accounting principles affecting many aspects of our
business, including rules relating to employee stock option
grants, have recently been revised or are under review. The
Financial Accounting Standards Board and other agencies have
finalized changes to U.S. generally accepted accounting
principles that will require us, starting in our third quarter
of 2005, to record a charge to earnings for employee stock
option grants and other equity incentives. We will have
significant and ongoing accounting charges resulting from option
grant and other equity incentive expensing that could reduce our
overall net income. In addition, since we historically have used
equity-related compensation as a component of our total employee
compensation program, the accounting change could make the use
of equity-related compensation less attractive to us and
therefore make it more difficult to attract and retain
employees. See Note 1 of the notes to our audited
consolidated financial statements for a discussion of the impact
on our financial results if we were to use the fair value method
of accounting for equity awards to our employees.



---



##### Table of Contents

18 / MOLECULAR DEVICES 2004


OUR OPERATING RESULTS FLUCTUATE AND ANY FAILURE TO MEET
FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR
INVESTORS AND RESULT IN A DECLINE IN OUR STOCK PRICE.

We have experienced and in the future may experience a shortfall
in revenues or earnings or otherwise fail to meet public market
expectations, which could materially and adversely affect our
business and the market price of our common stock. Our total
revenues and operating results may fluctuate significantly
because of a number of factors, many of which are outside of our
control. These factors include the following:




    customer confidence in the economy, evidenced, in part, by stock
    market levels;
    changes in the domestic and international economic, business and
    political conditions;
    economic conditions within the pharmaceutical and biotechnology
    industries;
    levels of product and price competition;
    the length of our sales cycle and customer buying patterns;
    the size and timing of individual transactions;
    the timing of new product introductions and product enhancements;
    the mix of products sold;
    levels of international transactions;
    activities of and acquisitions by competitors;
    the timing of new hires and the allocation of our resources;
    changes in foreign currency exchange rates;
    our ability to develop and market new products and control
    costs; and
    changes in U.S. generally accepted accounting principlesOne or more of the foregoing factors may cause our operating
expenses to be disproportionately high during any given period
or may cause our revenues and operating results to fluctuate
significantly. In particular, we typically experience 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. Our quarterly operating results have fluctuated in the
past, and we expect they will fluctuate in the future as a
result of many factors, some of which are outside of our control.

In addition, we manufacture our products based on forecasted
orders rather than on outstanding orders. Accordingly, our
expense levels are based, in part, on expected future sales, and
we generally cannot quickly adjust operating expenses. For
example, research and development and general and administrative
expenses are not directly affected by variations in revenues. As
a result, if sales levels in a particular quarter do not meet
expectations, we may not be able to adjust operating expenses in
a sufficient timeframe to compensate for the shortfall, and our
results of operations for that quarter may be seriously harmed.
Likewise, our manufacturing processes may in certain instances
create a risk of excess or inadequate inventory levels if orders
do not match forecasts.

Based upon the preceding factors, we may experience a shortfall
in revenues or earnings or otherwise fail to meet public market
expectations, which could materially and adversely affect our
business, financial condition, results of operations and the
market price of our common stock. Because our revenues and
operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are
not a good indication of our future performance.

FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE
WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR STOCK PRICE.

We have documented and tested our internal control procedures in
order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management
assessments of the effectiveness of our internal control



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 19


over financial reporting and a report by our independent
registered public accountants attesting to and reporting on
these assessments. If we fail to maintain the adequacy of our
internal control over financial reporting, as such standards are
modified, supplemented or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that
we have effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot favorably assess, or our independent
registered public accountants are unable to provide an
unqualified attestation report on our assessment of, the
effectiveness of our internal control over financial reporting,
investor confidence in the reliability of our financial reports
may be adversely affected, which could have a material adverse
effect on our stock price.

OUR STOCK PRICE IS VOLATILE, WHICH COULD CAUSE STOCKHOLDERS TO
LOSE A SUBSTANTIAL PART OF THEIR INVESTMENT IN OUR STOCK.

The stock market in general, and the stock prices of technology
companies in particular, have recently experienced volatility
which has often been unrelated to the operating performance of
any particular company or companies. In the year ended
December 31, 2004, the closing sales price of our common
stock ranged from $17.05 to $25.30. Our stock price could
decline regardless of our actual operating performance, and
stockholders could lose a substantial part of their investment
as a result of industry or market-based fluctuations. In the
past, our stock has traded relatively thinly. If a more active
public market for our stock is not sustained, it may be
difficult for stockholders to resell shares of our common stock.
Because we do not anticipate paying cash dividends on our common
stock for the foreseeable future, stockholders will not be able
to receive a return on their shares unless they sell them.

The market price of our common stock will likely fluctuate in
response to a number of factors, including the following:




    domestic and international economic, business and political
    conditions;
    economic conditions within the pharmaceutical and biotechnology
    industries;
    our failure to meet our performance estimates or the performance
    estimates of securities analysts;
    changes in financial estimates of our revenues and operating
    results by us or securities analysts;
    changes in buy/sell recommendations by securities
    analysts; and
    the timing of announcements by us or our competitors of
    significant products, contracts or acquisitions or publicity
    regarding actual or potential results or performance thereof.PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT
A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE
WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.

Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing an acquisition, or
merger in which we are not the surviving company or which
results in changes in our management. For example, our
certificate of incorporation gives our Board of Directors the
authority to issue shares of preferred stock and to determine
the price, rights, preferences and privileges and restrictions,
including voting rights, of those shares without any further
vote or action by our stockholders. The rights of the holders of
common stock will be subject to, and may harmed by, the rights
of the holders of any shares of preferred stock that may be
issued in the future. The issuance of preferred stock may delay,
defer or prevent a change in control, as the terms of the
preferred stock that might be issued could potentially prohibit
our consummation of any merger, reorganization, sale of
substantially all of our assets, liquidation or other
extraordinary corporate transaction without the approval of the
holders of the outstanding shares of preferred stock. The
issuance of preferred stock could also have a dilutive effect on
our stockholders. In addition, because we are incorporated in
Delaware, we are governed by the provisions of Section 203
of the Delaware General Corporation Law. These provisions may
prohibit large stockholders, in particular those owning 15% or
more of the outstanding voting stock, from consummating a merger
or combination involving us. Further, in October 2001, our Board
of Directors adopted a stockholder rights plan, commonly known
as a poison pill. These provisions described above
and our poison pill could limit the price that investors might
be willing to pay in the future for our common stock.



---



##### Table of Contents

20 / MOLECULAR DEVICES 2004


OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN OUR FORWARD-LOOKING STATEMENTS.

This report contains forward-looking statements within the
meaning of the federal securities laws that relate to future
events or our future financial performance. When used in this
report, you can identify forward-looking statements by
terminology such as believes,
anticipates, plans,
predicts, expects,
estimates, intends, will,
continue, may, potential,
should and similar expressions. These statements are
only predictions. Our actual results could differ materially
from those anticipated in our forward-looking statements as a
result of many factors, including those set forth above and
elsewhere in this report.

Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
Neither we nor any other person assumes responsibility for the
accuracy and completeness of these statements. We assume no duty
to update any of the forward-looking statements after the date
of this report or to conform these statements to actual results.
Accordingly, we caution readers not to place undue reliance on
these statements.





AVAILABLE INFORMATION

We make available, free of charge, on or through our Internet
address located at www.moleculardevices.com our annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after we electronically file that
material with, or furnish it to, the Securities and Exchange
Commission. Materials we file with the SEC may be read and
copied at the SECs Public Reference Room at 450 Fifth
Street, NW, Washington, D.C. 20549. This information may
also be obtained by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an internet website that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov. We
will provide a copy of any of the foregoing documents to
stockholders upon request.







Item 2.
    PropertiesWe lease two facilities in Sunnyvale, California, two in Union
City, California, and one facility in Downingtown, Pennsylvania
which include laboratory, manufacturing and administrative
space. We also lease sales and service offices in the United
Kingdom, Germany, Japan and South Korea, engineering facilities
in San Luis Obispo, California and



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 21


Australia, and a manufacturing facility in Norway. We believe
that our current facilities will be sufficient for our
operations through at least 2005. These properties are described
below:

|                                                 |  |           |        |  |            |                                                                                    |                  |  |                   | 
|------------------------------------------------ |  | --------- | ------ |  | ---------- | ---------------------------------------------------------------------------------- | ---------------- |  | ----------------- | 
|LOCATION                                         |  | OWNERSHIP |        |  | FACILITIES |                                                                                    | LEASE EXPIRATION | 
|                                                 | 
|1311 Orleans Drive Sunnyvale, CA
    94089       |  |           | Leased |  |            | Approximately 60,000 square
    feet of office and laboratory space                |                  |  | October 31, 2007  | 
|1312 Crossman Avenue Sunnyvale, CA
    94089     |  |           | Leased |  |            | Approximately 54,500 square
    feet of office, laboratory and manufacturing space |                  |  | October 31, 2007  | 
|3280 Whipple Road
    Union City, CA 94587       |  |           | Leased |  |            | Approximately 76,214 square
    feet of office, laboratory and manufacturing space |                  |  | December 31, 2010 | 
|3250 Whipple Road
    Union City, CA 94587       |  |           | Leased |  |            | Approximately 20,275 square
    feet of office space                               |                  |  | December 31, 2010 | 
|1023 Nipomo Street San Luis
    Obispo, CA 93401 |  |           | Leased |  |            | Approximately 2,000 square
    feet of office space                                |                  |  | October 31, 2005  | 
|402 Boot Road Downingtown, PA 19335              |  |           | Leased |  |            | Approximately 27,900 square
    feet of office, laboratory and manufacturing space |                  |  | November 15, 2010 | 
|Oslo, Norway                                     |  |           | Leased |  |            | Approximately 17,500 square
    feet of office and manufacturing space             |                  |  | January 1, 2007   | 
|Wokingham, England                               |  |           | Leased |  |            | Approximately 4,200 square
    feet of office space                                |                  |  | August 20, 2009   | 
|Munich, Germany                                  |  |           | Leased |  |            | Approximately 3,500 square
    feet of office space                                |                  |  | October 31, 2006  | 
|Tokyo, Japan                                     |  |           | Leased |  |            | Approximately 4,300 square
    feet of office space                                |                  |  | June 30, 2005     | 
|Osaka, Japan                                     |  |           | Leased |  |            | Approximately 3,700 square
    feet of office space                                |                  |  | March 31, 2005    | 
|Seoul, South Korea                               |  |           | Leased |  |            | Approximately 2,100 square
    feet of office space                                |                  |  | November 14, 2006 | 
|Melbourne, Australia                             |  |           | Leased |  |            | Approximately 5,000 square
    feet of office space                                |                  |  | Month to Month    | 






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








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













|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities







|               |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | 2004 |       |  | 2003 |  
|               |  |      |      
|               |  | HIGH |       |  | LOW  |   |       | HIGH |  |   | LOW   | 
|               |  |      |      
|First Quarter  |  | $    | 22.32 |  |      | $ | 17.64 |      |  | $ | 17.05 |  |  | $ | 10.97 | 
|Second Quarter |  |      | 19.70 |  |      |   | 17.05 |      |  |   | 18.03 |  |  |   | 11.20 | 
|Third Quarter  |  |      | 24.82 |  |      |   | 17.85 |      |  |   | 20.31 |  |  |   | 15.51 | 
|Fourth Quarter |  |      | 25.30 |  |      |   | 18.82 |      |  |   | 20.38 |  |  |   | 17.76 | 



---



##### Table of Contents

22 / MOLECULAR DEVICES 2004


As of March 7, 2005, we had approximately 7,000
stockholders of record. On March 7, 2005, the last sale
price reported on the Nasdaq National Market for our common
stock was $19.99 per share.

DIVIDENDS

Historically, we have not paid cash dividends on our common
stock and do not intend to pay any cash dividends in the
foreseeable future. Our Board of Directors will determine any
future cash dividends.

ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth information regarding repurchases
of our common stock pursuant to our stock repurchase program
during the quarter ended December 31, 2004.

|                                               |  |                  |         |  |                    |                     |       |                    |                     |  |                    |  |  |  |         | 
|---------------------------------------------- |  | ---------------- | ------- |  | ------------------ | ------------------- | ----- | ------------------ | ------------------- |  | ------------------ |  |  |  | ------- | 
|                                               |  |                  |         |  |                    | TOTAL NUMBER OF     |       |                    | MAXIMUM NUMBER OF   | 
|                                               |  |                  |         |  |                    | SHARES PURCHASED AS |       |                    | SHARES THAT MAY YET | 
|                                               |  | TOTAL NUMBER OF  |         |  | AVERAGE PRICE PAID |                     |       | PART OF PUBLICLY   |                     |  | BE PURCHASED UNDER | 
|PERIOD                                         |  | SHARES PURCHASED |         |  | PER SHARE          |                     |       | ANNOUNCED PROGRAMS |                     |  | THE PROGRAMS       | 
|                                               | 
|October 1, 2004 through
    October 31, 2004   |  |                  |        |  |                    |                     |      |                    |                     |  |                   |  |  |  |        | 
|November 1, 2004 through
    November 30, 2004 |  |                  | 595,000 |  |                    | $                   | 20.99 |                    |                     |  | 595,000            |  |  |  | 575,000 | 
|December 1, 2004 through
    December 31, 2004 |  |                  |        |  |                    |                     |      |                    |                     |  |                   |  |  |  |        | 
|                                               |  |                  |         |  |                    |                     |       |                    |                     |  |                    | 
|Total                                          |  |                  | 595,000 |  |                    | $                   | 20.99 |                    |                     |  | 595,000            |  |  |  |         | 
|                                               |  |                  |         |  |                    |                     |       |                    |                     |  |                    | 





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 23








Item 6.
    Selected Consolidated Financial DataThe following table sets forth our selected historical financial
information, certain portions of which are based on, and should
be read in conjunction with, our audited consolidated financial
statements that are being filed as a part of this report.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

|                                                                 |                                                     |                          |         |        |      |   |         |        |  |   |         |        |  |      |        |        |  |   |        |        | 
|---------------------------------------------------------------- | --------------------------------------------------- | ------------------------ | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                                 |                                                     | YEARS ENDED DECEMBER 31, |        
|                                                                 |                                                     |                          |        
|                                                                 |                                                     | 2004                     |         |        | 2003 |   |         | 2002   |  |   | 2001    |        |  | 2000 |       
|                                                                 |                                                     |                          |        
|Revenues                                                         |                                                     | $                        | 148,529 |        |      | $ | 115,581 |        |  | $ | 102,157 |        |  | $    | 92,231 |        |  | $ | 96,035 |       
|Cost of revenues                                                 |                                                     |                          | 56,274  |        |      |   | 43,256  |        |  |   | 40,561  |        |  |      | 35,538 |        |  |   | 35,583 |       
|                                                                 |                                                     |                         
|Gross profit                                                     |                                                     |                          | 92,255  |        |      |   | 72,325  |        |  |   | 61,596  |        |  |      | 56,693 |        |  |   | 60,452 |       
|Operating expenses:                                              |                                                     |                          |         |        |      |   |         |        |  |   |         |        |  |      |        |        |  |   |        |       
|                                                                 | Research and development                            |                          |         | 22,038 |      |   |         | 18,679 |  |   |         | 18,002 |  |      |        | 15,105 |  |   |        | 16,796 | 
|                                                                 | Selling, general and administrative                 |                          |         | 52,469 |      |   |         | 43,457 |  |   |         | 35,435 |  |      |        | 33,381 |  |   |        | 31,906 | 
|                                                                 | Acquired in-process research and
    development(1) |                          |         | 5,000  |      |   |         |       |  |   |         |       |  |      |        | 12,625 |  |   |        |       | 
|                                                                 | Restructuring charge(1)                             |                          |         | 1,157  |      |   |         |       |  |   |         |       |  |      |        |       |  |   |        |       | 
|                                                                 | Merger expenses(1)                                  |                          |         |       |      |   |         |       |  |   |         |       |  |      |        |       |  |   |        | 15,181 | 
|                                                                 |                                                     |                         
|Total operating expenses                                         |                                                     |                          | 80,664  |        |      |   | 62,136  |        |  |   | 53,437  |        |  |      | 61,111 |        |  |   | 63,883 |       
|                                                                 |                                                     |                         
|Income (loss) from operations(1)                                 |                                                     |                          | 11,591  |        |      |   | 10,189  |        |  |   | 8,159   |        |  |      | (4,418 | )      |  |   | (3,431 | )     
|Gain on sale of equity securities                                |                                                     |                          | 18,288  |        |      |   |        |        |  |   |        |        |  |      |       |        |  |   |       |       
|Interest expense                                                 |                                                     |                          | (187    | )      |      |   |        |        |  |   |        |        |  |      |       |        |  |   |       |       
|Interest and other income, net                                   |                                                     |                          | 319     |        |      |   | 872     |        |  |   | 1,562   |        |  |      | 3,806  |        |  |   | 4,912  |       
|                                                                 |                                                     |                         
|Income (loss) before income taxes                                |                                                     |                          | 30,011  |        |      |   | 11,061  |        |  |   | 9,721   |        |  |      | (612   | )      |  |   | 1,481  |       
|Income tax provision                                             |                                                     |                          | 12,778  |        |      |   | 3,319   |        |  |   | 2,916   |        |  |      | 4,625  |        |  |   | 6,415  |       
|                                                                 |                                                     |                         
|Net income (loss)                                                |                                                     | $                        | 17,233  |        |      | $ | 7,742   |        |  | $ | 6,805   |        |  | $    | (5,237 | )      |  | $ | (4,934 | )     
|                                                                 |                                                     |                         
|Basic net income (loss) per share                                |                                                     | $                        | 1.08    |        |      | $ | 0.51    |        |  | $ | 0.44    |        |  | $    | (0.32  | )      |  | $ | (0.32  | )     
|                                                                 |                                                     |                         
|Diluted net income (loss) per share                              |                                                     | $                        | 1.04    |        |      | $ | 0.51    |        |  | $ | 0.44    |        |  | $    | (0.32  | )      |  | $ | (0.32  | )     
|                                                                 |                                                     |                         
|Shares used in computing basic net
    income (loss) per share   |                                                     |                          | 16,028  |        |      |   | 15,067  |        |  |   | 15,348  |        |  |      | 16,192 |        |  |   | 15,246 |       
|                                                                 |                                                     |                         
|Shares used in computing diluted
    net income (loss) per share |                                                     |                          | 16,532  |        |      |   | 15,179  |        |  |   | 15,457  |        |  |      | 16,192 |        |  |   | 15,246 |       
|                                                                 |                                                     |                         



|                                                               |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                               |  | AS OF DECEMBER 31, |        
|                                                               |  |                    |        
|                                                               |  | 2004               |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                               |  |                    |        
|Cash, cash equivalents and short
    and long-term investments |  | $                  | 30,175  |   |      | $ | 60,110  |      |  | $ | 53,783  |   |  | $    | 67,257  |   |  | $ | 97,091  |  
|Working capital                                                |  |                    | 67,556  |   |      |   | 87,305  |      |  |   | 84,851  |   |  |      | 99,422  |   |  |   | 138,184 |  
|Total assets                                                   |  |                    | 255,229 |   |      |   | 166,913 |      |  |   | 162,901 |   |  |      | 152,361 |   |  |   | 180,033 |  
|Long-term liabilities                                          |  |                    | 6,776   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 269     |  
|Accumulated deficit                                            |  |                    | (8,873  | ) |      |   | (26,106 | )    |  |   | (33,848 | ) |  |      | (40,653 | ) |  |   | (4,833  | )
|Total stockholders equity                                     |  |                    | 210,620 |   |      |   | 145,538 |      |  |   | 142,804 |   |  |      | 137,485 |   |  |   | 163,633 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our 2004 income from operations included a $5.0 million
    write-off for the acquisition of in-process research and
    development costs and a $1.2 million charge related to
    restructuring, associated with the acquisition of Axon
    Instruments, Inc. Our 2001 loss from operations included a
    $12.6 million write-off for the acquisition of in-process
    research and development costs related to our acquisition of
    Cytion S.A. Our 2000 loss from operations included a
    $15.2 million charge related to direct costs incurred due
    to the merger with LJL BioSystems, which was accounted for as a
    pooling of interests.



---



##### Table of Contents

24 / MOLECULAR DEVICES 2004






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. For this purpose, any statements that are not
statements of historical fact may be deemed to be
forward-looking statements. Words such as believes,
anticipates, plans,
predicts, expects,
estimates, intends, will,
continue, may, potential,
should and similar expressions are intended to
identify forward-looking statements. There are a number of
important factors that could cause our results to differ
materially from those indicated by these forward-looking
statements, including, among others, those discussed in this
section as well as under Item 1 
Business and Item 7A 
Quantitative and Qualitative Disclosures About Market
Risk and the risks detailed from time to time in the
Companys future SEC reports.

We are a leading supplier of high-performance bioanalytical
measurement systems that accelerate and improve drug discovery
and other life sciences research. Our systems and consumables
enable pharmaceutical and biotechnology companies to leverage
advances in genomics, proteomics and parallel chemistry by
facilitating the high-throughput and cost-effective
identification and evaluation of drug candidates. Our solutions
are based on our advanced core technologies that integrate our
expertise in engineering, molecular and cell biology, and
chemistry. We enable our customers to improve research
productivity and effectiveness, which ultimately accelerates the
complex process of discovering and developing new drugs.

Our customers include leading pharmaceutical and biotechnology
companies as well as medical centers, universities, government
research laboratories and other institutions throughout the
world. The success of our business is impacted by research and
development spending trends of these customers, which has been
unpredictable over the last three years and remains
unpredictable in the near term. We focus on generating revenue
growth through the development of innovative products for these
customers. In each of the last four years, our internal research
and development efforts have enabled us to exceed our goal of
generating over 50% of annual revenues from products that are
introduced in the last three years.

We divide our revenues into two product families based primarily
on the customers to which they are sold. The drug discovery
product family includes systems that integrate detection, liquid
handling and automation, have price points in excess of
$100,000, and are primarily sold to large pharmaceutical and
biotechnology companies. Product lines included in the drug
discovery family are FLIPR, Analyst, IonWorks, PatchXpress,
ImageXpress and Discovery-1 systems. The life sciences product
family, which includes bench-top detection, imaging software and
liquid handling products, consists of the SpectraMax, MetaMorph,
GenePix, Threshold, Skatron and Axopatch product lines. These
single-purpose instruments generally cost less than $60,000 and
are sold throughout our entire customer base. We recognize
revenue on the sale of these products, when collectibility is
reasonably assured, at the time of shipment and transfer of
title to customers and distributors. There are no significant
customer acceptance requirements or post shipment obligations on
our part.

We are deriving an increasing portion of our revenues from
overseas operations. Sales to customers outside of the United
States accounted for 42% of total revenues in 2004, and 39% in
2003 and 2002. We currently have sales and services offices in
the United Kingdom, Germany, Japan, and South Korea. In
addition, we employ sales and service personnel in France, the
Benelux, Scandinavia, Spain, Australia and China. Additional
international sales are conducted through distributors around
the world. We anticipate that international sales will account
for an increasing percentage of revenues in the future, and we
expect to continue expanding our international operations in
order to take advantage of increasing international market
opportunities. Our international business exposes us to a number
of risks, including:




    political, social and economic instability;
    trade restrictions and changes in tariffs;
    the impact of business cycles and downturns in economies outside
    of the United States;
    unexpected changes in regulatory requirements that may limit our
    ability to export our products or sell into particular
    jurisdictions;
    import and export license requirements and restrictions;



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 25





    difficulties and costs of staffing, managing and monitoring
    geographically disparate operations;
    difficulties in maintaining effective communications with
    employees and customers due to distance, language and cultural
    barriers;
    disruptions in international transport or delivery;
    difficulties in protecting our intellectual property rights,
    particularly in countries where the laws and practices do not
    protect proprietary rights to as great an extent as do the laws
    and practices of the United States;
    difficulties in enforcing agreements through non-U.S. legal
    systems;
    longer payment cycles and difficulties in collecting
    receivables; and
    potentially adverse tax consequences.On July 1, 2004, we acquired all of the outstanding capital
stock of Axon Instruments, Inc. (Axon). This
acquisition expands our product portfolio with systems for
cellular neurosciences and genomics and combines complementary
product lines in high-throughput imaging and electrophysiology.
This acquisition did not cause us to create a new business
segment.

The total cost of the acquisition was $139.9 million
including cash and stock paid, options assumed, and direct
transaction costs. As a result of the acquisition, we received
$22.1 million in cash that had been on the balance sheet of
Axon. The acquisition was accounted for under the purchase
method of accounting. The results of operations of Axon have
been included in the accompanying consolidated financial
statements from the date of acquisition.

We allocated the purchase price based on the estimated fair
value of the assets acquired and liabilities assumed. A
valuation of the purchased intangible assets was undertaken by a
third party valuation specialist to assist us in determining the
estimated fair value of each identifiable asset and in
allocating the purchase price among acquired assets, including
the portion of the purchase price attributed to acquired
in-process research and development projects. Projects that
qualify as in-process research and development represent those
that have not yet reached technological feasibility and which
have no alternative use. Standard valuation procedures and
techniques were utilized in determining the estimated fair value
of the acquired in-process research and development. To
determine the estimated fair value of the acquired in-process
research and development, we considered, among other factors,
the stage of development of each project, the time and resources
needed to complete each project, and expected income and
associated risks. Associated risks included the inherent
difficulties and uncertainties in completing the project and
thereby achieving technological feasibility, and the risks
related to the viability of and potential changes to future
target markets. The analysis resulted in $5.0 million of
the purchase price being allocated to acquired in-process
research and development and charged to earnings, using discount
rates ranging from 27% to 32%. The in-process research and
development acquired from Axon consists of projects related to
the PatchXpress and ImageXpress product development initiatives.
We estimated that the in-process projects related to each of
these products varied from 62% to 75% complete, based on
research and development complexity, costs and time expended to
date relative to the expected remaining costs and time to reach
technological feasibility.

The value assigned to acquired in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the acquired in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by Axon and its competitors. The
rates utilized to discount the net cash flows to their present
value were based on Axons weighted average cost of
capital. The weighted average cost of capital was adjusted to
reflect the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market
acceptance and penetration, and market growth rates and risks
related to the impact of potential changes in future target
markets.



---



##### Table of Contents

26 / MOLECULAR DEVICES 2004


CRITICAL ACCOUNTING POLICIES

Managements discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its
estimates, including those related to revenue recognition, bad
debts, inventories, intangible assets, equity investments,
income taxes and warranty obligations. Management bases its
estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the
more significant judgments and estimates used in the preparation
of our consolidated financial statements:

Revenue Recognition

We apply the provisions of the following authoritative
literature in the development of our revenue recognition
policies:




    Emerging Issues Task Force (EITF), Issue
    No. 00-21, Revenue Arrangements with Multiple
    Deliverables. Revenue arrangements with multiple
    elements are divided into separate units of accounting if the
    deliverables in the arrangement have value to the customer on a
    stand alone basis, there is objective and reliable evidence of
    the fair value of the undelivered elements and there are no
    rights of return or additional performance guarantees by us.
    Statement of Position 97-2, Software Revenue
    Recognition. Revenue earned on software arrangements
    involving multiple elements is allocated to each element based
    on the relative fair values of the elements as determined by
    means of our quoting process and published price lists.
    Staff Accounting Bulletin (SAB) No. 101,
    Revenue Recognition in Financial Statements
    (as amended by SAB 104). Revenue is recognized when the
    following four criteria are met: (1) persuasive evidence of
    an arrangement exists; (2) delivery has occurred or
    services have been rendered; (3) the sellers price is
    fixed or determinable; and (4) collectibility is reasonably
    assured.A majority of our revenue is derived from the sale of
instruments to end-users with a one-year warranty. These
arrangements include a single element (the instrument). Other
single-element arrangements include the sale of consumables,
software, service, installation or training. Arrangements
incorporating multiple elements may exist, either through one
invoice or through separate invoices entered into with a single
customer at or near the same time. These multiple-element
arrangements can include any combination of the previously
described products or services.

All single-element and multiple-element arrangements are
evidenced by an invoice in response to a written purchase order.
Each element of an arrangement is invoiced at fair value as
determined by means of our quoting process and published price
lists. Standard end-user terms include: risk of loss
transferring to the purchaser at the time of shipment, net
30 day payment terms, no right of return or exchange, no
right to upgrades and no acceptance provisions.

We do not enter into arrangements that require performance in
excess of our published specifications.

Warranty

Future warranty costs are estimated based on historical
experience and provided for at the time of sale.

Accounts Receivable

We sell our products primarily to corporations, academic
institutions, government entities and distributors within the
drug discovery and life sciences research markets. We perform
ongoing credit evaluations of our customers and generally do not
require collateral. We provide reserves against trade
receivables for estimated losses that may result from
customers inability to pay. The amount of the reserve is
determined by analyzing known uncollectible accounts, aged
receivables, economic conditions in the customers country
or industry, historical losses and customer credit-worthiness.
Amounts later determined and specifically identified to be
uncollectible are charged or written off against the reserve.
Estimated losses have historically been within our expectations.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 27


Inventories

Inventories are stated on a first-in, first-out basis at the
lower of cost or market. We write down our inventory for
estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and
market conditions. If actual market conditions are less
favorable than those we project, additional inventory
write-downs may be required. Such write-downs have historically
been within our expectations.

Goodwill and Other Intangible Assets

Our business acquisitions have resulted in goodwill and other
intangible assets, and the recorded value of those assets may
become impaired in the future. As of December 31, 2004, our
goodwill and intangible assets, net of accumulated amortization,
were $104.2 million, and $30.3 million, respectively.
The determination of the value of such assets requires
management to make estimates and assumptions that affect our
consolidated financial statements. We perform our goodwill
impairment tests annually and more frequently if an event or
circumstance indicates that impairment has occurred. We assess
potential impairments to other intangible assets when there is
evidence that events or changes in circumstances indicate that
the carrying amount of an asset may not be recovered. Our
judgments regarding the existence of impairment indicators and
future cash flows related to intangible assets are based on
operational performance of our business, market condition and
other factors. Although there are inherent uncertainties in this
assessment process, the estimates and assumptions we use are
consistent with our internal planning. If these estimates or
their related assumptions change in the future, we may be
required to record an impairment charge on all of a portion of
our goodwill and intangible assets. Furthermore, we cannot
predict the occurrence of future impairment-triggering events
nor the impact such events might have on our reported asset
values. Future events could cause us to conclude that impairment
indicators exist and that goodwill or other intangible assets
associated with our acquired businesses is impaired. Any
resulting impairment loss could have an adverse impact on our
results of operations.

Equity Investments

We invest in equity instruments of privately held companies for
business and strategic purposes. These investments are included
in intangible and other assets and are accounted for under the
cost method when ownership is less than 20 percent of
voting securities and we do not have the ability to exercise
significant influence over operations. When our ownership
exceeds 20 percent of voting securities but is less than
50 percent, or we have the ability to exercise significant
influence, the investment is accounted for under the equity
method. Under the equity method, the investees
proportionate share of net income or loss and amortization of
the investees net excess investment over its equity in net
assets is included in net income or loss. As of
December 31, 2004, we did not hold any investments
accounted for under the equity method. We regularly review the
assumptions underlying the operating performance and cash flow
forecasts in assessing the fair values. We monitor the preceding
factors to identify events or circumstances that would cause us
to test for other than temporary impairment and revise our
assumptions for the estimated recovery of equity investments.

Income Taxes

Income taxes are accounted for under the liability method
whereby deferred tax asset or liability account balances are
calculated at the balance sheet date using current tax laws and
rates in effect for the year in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized in the future.

At December 31, 2004, we had net deferred tax assets of
$4.4 million. Realization of these assets is dependent on
our ability to generate significant future taxable income. We
believe that sufficient income will be earned in the future to
realize these assets. We will evaluate the realizability of the
deferred tax assets and assess the need for valuation allowances
periodically.

Various factors may have favorable or unfavorable effects upon
our effective tax rate in the future. These factors include, but
are not limited to, interpretations of existing tax laws,
changes in tax laws and rates, future levels of research and
development spending, future levels of capital expenditures,
international operations and our success in research and
development and commercializing products.



---



##### Table of Contents

28 / MOLECULAR DEVICES 2004


RESULTS OF OPERATIONS

The following table summarizes our consolidated statements of
operations as a percentage of revenues:

|                                                 |  |                          |       |   |      |  |       |      |  |  |       |  
|------------------------------------------------ |  | ------------------------ | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                 |  | YEARS ENDED DECEMBER 31, |      
|                                                 |  |                          |      
|                                                 |  | 2004                     |       |   | 2003 |  |       | 2002 | 
|                                                 |  |                          |      
|Revenues                                         |  |                          | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of revenues                                 |  |                          | 37.9  |   |      |  | 37.4  |      |  |  | 39.7  |  
|                                                 |  |                         
|Gross profit                                     |  |                          | 62.1  |   |      |  | 62.6  |      |  |  | 60.3  |  
|Research and development                         |  |                          | 14.8  |   |      |  | 16.2  |      |  |  | 17.6  |  
|Selling, general and administrative              |  |                          | 35.3  |   |      |  | 37.6  |      |  |  | 34.7  |  
|Acquired in-process research and
    development |  |                          | 3.4   |   |      |  |      |      |  |  |      |  
|Restructuring charge                             |  |                          | 0.8   |   |      |  |      |      |  |  |      |  
|                                                 |  |                         
|Income from operations                           |  |                          | 7.8   |   |      |  | 8.8   |      |  |  | 8.0   |  
|Gain on sale of equity securities                |  |                          | 12.3  |   |      |  |      |      |  |  |      |  
|Interest expense                                 |  |                          | (0.1  | ) |      |  |      |      |  |  |      |  
|Interest and other income, net                   |  |                          | 0.2   |   |      |  | 0.8   |      |  |  | 1.5   |  
|                                                 |  |                         
|Income before income taxes                       |  |                          | 20.2  |   |      |  | 9.6   |      |  |  | 9.5   |  
|Income tax provision                             |  |                          | 8.6   |   |      |  | 2.9   |      |  |  | 2.8   |  
|                                                 |  |                         
|Net income                                       |  |                          | 11.6  | % |      |  | 6.7   | %    |  |  | 6.7   | %
|                                                 |  |                         

















---



##### Table of Contents

MOLECULAR DEVICES 2004 / 29


GAIN ON SALE OF EQUITY SECURITIES. In October 2004, Serologicals
Corporation (Serologicals) purchased Upstate Group,
Inc. (Upstate), a privately-held company in which we
held an equity interest. As a result of the acquisition, we
received cash and shares of common stock in Serologicals.
Subsequently, we disposed of our entire equity interest in
Serologicals. The net gain as a result of these transactions was
$18.3 million, which is reported as gain on sale of equity
securities in the Consolidated Statements of Income. There was
no similar gain in 2003.

INTEREST EXPENSE. We incurred $187,000 in interest expense on
our revolving credit facility entered into to finance our
acquisition of Axon.

INTEREST AND OTHER INCOME, NET. Other income, net decreased in
2004 by 63% to $319,000 from $872,000 in 2003. Of this decrease,
approximately $370,000 was due to the unfavorable impact of
foreign exchange rates and the remainder was due to a decrease
in interest income due to lower cash and investment balances.

INCOME TAX PROVISION. We recorded tax provisions of
$12.8 million (an effective tax rate of 43%) and
$3.3 million (an effective tax rate of 30%) for 2004 and
2003, respectively. The increase in our effective tax rate was
due to an inability to recognize a tax benefit for acquired
in-process research and development and an increase in foreign
tax expense. The effective tax rates for 2004 and 2003 are
calculated on profit before tax.

Years ended December 31, 2003 and 2002

REVENUES. Revenues in 2003 increased by 13% to
$115.6 million from $102.2 million in 2002. Drug
discovery product family revenues in 2003 increased by 13%
compared to 2002, and represented 45% of total revenue. Life
sciences research revenues in 2003 increased by 13% compared to
2002, and represented 55% of total revenue. The
$13.4 million in increased revenue was due to
$8.1 million of sales of our product lines acquired from
UIC in June 2002, $4.2 million of growth in drug discovery
primarily attributed to our FLIPR and IonWorks product lines,
and $1.1 million of growth in life sciences research,
primarily SpectraMax products.

GROSS MARGIN. Gross margin increased to 62.6% in 2003, from
60.3% in 2002. This increase was primarily due to the increased
sales of higher margin products, including IonWorks HT,
MetaMorph, Discovery-1 systems, as well as consumable products.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development
expenses remained relatively stable in 2003, increasing 4% to
$18.7 million, from $18.0 million in 2002. This
increase was due to: a decrease of $2.4 million due to the
closure of our Swiss facilities, offset by increases of $800,000
due to a full year of research and development expenses at UIC,
$1.3 million in legal expenses associated with the
settlement of a patent infringement lawsuit and
$1.0 million for continued funding of development programs
related to IonWorks, FLIPR and SpectraMax products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general
and administrative expenses increased by 23% to
$43.5 million in 2003 from $35.4 million in 2002. The
increase of $8.1 million was due to the following cost
increases incurred as a result of including a full year of UIC
expenses and increased headcount from the UIC acquisition and
within the sales organization: $5.6 million of increased
salary, facility and related expenses, $1.6 million of
additional sales and service costs, $700,000 of additional
consulting, audit and legal fees, and $200,000 of other charges.

INTEREST AND OTHER INCOME, NET. Other income, net, consisting
primarily of interest income and foreign exchange gains and
losses, decreased by 44% to $872,000 in 2003 from
$1.6 million in 2002. This was due to lower interest rates
received on our cash and investments portfolio in 2003,
resulting in an approximately $500,000 decrease in interest
income, with the remainder due to the impact of foreign exchange
rates.

INCOME TAX PROVISION. We recorded tax provisions of
$3.3 million (an effective tax rate of 30%) and
$2.9 million (an effective tax rate of 30%) for 2003 and
2002, respectively. The stability in our effective tax rate
resulted from tax benefits recognized in 2003 associated with
our international operations offset by a reduction in federal
and state research and development credits. The effective tax
rates for 2003 and 2002 are calculated on profit before tax.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2004 we had $30.2 million in cash,
cash equivalents and short-term and long-term investments
compared to $60.1 million and $53.8 million as of
December 31, 2003 and December 31, 2002, respectively.



---



##### Table of Contents

30 / MOLECULAR DEVICES 2004


On July 1, 2004, we acquired all of the outstanding capital
stock of Axon. In connection with the acquisition of Axon, we
entered into a new senior unsecured credit facility with Union
Bank of California, N.A., which provides us with a revolving
credit facility in the amount of up to $30.0 million. The
revolving credit facility is guaranteed by our domestic
subsidiaries. All loans outstanding under the senior unsecured
credit facility will bear interest at a rate per annum equal to,
at our option, either the base rate plus 0.50% or the London
InterBank Offered Rate (LIBOR) plus 1.25%. The revolving
credit facility may be drawn, paid and reborrowed at our option,
and matures on July  1, 2007. We initially used
$15.0 million of this credit facility to partially finance
the cash portion of the merger consideration paid to Axon
shareholders and certain optionholders. The $15.0 million
drawdown was repaid and the revolving credit facility had no
outstanding balance as of December 31, 2004.

Net cash provided by operating activities was $23.1 million
for the year ended December 31, 2004, compared to
$18.7 million for the year ended December 31, 2003,
and $15.3 million for the year ended December 31,
2002. The cash provided during 2004 was primarily the result of
net income of $17.2 million plus net non-cash charges of
$2.8 million and net changes in operating assets and
liabilities of $3.1 million. The non-cash charges included
depreciation and amortization of $7.2 million, a
$5.0 million charge for acquired in-process research and
development, $4.3 million of decreases in deferred tax
assets, and $3.9 million of tax benefits realized as a
result of employee stock option exercises, offset by
$18.3 million from the sale of equity securities.

Net cash used in investing activities was $16.8 million for
the year ended December 31, 2004, compared to
$3.5 million and $24.8 million for the years ended
December 31, 2003 and 2002, respectively. The increase
between 2003 and 2004 was primarily due to $48.5 million
used to acquire Axon, net of cash received. Offsetting this cash
used by investing activities, we received $9.9 million upon
the sale of investments and received $28.3 million from the
sale of our equity investment in Upstate. Additional cash used
in investing activities included the purchase of property and
equipment for $4.8 million.

Net cash used in financing activities was $27.5 million in
2004, compared to $9.0 million and $3.7 million in
2003 and 2002, respectively. The increase between 2003 and 2004
was due to $31.6 million spent to
repurchase 1,555,000 shares of our common stock,
offset by $4.1 million of proceeds from the issuance of
common stock for options exercised and employee stock purchases.
The share repurchases occurred throughout 2004, and accounted
for approximately 9.1% of the shares of our common stock
outstanding as of December 31, 2004. Approximately
575,000 shares remained available for repurchase at
December 31, 2004 under the stock repurchase program
initially approved by our Board of Directors in August 2001. In
February 2005, we repurchased 397,000 shares of our common
stock for approximately $8.4 million under our stock
repurchase program. On February 17, 2005, our Board of
Directors again determined to continue the stock repurchase
program and authorized the repurchase of an additional
1,500,000 shares of our Common Stock.

We believe that our existing cash and anticipated cash flow from
our operations will be sufficient to support our current
operating plan for the foreseeable future. Our ability to
generate our anticipated cash flow from operations is subject to
the risks and uncertainties discussed above under
Item 1  Business including, in
particular, variations in the amount of time it takes for us to
sell our products and collect accounts receivable, the timing of
customer orders, competition, risks associated with the
pharmaceutical and biotechnology industries, supplier or
manufacturing problems or delays, and risks associated with past
and potential future acquisitions.

Likewise, our forecast of the period of time through which our
financial resources will be adequate to support our operations
is a forward-looking statement that involves risks and
uncertainties, and actual results could vary as a result of a
number of factors. We have based this estimate on our current
plans which may change and assumptions that may prove to be
wrong. Our future capital requirements will depend on many
factors, including:




    the progress of our research and development;
    the number and scope of our research and development programs;
    market acceptance and demand for our products;
    the costs that may be involved in enforcing our patent claims
    and other intellectual property rights;



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 31





    potential acquisition and technology licensing opportunities;
    the costs associated with repurchasing shares of our common
    stock;
    manufacturing capacity requirements; and
    the costs of expanding our sales, marketing and distribution
    capabilities both in the United States and abroad.We have generated sufficient cash flow to fund our capital
requirements primarily through operating and financing
activities over the last three years. However, we cannot assure
you that we will not require additional financing in the future
to support our existing operations or potential acquisition and
technology licensing opportunities that may arise. Therefore, we
may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of
capital. Additional financing may not be available on favorable
terms or at all, and may be dilutive to our then-current
stockholders.

Our cash and investments policy emphasizes liquidity and
preservation of principal over other portfolio considerations.
We select investments that maximize interest income to the
extent possible given these two constraints. We satisfy
liquidity requirements by investing excess cash in securities
with different maturities to match projected cash needs and
limit concentration of credit risk by diversifying our
investments among a variety of high credit-quality issuers. We
believe that our existing cash and investment securities and
anticipated cash flow from our operations will be sufficient to
support our current operating plan for the foreseeable future.

CONTRACTUAL OBLIGATIONS

Our facilities are leased under noncancelable operating leases.
In addition, we have contractual commitments for the purchase of
products, components and services ending in 2005. As of
December 31, 2004, the following is a summary of our
contractual obligations (in millions):

|                                   |  |                        |      |         |      |   |         |      |  |          |      |  |  |            |     |  |  |   |     | 
|---------------------------------- |  | ---------------------- | ---- | ------- | ---- | - | ------- | ---- |  | -------- | ---- |  |  | ---------- | --- |  |  | - | --- | 
|                                   |  | PAYMENTS DUE BY PERIOD |     
|                                   |  |                        |     
|                                   |  |                        |      | 2006 to |      |   | 2008 to |      |  | 2010 and |     
|                                   |  | Total                  |      |         | 2005 |   |         | 2007 |  |          | 2009 |  |  | thereafter |    
|                                   |  |                        |     
|Operating leases                   |  | $                      | 27.6 |         |      | $ | 7.1     |      |  | $        | 13.3 |  |  | $          | 4.8 |  |  | $ | 2.4 | 
|Unconditional purchase obligations |  |                        | 12.7 |         |      |   | 12.7    |      |  |          |     |  |  |            |    |  |  |   |    | 
|                                   |  |                        |      |         |      |   |         |      |  |          |      |  |  |            |    
|Total contractual cash obligations |  | $                      | 40.3 |         |      | $ | 19.8    |      |  | $        | 13.3 |  |  | $          | 4.8 |  |  | $ | 2.4 | 
|                                   |  |                        |      |         |      |   |         |      |  |          |      |  |  |            |    



Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees




---



##### Table of Contents

32 / MOLECULAR DEVICES 2004


approximated the impact of FAS 123 as described in the
disclosure of pro forma net income and earnings per share in
Note 1 to our consolidated financial statements.
FAS 123R also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce
net operating cash flows and increase net financing cash flows
in periods after adoption. While we cannot estimate what those
amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amount
of operating cash flows recognized in prior periods for such
excess tax deductions were $3.9 million, $1.9 million
and $0 in 2004, 2003 and 2002, respectively.







Item 7A.
    Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risk, including changes in interest
rates and foreign currency exchange rates. The primary objective
of our 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 our accounting policies for financial instruments and further
disclosures relating to financial investments is included in the
Summary of Significant Accounting Policies note in the Notes to
our Consolidated Financial Statements included in this report.

FOREIGN CURRENCY EXCHANGE

We are exposed to changes in foreign currency exchange rates
primarily in the United Kingdom, Germany, France, the Benelux,
Canada, Japan and South Korea, where we sell our products
directly in local currencies. All other foreign sales are
denominated in U.S. dollars and bear no exchange rate risk.
However, a strengthening of the U.S. dollar could make our
products less competitive in overseas markets. Gains and losses
resulting from foreign currency transactions have historically
been immaterial. A sensitivity analysis assuming a hypothetical
10% movement in exchange rates applied to our projected foreign
sales for the fiscal year 2005, indicated that such movement
would not have a material effect on our business, operating
results or financial condition. Translation gains and losses
related to our foreign subsidiaries in the United Kingdom,
Germany, Norway, Switzerland, Japan, South Korea and Australia
are accumulated as a separate component of stockholders
equity. We do not currently engage in foreign currency hedging
transactions, but may do so in the future.

INTEREST AND INVESTMENT INCOME

Our interest and investment income is subject 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 our cash equivalents and
short-term investments. We invest our excess cash primarily in
demand deposits with United States banks and money market
accounts and short-term securities. These securities are carried
at market value, which approximate cost, typically mature or are
redeemable within 90 days to two years, and bear minimal
risk. We have not experienced any significant losses on the
investments. A sensitivity analysis assuming a hypothetical 10%
movement in interest rates applied to our investment balances at
December 31, 2004 indicated that such market movement would
not have a material effect on our business, operating results or
financial condition. Actual gains or losses in the future may
differ materially from this analysis, depending upon actual
balances and changes in the timing and amount of interest rate
movements.

DEBT AND INTEREST EXPENSE

In connection with the acquisition of Axon, we entered into a
new senior unsecured credit facility with Union Bank of
California, N.A., which provides us with a revolving credit
facility in the amount of up to $30.0 million. The
revolving credit facility is guaranteed by our domestic
subsidiaries. All loans outstanding under the senior unsecured
credit facility will bear interest at a rate per annum equal to,
at our option, either the base rate plus 0.50% or LIBOR plus
1.25%. A sensitivity analysis assuming a hypothetical 10%
movement in interest rates applied to our debt balance at
December 31, 2004, indicated that such market movement
would not have a material effect on our business, operating
results or financial condition, as there was no balance
outstanding at year end. Actual gains or losses in the future
may differ materially from this analysis, depending on the level
of our outstanding debt and changes in the timing and amount of
interest rate movements.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 33








Item 8.
    Financial Statements and Supplementary DataOur consolidated financial statements and financial statement
schedules as listed below are attached to this report as
pages 41 through 66.

Financial Statements:




    Reports of Independent Registered Public Accounting Firm;
    Consolidated Balance Sheets as of December 31, 2004 and
    2003;
    Consolidated Statements of Income for each of the three years in
    the period ended December 31, 2004;
    Consolidated Statements of Stockholders Equity for each of
    the three years in the period ended December 31, 2004;
    Consolidated Statements of Cash Flows for each of the three
    years in the period ended December 31, 2004; and
    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 consolidated
financial statements or notes thereto.







Item 9.
    Changes in and Disagreements with Accountants on Accounting
    and Financial DisclosureNone







Item 9A.
    Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on our managements evaluation (with the
participation of our chief executive officer and chief financial
officer), as of the end of the period covered by this report,
our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures (as
defined in Securities Exchange Act Rules 13a-15(e) and
15d-15(e)) are effective to ensure that the information required
to be disclosed by us in reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in our internal control over financial
reporting during our fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a  15(f) and
15d-15(f). Under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2004 based on the framework in
Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our evaluation, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2004.

Our managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included elsewhere herein.



---



##### Table of Contents

34 / MOLECULAR DEVICES 2004






Item 9B.    Other Information

None.





part III







Item 10.
    Directors and Executive Officers of the RegistrantIDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

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 filed with the
Securities and Exchange Commission and delivered to stockholders
in connection with the solicitation of proxies for our Annual
Meeting of Stockholders to be held on May 26, 2005 (the
Proxy Statement). Such information is incorporated
herein by reference.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The information required by this Item is set forth in the Proxy
Statement under the heading Section 16(a) Beneficial
Ownership Reporting Compliance, which information is
incorporated herein by reference.

CODE OF CONDUCT

We have adopted the Molecular Devices Corporation Code of
Conduct that applies to all officers, directors and employees.
The Code of Conduct is available in the Corporate Governance
section of the Investor Relations section of our website at
www.molecularedevices.com. We intend to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of the Code of Conduct
by posting such information on our website at the address
specified above.







Item 11.
    Executive CompensationThe 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 and Related Stockholder MattersThe information required by this Item is set forth in the Proxy
Statement under the heading Security Ownership of Certain
Beneficial Owners and Management, which information is
incorporated herein by reference.







Item 13.
    Certain Relationships and Related TransactionsThe information required by this Item is set forth in the Proxy
Statement under the heading Certain Transactions,
which information is incorporated herein by reference.







Item 14.
    Principal Accountant Fees and ServicesThe information required by this Item is incorporated herein by
reference from the section captioned Ratification of
Independent Registered Public Accounting Firm contained in
the Proxy Statement.

Consistent with Section 10A(i)(2) of the Securities
Exchange Act of 1934, as added by Section 202 of the
Sarbanes-Oxley Act of 2002, we are responsible for listing the
non-audit services approved by our Audit Committee to be
performed by Ernst & Young LLP, our Independent
Registered Public Accounting Firm. Non-audit services are
defined as services other than those provided in connection with
an audit or a review of our financial statements. Our Audit
Committee currently has approved the engagement of
Ernst & Young to perform up to $20,000 in non-audit
services in 2005.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 35






part IV







Item 15.
    Exhibits and Financial Statement Schedules(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 33
of this report.

2. Financial Statement Schedule  See Index to
Consolidated Financial Statements as Item 8 on page 33
of 
         this report.

(b) Exhibits:



---



##### Table of Contents

36 / MOLECULAR DEVICES 2004

|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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                                                                                                                                                                                                                 
|        | 2  | .2(2)                   |  | Stock and Asset Purchase Agreement,
    dated as of May 17, 1999, among Molecular Devices
    Corporation, a Delaware corporation, Helge Skare, Wiel Skare,
    Steinar Faanes and Sten Skare, each an individual resident in
    Norway, Skatron Instruments AS, a Norwegian company, and Skatron
    Instruments, Inc., a Virginia corporation
|        | 2  | .4(5)                   |  | Agreement and Plan of Merger and
    Reorganization dated as of June 7, 2000 by and among
    Molecular Devices Corporation, Mercury Acquisition Sub, Inc. and
    LJL BioSystems, Inc.                                                                                                                                                         
|        | 2  | .5(11)                  |  | Stock Purchase Agreement dated as
    of November 14, 2000 by and among JCR Pharmaceuticals, K.K.
    and Molecular Devices Corporation                                                                                                                                                                                                         
|        | 2  | .6(12)                  |  | Stock Purchase Agreement dated as
    of July 6, 2001 by and among Molecular Devices, Cytion
    S.A., Jean-Pierre Rosat (as agent for the stockholders of
    Cytion) and each of the stockholders of Cytion                                                                                                                                   
|        | 2  | .7(13)                  |  | Stock Purchase Agreement dated as
    of June 1, 2002 by and among Molecular Devices, Universal
    Imaging Corporation, Theodore Inoue (as agent for the
    stockholders of Universal Imaging Corporation) and each of the
    stockholders of Universal Imaging Corporation                                                                  
|        | 2  | .8(15)                  |  | Agreement and Plan of Merger and
    Reorganization, dated as of March 20, 2004, by and among
    Molecular Devices Corporation, Astros Acquisition Sub I,
    Inc., Astros Acquisition Sub II, LLC and Axon Instruments,
    Inc.                                                                                                              
|        | 2  | .9(16)                  |  | Amendment to Agreement and Plan of
    Merger and Reorganization, dated as of May 21, 2004, by and
    among Molecular Devices Corporation, Astros Acquisition
    Sub I, Inc., Astros Acquisition Sub II, LLC and Axon
    Instruments, Inc.                                                                                                   
|        | 3  | .1(1)                   |  | Amended and Restated Certificate of
    Incorporation of Registrant                                                                                                                                                                                                                                                                             
|        | 3  | .2(1)                   |  | Bylaws of the Registrant                                                                                                                                                                                                                                                                                                                        
|        | 3  | .3(8)                   |  | Certificate of Amendment to
    Certificate of Incorporation                                                                                                                                                                                                                                                                                    
|        | 4  | .1(1)                   |  | Specimen Certificate of Common
    Stock of Registrant                                                                                                                                                                                                                                                                                          
|        | 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(8)*                  |  | 1995 Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                               
|        | 10 | .6(1)*                  |  | Form of Nonstatutory Stock Option
    under the 1995 Non-Employee Directors 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 | .19(17)*                |  | Amended Key Employee Agreement for
    Joseph D. Keegan, Ph.D., dated July 29, 2004                                                                                                                                                                                                                                                             
|        | 10 | .20(3)                  |  | Exclusive License and Technical
    Support Agreement dated August 28, 1998 by and between the
    Registrant and Affymax                                                                                                                                                                                                                       
|        | 10 | .21(3)*                 |  | Employee Offer Letter for Timothy
    A. Harkness                                                                                                                                                                                                                                                                                               
|        | 10 | .24(17)*                |  | 1995 Non-Employee Directors
    Stock Option Plan, as amended                                                                                                                                                                                                                                                                                  
|        | 10 | .25(17)*                |  | 1995 Stock Option Plan, as amended                                                                                                                                                                                                                                                                                                              
|        | 10 | .26(6)*                 |  | Employee Offer Letter for Patricia
    Sharp                                                                                                                                                                                                                                                                                                    
|        | 10 | .27(7)*                 |  | LJL BioSystems 1994 Equity
    Incentive Plan and Forms of Agreements                                                                                                                                                                                                                                                                           
|        | 10 | .28(7)*                 |  | LJL BioSystems 1997 Stock Plan and
    Forms of Agreements                                                                                                                                                                                                                                                                                      
|        | 10 | .29(7)*                 |  | LJL BioSystems
    1998 Directors Stock Option Plan and Forms of
    Agreements                                                                                                                                                                                                                                                                
|        | 10 | .33(9)                  |  | Lease Agreement dated May 26,
    2000 by and between Aetna Life Insurance Company and the
    Registrant                                                                                                                                                                                                                                       
|        | 10 | .34(10)*                |  | Change in Control Severance Benefit
    Plan                                                                                                                                                                                                                                                                                                    
|        | 10 | .35(12)                 |  | Rights Agreement, dated
    October 25, 2001, among the Registrant and EquiServe
    Trust Company, N.A                                                                                                                                                                                                                                         
|        | 10 | .37(8)*                 |  | Key Employee Agreement for Tom
    OLenic                                                                                                                                                                                                                                                                                                      
|        | 10 | .38(17)*                |  | 2001 Stock Option Plan, as amended                                                                                                                                                                                                                                                                                                              



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 37

|        |    |                         |  |                                                                                                                                                             
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |    |                        
|NUMBER  |    | DESCRIPTION OF DOCUMENT
|       
|        | 10 | .39(14)                 |  | Lease dated May 28, 2002 by
    and between The Irvine Company and the Registrant                                                                           
|        | 10 | .40(14)*                |  | Letter Agreement dated
    April 11, 2002 by and between the Registrant and Joseph D.
    Keegan, Ph.D.                                                     
|        | 10 | .41(14)*                |  | Letter Agreement dated
    April 11, 2002 by and between the Registrant and Timothy A.
    Harkness                                                         
|        | 10 | .43*                    |  | Amended Key Employment Agreement
    for Timothy A. Harkness                                                                                                
|        | 10 | .44*                    |  | Employee Offer Letter for Alan
    Finkel                                                                                                                   
|        | 10 | .45*                    |  | Employee Offer Letter for Steven
    Davenport                                                                                                              
|        | 10 | .46*                    |  | Employee Offer Letter for Jan Hughes                                                                                                                        
|        | 10 | .47*                    |  | Amended Employee Offer Letter for
    Jan Hughes                                                                                                            
|        | 10 | .48(18)*                |  | Non-Employee Director Compensation
    Arrangements                                                                                                         
|        | 10 | .49(19)*                |  | Executive Officer Compensation
    Arrangements                                                                                                             
|        | 21 | .1                      |  | Subsidiaries of the Registrant                                                                                                                              
|        | 23 | .1                      |  | Consent of Independent Registered
    Public Accounting Firm                                                                                                
|        | 31 | .1                      |  | Certification required by
    Rule 13a-14(a) or Rule 15d-14(a)                                                                                              
|        | 31 | .2                      |  | Certification required by
    Rule 13a-14(a) or Rule 15d-14(a)                                                                                              
|        | 32 | .1**                    |  | Certifications required by
    Rule 13a-14(b) or Rule 15d-14(b) and Section 1350
    of Chapter 63 of Title 18 of the United States Code
    (18 U.S.C 1350)



|     |  |                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  |  | Incorporated by reference to the similarly described exhibit in
    our Registration Statement on Form S-1 (File
    No. 33-98926), as amended.                                                  
|    
|(2)  |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated June 30, 1998,
    and filed August 13, 1998.                                           
|    
|(3)  |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    1998, and filed November 13, 1998.                                    
|    
|(5)  |  | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed June 12, 2000.                                                                          
|    
|(6)  |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    2000 and filed on November 13, 2000.                                  
|    
|(7)  |  | Incorporated by reference to the similarly described exhibit
    filed with LJL BioSystems Registration Statement on
    Form S-1 (File No. 333-43529) declared effective on
    March 12, 1998.
|    
|(8)  |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2001
    and filed on April 1, 2002.                                          
|    
|(9)  |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2000
    and filed on March 30, 2001.                                         
|    
|(10) |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated March 31, 2001
    and filed on May 11, 2001.                                           
|    
|(11) |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated June 30, 2001 and
    filed on August 14, 2001.                                         
|    
|(12) |  | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed October 30, 2001.                                                                       
|    
|(13) |  | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed on June 12, 2002.                                                                       
|    
|(14) |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2003
    and filed on March 27, 2003.                                         
|    
|(15) |  | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed on March 22, 2004.                                                                      
|    
|(16) |  | Incorporated by reference to the similarly described exhibit in
    our Registration Statement on Form S-4 (File
    No. 333-114934), as amended.                                                
|    
|(17) |  | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    2004, and filed on November 9, 2004.                                  



---



##### Table of Contents

38 / MOLECULAR DEVICES 2004




(18)
    
    Incorporated by reference to the information in our Registration
    Statement on form S-4 (File No. 333-114934), as
    amended, under the heading Molecular Devices Executive
    Compensation  Compensation of Directors.(19)
    
    Incorporated by reference to the information in our Current
    Report on Form 8-K filed February 23, 2005 under the
    heading Item 1.01. Entry Into a Material Definitive
    Agreement.*
    
    Management contract or compensatory plan or arrangement.**
    
    The certification attached as Exhibit 32.1 accompanies the
    Annual Report on Form 10-K pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 and shall not be deemed
    filed by the Company for purposes of Section 18
    of the Securities Exchange Act of 1934, as amended.



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 39






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 16, 2005.



Molecular Devices
    Corporation

By:
    /s/ Joseph D. Keegan, Ph.D.Joseph D. Keegan, Ph.D.President and Chief
    Executive OfficerKNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Joseph D.
Keegan, Ph.D. and Timothy A. Harkness, and each of them, as
his true and lawful attorneys-in-fact and agents, with full
power of substitution for him, and in his name in any and all
capacities, to sign any and all amendments to this Annual Report
on Form 10-K, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and any of them or his
or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

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.

|                                                               |  |                                                                                                                 |  |      |                | 
|-------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---- | -------------- | 
|SIGNATURE                                                      |  | TITLE                                                                                                           |  | DATE |               
|                                                               | 
|/s/
    Joseph D.
    Keegan, Ph.D.Joseph
    D. Keegan, Ph.D. |  | President, Chief Executive Officer
    and Director (Principal Executive Officer)                               |  |      | March 16, 2005 | 
|                                                              
|/s/
    Timothy A. HarknessTimothy
    A. Harkness             |  | Senior Vice President, Finance and
    Chief Financial Officer (Principal Financial and Accounting
    Officer) |  |      | March 16, 2005 | 
|                                                              
|/s/
    Moshe H. AlafiMoshe
    H. Alafi                       |  | Director                                                                                                        |  |      | March 16, 2005 | 
|                                                              
|/s/
    David L. AndersonDavid
    L. Anderson                 |  | Director                                                                                                        |  |      | March 16, 2005 | 
|                                                              
|/s/
    A. Blaine BowmanA.
    Blaine Bowman                   |  | Director                                                                                                        |  |      | March 16, 2005 | 
|                                                              
|/s/
    Paul
    Goddard, Ph.D.Paul
    Goddard, Ph.D.         |  | Director                                                                                                        |  |      | March 16, 2005 | 
|                                                              
|/s/
    Andre F. MarionAndre
    F. Marion                     |  | Director                                                                                                        |  |      | March 16, 2005 | 



---



##### Table of Contents

40 / MOLECULAR DEVICES 2004

|                                                                     |  |          |  |      |                | 
|-------------------------------------------------------------------- |  | -------- |  | ---- | -------------- | 
|SIGNATURE                                                            |  | TITLE    |  | DATE |               
|                                                                     | 
|                                                                    
|/s/
    Harden M.
    McConnell, Ph.D.Harden
    M. McConnell, Ph.D. |  | Director |  |      | March 16, 2005 | 
|                                                                    
|/s/
    J. Allan Waitz, Ph.D.J.
    Allan Waitz, Ph.D.               |  | Director |  |      | March 16, 2005 | 



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 41


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Molecular Devices
Corporation

We have audited the accompanying consolidated balance sheets of
Molecular Devices Corporation and its subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2004. Our audits also included the financial
statement schedule listed in the Index at Part IV,
Item 15. 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 the standards of the
Public Company Accounting Oversight Board (United States). 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 and its
subsidiaries as of December 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.

As discussed in Note 1 to the consolidated financial
statements, in 2002 the Company changed its method of accounting
for goodwill and other intangible assets.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Molecular Devices Corporations internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 11, 2005
expressed an unqualified opinion thereon.



/s/Ernst
    & Young, LLPPalo Alto, California

March 11, 2005



---



##### Table of Contents

42 / MOLECULAR DEVICES 2004


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Molecular Devices
Corporation

We have audited managements assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Molecular Devices Corporation
maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Molecular Devices Corporations
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that Molecular
Devices Corporation maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Molecular Devices Corporation maintained,
in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on the
COSO criteria.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Molecular Devices Corporation as
of December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2004 of Molecular Devices Corporation and our
report dated March 11, 2005 expressed an unqualified
opinion thereon.



/s/ Ernst & Young LLPPalo Alto, California

March 11, 2005



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 43


MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                              |                                                                                                                                                                                                        |                            |         |         |         |   |         |         |         | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                              |                                                                                                                                                                                                        | DECEMBER 31,               |        
|                                              |                                                                                                                                                                                                        |                            |        
|                                              |                                                                                                                                                                                                        | 2004                       |         |         | 2003    |  
|                                              |                                                                                                                                                                                                        |                            |        
|ASSETS                                       
|Current assets:                               |                                                                                                                                                                                                        |                            |         |         |         |   |         |        
|                                              | Cash and cash equivalents                                                                                                                                                                              |                            | $       | 30,175  |         |   | $       | 50,260  |        
|                                              | Short-term investments                                                                                                                                                                                 |                            |         |        |         |   |         | 8,114   |        
|                                              | Accounts receivable, net of
    allowance for doubtful accounts of $339 and $408                                                                                                                       |                            |         | 36,995  |         |   |         | 26,209  |        
|                                              | Inventories, net                                                                                                                                                                                       |                            |         | 25,785  |         |   |         | 17,025  |        
|                                              | Deferred tax assets                                                                                                                                                                                    |                            |         | 9,654   |         |   |         | 5,223   |        
|                                              | Prepaids and other current assets                                                                                                                                                                      |                            |         | 2,780   |         |   |         | 1,849   |        
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | Total current assets       |         |         | 105,389 |   |         |         | 108,680 | 
|Long-term investments                         |                                                                                                                                                                                                        |                            |        |         |         |   | 1,736   |        
|Equipment and leasehold
    improvements, net |                                                                                                                                                                                                        |                            | 11,762  |         |         |   | 9,706   |        
|Goodwill                                      |                                                                                                                                                                                                        |                            | 104,228 |         |         |   | 26,017  |        
|Developed technology                          |                                                                                                                                                                                                        |                            | 16,339  |         |         |   | 1,248   |        
|Intangible and other assets                   |                                                                                                                                                                                                        |                            | 17,511  |         |         |   | 19,526  |        
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | $                          | 255,229 |         |         | $ | 166,913 |        
|                                              |                                                                                                                                                                                                        |                           
|LIABILITIES AND STOCKHOLDERS
    EQUITY     
|Current liabilities:                          |                                                                                                                                                                                                        |                            |         |         |         |   |         |        
|                                              | Accounts payable                                                                                                                                                                                       |                            | $       | 7,085   |         |   | $       | 4,019   |        
|                                              | Accrued compensation                                                                                                                                                                                   |                            |         | 8,447   |         |   |         | 6,295   |        
|                                              | Other accrued liabilities                                                                                                                                                                              |                            |         | 14,995  |         |   |         | 5,942   |        
|                                              | Deferred revenue                                                                                                                                                                                       |                            |         | 7,306   |         |   |         | 5,119   |        
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | Total current liabilities  |         |         | 37,833  |   |         |         | 21,375  | 
|Other long-term liabilities                   |                                                                                                                                                                                                        |                            | 1,452   |         |         |   |        |        
|Deferred tax liabilities                      |                                                                                                                                                                                                        |                            | 5,324   |         |         |   |        |        
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | Total liabilities          |         |         | 44,609  |   |         |         | 21,375  | 
|                                              |                                                                                                                                                                                                        |                           
|Commitments and contingencies
    (Note 3)    |                                                                                                                                                                                                        |                            |         |         |         |   |         |        
|Stockholders equity:                         |                                                                                                                                                                                                        |                            |         |         |         |   |         |        
|                                              | Preferred stock, $.001 par
    value; 3,000,000 shares authorized                                                                                                                                      |                            |         |        |         |   |         |        |        
|                                              | Common stock, $.001 par value;
    60,000,000 shares authorized; 19,363,579 and
    15,653,283 shares issued and 17,152,610 and 14,778,837
    outstanding at December 31, 2004 and 2003, respectively |                            |         | 19      |         |   |         | 16      |        
|                                              | Additional paid-in capital                                                                                                                                                                             |                            |         | 262,676 |         |   |         | 184,956 |        
|                                              | Accumulated deficit                                                                                                                                                                                    |                            |         | (8,873  | )       |   |         | (26,106 | )      
|                                              | Treasury stock, at cost; 2,429,446
    and 874,446 shares at December 31, 2004 and 2003,
    respectively                                                                                              |                            |         | (46,595 | )       |   |         | (14,968 | )      
|                                              | Deferred stock compensation                                                                                                                                                                            |                            |         | (113    | )       |   |         |        |        
|                                              | Accumulated other comprehensive
    income                                                                                                                                                             |                            |         | 3,506   |         |   |         | 1,640   |        
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | Total stockholders equity |         |         | 210,620 |   |         |         | 145,538 | 
|                                              |                                                                                                                                                                                                        |                           
|                                              |                                                                                                                                                                                                        | $                          | 255,229 |         |         | $ | 166,913 |        
|                                              |                                                                                                                                                                                                        |                           





---



##### Table of Contents

44 / MOLECULAR DEVICES 2004


MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|                                  |                                                  |                          |         |        |        |   |         |        |        |   |         |        |        | 
|--------------------------------- | ------------------------------------------------ | ------------------------ | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                  |                                                  | YEARS ENDED DECEMBER 31, |        
|                                  |                                                  |                          |        
|                                  |                                                  | 2004                     |         |        | 2003   |   |         | 2002   |       
|                                  |                                                  |                          |        
|Revenues                          |                                                  | $                        | 148,529 |        |        | $ | 115,581 |        |        | $ | 102,157 |       
|Cost of revenues                  |                                                  |                          | 56,274  |        |        |   | 43,256  |        |        |   | 40,561  |       
|                                  |                                                  |                         
|Gross profit                      |                                                  |                          | 92,255  |        |        |   | 72,325  |        |        |   | 61,596  |       
|Operating expenses:               |                                                  |                          |         |        |        |   |         |        |        |   |         |       
|                                  | Research and development                         |                          |         | 22,038 |        |   |         | 18,679 |        |   |         | 18,002 |       
|                                  | Selling, general and administrative              |                          |         | 52,469 |        |   |         | 43,457 |        |   |         | 35,435 |       
|                                  | Acquired in-process research and
    development |                          |         | 5,000  |        |   |         |       |        |   |         |       |       
|                                  | Restructuring charge                             |                          |         | 1,157  |        |   |         |       |        |   |         |       |       
|                                  |                                                  |                         
|                                  |                                                  | Total operating expenses |         |        | 80,664 |   |         |        | 62,136 |   |         |        | 53,437 | 
|                                  |                                                  |                         
|Income from operations            |                                                  |                          | 11,591  |        |        |   | 10,189  |        |        |   | 8,159   |       
|Gain on sale of equity securities |                                                  |                          | 18,288  |        |        |   |        |        |        |   |        |       
|Interest expense                  |                                                  |                          | (187    | )      |        |   |        |        |        |   |        |       
|Interest and other income, net    |                                                  |                          | 319     |        |        |   | 872     |        |        |   | 1,562   |       
|                                  |                                                  |                         
|Income before income taxes        |                                                  |                          | 30,011  |        |        |   | 11,061  |        |        |   | 9,721   |       
|Income tax provision              |                                                  |                          | 12,778  |        |        |   | 3,319   |        |        |   | 2,916   |       
|                                  |                                                  |                         
|Net income                        |                                                  | $                        | 17,233  |        |        | $ | 7,742   |        |        | $ | 6,805   |       
|                                  |                                                  |                         
|Basic net income per share        |                                                  | $                        | 1.08    |        |        | $ | 0.51    |        |        | $ | 0.44    |       
|                                  |                                                  |                         
|Diluted net income per share      |                                                  | $                        | 1.04    |        |        | $ | 0.51    |        |        | $ | 0.44    |       
|                                  |                                                  |                         





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 45


MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   |         |        | 
|------------------------------------------------------------------------------------------------------- | -------------------------------- | ------------ | ---------- | - | ---------- | - | -- | ----------- |  | - | -------------- | - |  | ----------------- | ------- | ------ | ------------- | - | ------- | ------------- |  | - | ------ | - |  | - | ------ | ----- |  | - | ------- | ------ | 
|                                                                                                        |                                  | Common Stock |            |   | Additional |   |    |             |  |   |                |   |  | Accumulated Other |         |        | Total         |  
|                                                                                                        |                                  |              |            |   | Paid-In    |   |    | Accumulated |  |   | Treasury Stock |   |  | Deferred Stock    |         |        | Comprehensive |   |         | Stockholders | 
|                                                                                                        |                                  | Shares       |            |   | Amount     |   |    | Capital     |  |   | Deficit        |   |  | (at cost)         |         |        | Compensation  |   |         | Income (Loss) |  |   | Equity |  
|                                                                                                        |                                  |              |           
|Balance at December 31, 2001                                                                            |                                  |              | 15,481,844 |   |            | $ | 15 |             |  | $ | 181,233        |   |  | $                 | (40,653 | )      |               | $ | (160    | )             |  | $ | (332   | ) |  | $ | (2,618 | )     |  | $ | 137,485 |       
|Comprehensive income                                                                                    |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   |         |       
|                                                                                                        | Net income                       |              |            |  |            |   |    |            |  |   |                |  |  |                   |         | 6,805  |               |   |         |              |  |   |        |  |  |   |        |      |  |   |         | 6,805  | 
|                                                                                                        | Currency translation, net of tax |              |            |  |            |   |    |            |  |   |                |  |  |                   |         |       |               |   |         |              |  |   |        |  |  |   |        | 2,114 |  |   |         | 2,114  | 
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Total comprehensive income                                                                              |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   | 8,919   |       
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Issuance of shares of common stock
    for options exercised and restricted stock granted               |                                  |              | 25,107     |   |            |   |   |             |  |   | 371            |   |  |                   |        |        |               |   |        |               |  |   | 74     |   |  |   |       |       |  |   | 445     |       
|Issuance of shares of common stock
    under Employee Stock Purchase Plan                               |                                  |              | 28,194     |   |            |   |   |             |  |   | 427            |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 427     |       
|Repurchase of shares of common stock                                                                    |                                  |              | (222,253   | ) |            |   |   |             |  |   |               |   |  |                   |        |        |               |   | (4,472  | )             |  |   |       |   |  |   |       |       |  |   | (4,472  | )     
|Reversal of deferred compensation
    for terminated employees                                          |                                  |              |           |   |            |   |   |             |  |   | (258           | ) |  |                   |        |        |               |   |        |               |  |   | 258    |   |  |   |       |       |  |   |        |       
|                                                                                                        |                                  |             
|Balance at December 31, 2002                                                                            |                                  |              | 15,312,892 |   |            |   | 15 |             |  |   | 181,773        |   |  |                   | (33,848 | )      |               |   | (4,632  | )             |  |   |       |   |  |   | (504   | )     |  |   | 142,804 |       
|                                                                                                        |                                  |             
|Comprehensive income                                                                                    |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   |         |       
|                                                                                                        | Net income                       |              |            |  |            |   |    |            |  |   |                |  |  |                   |         | 7,742  |               |   |         |              |  |   |        |  |  |   |        |      |  |   |         | 7,742  | 
|                                                                                                        | Currency translation, net of tax |              |            |  |            |   |    |            |  |   |                |  |  |                   |         |       |               |   |         |              |  |   |        |  |  |   |        | 2,144 |  |   |         | 2,144  | 
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Total comprehensive income                                                                              |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   | 9,886   |       
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Issuance of shares of common stock
    for options exercised                                            |                                  |              | 28,792     |   |            |   |   |             |  |   | 305            |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 305     |       
|Issuance of shares of common stock
    under Employee Stock Purchase Plan                               |                                  |              | 69,301     |   |            |   | 1  |             |  |   | 992            |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 993     |       
|Income tax benefit associated with
    the exercise of stock options                                    |                                  |              |           |   |            |   |   |             |  |   | 1,886          |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 1,886   |       
|Repurchase of shares of common stock                                                                    |                                  |              | (632,148   | ) |            |   |   |             |  |   |               |   |  |                   |        |        |               |   | (10,336 | )             |  |   |       |   |  |   |       |       |  |   | (10,336 | )     
|                                                                                                        |                                  |             
|Balance at December 31, 2003                                                                            |                                  |              | 14,778,837 |   |            |   | 16 |             |  |   | 184,956        |   |  |                   | (26,106 | )      |               |   | (14,968 | )             |  |   |       |   |  |   | 1,640  |       |  |   | 145,538 |       
|                                                                                                        |                                  |             
|Comprehensive income                                                                                    |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   |         |       
|                                                                                                        | Net income                       |              |            |  |            |   |    |            |  |   |                |  |  |                   |         | 17,233 |               |   |         |              |  |   |        |  |  |   |        |      |  |   |         | 17,233 | 
|                                                                                                        | Currency translation, net of tax |              |            |  |            |   |    |            |  |   |                |  |  |                   |         |       |               |   |         |              |  |   |        |  |  |   |        | 1,866 |  |   |         | 1,866  | 
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Total comprehensive income                                                                              |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |   |  |   |        |       |  |   | 19,099  |       
|                                                                                                        |                                  |              |            |   |            |   |    |             |  |   |                |   |  |                   |         |        |               |   |         |               |  |   |        |  
|Issuance of shares of common stock
    to acquire Axon Instruments, Inc., net of issuance costs of $784 |                                  |              | 3,582,655  |   |            |   | 3  |             |  |   | 69,648         |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 69,651  |       
|Issuance of shares of common stock
    for options exercised                                            |                                  |              | 290,619    |   |            |   |   |             |  |   | 3,266          |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 3,266   |       
|Issuance of shares of common stock
    under Employee Stock Purchase Plan                               |                                  |              | 55,499     |   |            |   |   |             |  |   | 872            |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 872     |       
|Income tax benefit associated with
    the exercise of stock options                                    |                                  |              |           |   |            |   |   |             |  |   | 3,934          |   |  |                   |        |        |               |   |        |               |  |   |       |   |  |   |       |       |  |   | 3,934   |       
|Repurchase of shares of common stock                                                                    |                                  |              | (1,555,000 | ) |            |   |   |             |  |   |               |   |  |                   |        |        |               |   | (31,627 | )             |  |   |       |   |  |   |       |       |  |   | (31,627 | )     
|Deferred stock compensation                                                                             |                                  |              |           |   |            |   |   |             |  |   |               |   |  |                   |        |        |               |   |        |               |  |   | (226   | ) |  |   |       |       |  |   | (226    | )     
|Amortization of deferred stock
    compensation                                                         |                                  |              |           |   |            |   |   |             |  |   |               |   |  |                   |        |        |               |   |        |               |  |   | 113    |   |  |   |       |       |  |   | 113     |       
|                                                                                                        |                                  |             
|Balance at December 31, 2004                                                                            |                                  |              | 17,152,610 |   |            | $ | 19 |             |  | $ | 262,676        |   |  | $                 | (8,873  | )      |               | $ | (46,595 | )             |  | $ | (113   | ) |  | $ | 3,506  |       |  | $ | 210,620 |       
|                                                                                                        |                                  |             





---



##### Table of Contents

46 / MOLECULAR DEVICES 2004


MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

|                                                                                                                                |                                                                                    |                           |         |         |        |   |         |       |        |   |         |       |       |  
|------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------- | ------- | ------- | ------ | - | ------- | ----- | ------ | - | ------- | ----- | ----- | -
|                                                                                                                                |                                                                                    | YEARS ENDED DECEMBER 31,  |        
|                                                                                                                                |                                                                                    |                           |        
|                                                                                                                                |                                                                                    | 2004                      |         |         | 2003   |   |         | 2002  |       
|                                                                                                                                |                                                                                    |                           |        
|Cash flows from operating
    activities:                                                                                       |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|Net income                                                                                                                      |                                                                                    | $                         | 17,233  |         |        | $ | 7,742   |       |        | $ | 6,805   |      
|Adjustments to reconcile net income
    to net cash provided by operating activities:                                           |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|                                                                                                                                | Depreciation and amortization                                                      |                           |         | 5,818   |        |   |         | 5,304 |        |   |         | 3,847 |      
|                                                                                                                                | Amortization of intangible assets                                                  |                           |         | 1,247   |        |   |         | 425   |        |   |         | 280   |      
|                                                                                                                                | Amortization of deferred stock
    compensation                                    |                           |         | 113     |        |   |         |      |        |   |         | 74    |      
|                                                                                                                                | Charge for acquired in-process
    research and development                        |                           |         | 5,000   |        |   |         |      |        |   |         |      |      
|                                                                                                                                | Gain on sale of equity securities                                                  |                           |         | (18,288 | )      |   |         |      |        |   |         |      |      
|                                                                                                                                | Decrease in deferred tax assets                                                    |                           |         | 4,297   |        |   |         | 1,140 |        |   |         | 827   |      
|                                                                                                                                | Loss on disposal of fixed assets                                                   |                           |         | 23      |        |   |         |      |        |   |         |      |      
|                                                                                                                                | Equity investment exchanged for
    services                                       |                           |         | 653     |        |   |         |      |        |   |         |      |      
|                                                                                                                                | Income tax benefit realized as a
    result of employee exercises of stock options |                           |         | 3,934   |        |   |         | 1,886 |        |   |         |      |      
|                                                                                                                                | (Increase) decrease in assets:                                                     |                           |         |         |        |   |         |       |        |   |         |       |      
|                                                                                                                                |                                                                                    | Accounts receivable       |         |         | (2,715 | ) |         |       | 1,740  |   |         |       | (345  | )
|                                                                                                                                |                                                                                    | Inventories               |         |         | 1,188  |   |         |       | (412   | ) |         |       | 10    |  
|                                                                                                                                |                                                                                    | Other current assets      |         |         | (233   | ) |         |       | (41    | ) |         |       | 594   |  
|                                                                                                                                | Increase (decrease) in liabilities:                                                |                           |         |         |        |   |         |       |        |   |         |       |      
|                                                                                                                                |                                                                                    | Accounts payable          |         |         | (576   | ) |         |       | 1,147  |   |         |       | (145  | )
|                                                                                                                                |                                                                                    | Accrued compensation      |         |         | 3,454  |   |         |       | 1,662  |   |         |       | 1,030 |  
|                                                                                                                                |                                                                                    | Other accrued liabilities |         |         | 1,614  |   |         |       | (2,560 | ) |         |       | 1,690 |  
|                                                                                                                                |                                                                                    | Deferred revenue          |         |         | 377    |   |         |       | 714    |   |         |       | 595   |  
|                                                                                                                                |                                                                                    |                          
|Net cash provided by operating
    activities                                                                                   |                                                                                    |                           | 23,139  |         |        |   | 18,747  |       |        |   | 15,262  |      
|                                                                                                                                |                                                                                    |                          
|Cash flows from investing
    activities:                                                                                       |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|Purchases of investments                                                                                                        |                                                                                    |                           |        |         |        |   | (15,275 | )     |        |   | (17,680 | )    
|Proceeds from sales and maturities
    of available-for-sale investments                                                        |                                                                                    |                           | 9,850   |         |        |   | 15,475  |       |        |   | 18,515  |      
|Proceeds from sale of equity
    securities                                                                                     |                                                                                    |                           | 28,288  |         |        |   |        |       |        |   |        |      
|Capital expenditures                                                                                                            |                                                                                    |                           | (4,773  | )       |        |   | (2,399  | )     |        |   | (2,295  | )    
|Acquisitions, net of cash on hand                                                                                               |                                                                                    |                           | (48,533 | )       |        |   |        |       |        |   | (22,927 | )    
|Increase in other assets                                                                                                        |                                                                                    |                           | (1,600  | )       |        |   | (1,294  | )     |        |   | (372    | )    
|                                                                                                                                |                                                                                    |                          
|Net cash used in investing
    activities                                                                                       |                                                                                    |                           | (16,768 | )       |        |   | (3,493  | )     |        |   | (24,759 | )    
|                                                                                                                                |                                                                                    |                          
|Cash flows from financing
    activities:                                                                                       |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|Proceeds from borrowings on credit
    facility                                                                                 |                                                                                    |                           | 15,000  |         |        |   |        |       |        |   |        |      
|Repayment of borrowings                                                                                                         |                                                                                    |                           | (15,000 | )       |        |   |        |       |        |   |        |      
|Issuance of common stock                                                                                                        |                                                                                    |                           | 4,138   |         |        |   | 1,299   |       |        |   | 798     |      
|Purchase of treasury stock                                                                                                      |                                                                                    |                           | (31,627 | )       |        |   | (10,336 | )     |        |   | (4,472  | )    
|                                                                                                                                |                                                                                    |                          
|Net cash used in financing
    activities                                                                                       |                                                                                    |                           | (27,489 | )       |        |   | (9,037  | )     |        |   | (3,674  | )    
|                                                                                                                                |                                                                                    |                          
|Effect of exchange rate changes on
    cash                                                                                     |                                                                                    |                           | 1,033   |         |        |   | 310     |       |        |   | 532     |      
|                                                                                                                                |                                                                                    |                          
|Net (decrease) increase in cash and
    cash equivalents                                                                        |                                                                                    |                           | (20,085 | )       |        |   | 6,527   |       |        |   | (12,639 | )    
|Cash and cash equivalents at
    beginning of year                                                                              |                                                                                    |                           | 50,260  |         |        |   | 43,733  |       |        |   | 56,372  |      
|                                                                                                                                |                                                                                    |                          
|Cash and cash equivalents at end of
    year                                                                                    |                                                                                    | $                         | 30,175  |         |        | $ | 50,260  |       |        | $ | 43,733  |      
|                                                                                                                                |                                                                                    |                          
|Supplemental cash flow information:                                                                                             |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|Cash paid during the year for:                                                                                                  |                                                                                    |                           |         |         |        |   |         |       |        |   |         |      
|                                                                                                                                | Interest                                                                           |                           | $       | 186     |        |   | $       |      |        |   | $       |      |      
|                                                                                                                                |                                                                                    |                          
|                                                                                                                                | Income taxes                                                                       |                           | $       | 2,972   |        |   | $       | 2,143 |        |   | $       | 496   |      
|                                                                                                                                |                                                                                    |                          
|Issuance of 3,582,655 shares
    of common stock in conjunction with the acquisition of Axon
    Instruments, Inc. in July 2004 |                                                                                    | $                         | 69,648  |         |        | $ |        |       |        | $ |        |      
|                                                                                                                                |                                                                                    |                          





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 47


MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.
    Summary of Significant Accounting PoliciesBASIS OF PRESENTATION

Molecular Devices Corporation (Molecular Devices,
the Company, our, us or
we), a Delaware corporation, is principally involved
in the design, development, manufacture, sale and service of
bioanalytical measurement systems that accelerate and improve
drug discovery and other life sciences research. The customers
for our products include leading pharmaceutical and
biotechnology companies as well as medical centers,
universities, government research laboratories and other
institutions throughout the world.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of
Molecular Devices and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with
U.S. 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

Cash equivalents consist of highly liquid investments,
principally money market accounts and marketable debt
securities, with maturities of three months or less at the time
of purchase.

INVESTMENTS

Our short-term and long-term investments consist of marketable
securities classified as available-for-sale.
Investments with maturities within twelve months of the balance
sheet date are considered short-term. Those investments maturing
beyond twelve months from the balance sheet date are considered
long-term. Available-for-sale securities are carried at fair
market value, with unrealized gains and losses, net of tax,
included in accumulated other comprehensive income (loss) in
stockholders equity. Gains and losses on securities sold
are based on the specific identification method and are included
in the results of operations. Realized gains and losses have
been historically immaterial and combined with interest income
in the Consolidated Statements of Income as interest and other
income, net.

Fair values of marketable securities are based on quoted market
values and consisted of the following:

|                        |                               |                |   |   |      |   |       |       | 
|----------------------- | ----------------------------- | -------------- | - | - | ---- | - | ----- | ----- | 
|                        |                               | DECEMBER 31,   |  
|                        |                               |                |  
|                        |                               | 2004           |   |   | 2003 |  
|                        |                               |                |  
|                        |                               | (In thousands) |  
|Short-term investments: |                               |                |   |   |      |   |       |      
|                        | Federal government securities |                | $ |  |      |   | $     | 5,960 | 
|                        | Corporate securities          |                |   |  |      |   |       | 2,154 | 
|                        |                               |               
|                        |                               | $              |  |   |      | $ | 8,114 |      
|                        |                               |               
|Long-term investments:  |                               |                |   |   |      |   |       |      
|                        | Federal government securities |                | $ |  |      |   | $     | 1,736 | 
|                        |                               |               











---



##### Table of Contents

48 / MOLECULAR DEVICES 2004


inability to pay. The amount of the reserve is determined by
analyzing known uncollectible accounts, aged receivables,
economic conditions in the customers country or industry,
historical losses and customer credit-worthiness. Amounts later
determined and specifically identified to be uncollectible are
charged or written off against the reserve. Estimated losses
have historically been within our expectations. In 2003, one
customer accounted for approximately 5% of sales and no single
customer accounted for more than 5% of sales in 2004.

INVENTORIES

Inventories are stated on a first-in, first-out basis at the
lower of cost or market. We write down our inventory for
estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and
market conditions. If actual market conditions are less
favorable than those projected by management, additional
inventory write-downs may be required. Such write-downs have
historically been within our expectations.

CAPITALIZED SOFTWARE COSTS

Software development costs incurred subsequent to the
establishment of technological feasibility are capitalized in
accordance with the Financial Accounting Standards Board
(FASB) Statement No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed. No amounts have been capitalized
to date, as costs incurred after the establishment of
technological feasibility have not been material.

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,
or the life of the asset, whichever is shorter. Maintenance and
repairs are expensed as incurred. Depreciation expense for 2004,
2003 and 2002 was $4.3 million, $3.7 million and
$3.2 million, respectively.

GOODWILL

Goodwill represents the difference between the purchase price
and the fair value of net assets when accounted for by the
purchase method of accounting. Prior to 2002, goodwill was
amortized using the straight-line method over 10 to
15 years. In January 2002, we adopted FASB Statement
No. 142, Goodwill and Other Intangible
Assets(FAS 142) and, accordingly,
ceased amortizing goodwill. In conjunction with the adoption of
FAS 142, we performed an initial impairment test of
goodwill and found no impairment.

FAS No. 142 requires periodic evaluations for
impairment of goodwill balances. We perform our goodwill
impairment tests annually based on the market capitalization
approach during the third quarter of our fiscal year, and more
frequently if an event or circumstance indicates that impairment
has occurred. Based on our annual evaluations for impairment of
goodwill, we determined that no impairment of goodwill existed
at any period presented.

INTANGIBLE AND OTHER ASSETS

Intangible and other assets include patents, developed
technology, license fees, backlog, distribution rights,
tradename and strategic investments in privately held companies
that have been accounted for under the cost method. Patents,
developed technology and license fees are amortized over their
expected useful life of ten years. Order backlog is amortized
over a life of one year. Tradename and distribution rights are
assessed to have an indefinite life and therefore are not
subject to amortization.

IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate long-lived assets, including investments accounted
for under the cost method, for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable based on expected undiscounted cash
flows attributable to that asset. The amount of any impairment
is measured as the difference between the carrying value and the
fair value of the impaired asset. For long-lived assets, fair
value would be measured based on discounted expected cash flows.
There were no long-lived assets that were considered to be
impaired during any period presented.

EQUITY INVESTMENTS

We invest in equity instruments of privately held companies for
business and strategic purposes. These investments are included
in intangible and other assets and are accounted for under the
cost method when ownership is less than



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 49


20 percent of voting securities and we do not have the
ability to exercise significant influence over operations. When
our ownership exceeds 20 percent of voting securities but
is less than 50 percent, or we have the ability to exercise
significant influence, the investment is accounted for under the
equity method. Under the equity method, the investees
proportionate share of net income or loss and amortization of
the investees net excess investment over its equity in net
assets is included in net income or loss. As of
December 31, 2004, we did not hold any investments
accounted for under the equity method. We regularly review the
assumptions underlying the operating performance and cash flow
forecasts in assessing the fair values. We monitor the preceding
factors to identify events or circumstances which would cause us
to test for other than temporary impairment and revise our
assumptions for the estimated recovery of equity investments.
There were no investments considered impaired during any of the
periods presented.

In October 2004, Serologicals Corporation
(Serologicals) purchased Upstate Group, Inc.
(Upstate), a privately held company in which we held
an equity interest. As a result of the acquisition, we received
cash of $9.6 million and common stock in Serologicals.
Subsequently, we disposed of our entire equity investment in
Serologicals. The net gain as a result of these transactions was
$18.3 million, which is reported as gain on sale of equity
securities in the Consolidated Statements of Income.

INCOME TAXES

Income taxes are accounted for under the liability method
whereby deferred tax asset or liability account balances are
calculated at the balance sheet date using current tax laws and
rates in effect for the year in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized in the future.

FOREIGN CURRENCY TRANSLATION

We translate the assets and liabilities of our foreign
subsidiaries into dollars at the rates of exchange in effect at
the end of the period and translate 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 Consolidated Statements of Income within interest and other
income, net.

REVENUE RECOGNITION AND WARRANTY

We apply the provisions of the following authoritative
literature in the development of our revenue recognition
policies:




    Emerging Issues Task Force (EITF), Issue
    No. 00-21, Revenue Arrangements with Multiple
    Deliverables. Revenue arrangements with multiple
    elements are divided into separate units of accounting if the
    deliverables in the arrangement have value to the customer on a
    stand alone basis, there is objective and reliable evidence of
    the fair value of the undelivered elements and there are no
    rights of return or additional performance guarantees by the
    Company.
    Statement of Position 97-2, Software Revenue
    Recognition. Revenue earned on software arrangements
    involving multiple elements is allocated to each element based
    on the relative fair values of the elements as determined by
    means of our quoting process and published price lists.
    Staff Accounting Bulletin (SAB) No. 101,
    Revenue Recognition in Financial Statements
    (as amended by SAB 104). Revenue is recognized when the
    following four criteria are met: (1) persuasive evidence of
    an arrangement exists; (2) delivery has occurred or
    services have been rendered; (3) the sellers price is
    fixed or determinable; and (4) collectibility is reasonably
    assured.A majority of our revenue is derived from the sale of
instruments to end-users with a one-year warranty. These
arrangements include a single element (the instrument). Other
single-element arrangements include the sale of consumables,
software, service, installation or training. Arrangements
incorporating multiple elements may exist, either through one
invoice or through separate invoices entered into with a single
customer at or near the same time. These multiple-element
arrangements can include any combination of the previously
described products or services.

All single-element and multiple-element arrangements are
evidenced by an invoice in response to a written purchase order.
Each element of an arrangement is invoiced at fair value as
determined by means of our quoting process and



---



##### Table of Contents

50 / MOLECULAR DEVICES 2004


published price lists. Standard end-user terms include: risk of
loss transferring to the purchaser at the time of shipment, net
30 day payment terms, no right of return or exchange, no
right to upgrades and no acceptance provisions.

We do not enter into arrangements that require performance in
excess of our published specifications.

Our revenue recognition criteria are as follows. In multiple
element arrangements, each element is invoiced at fair value,
and our revenue recognition criteria are applied to each element
of the arrangement.




    Instruments, software and consumables  We recognize
    revenue with respect to sales of instruments, software and
    consumables at the time that an instrument, software or
    consumable is shipped, in accordance with the shipping terms of
    the invoice. Under FOB Destination terms, we do not recognize
    revenue until the product arrives at the customer site. We
    determine that the SAB No. 104 criteria have been met
    through receipt of a valid purchase order and issuance by us of
    either a sales order confirmation or an invoice, confirmation of
    product shipment (or receipt, when FOB Destination terms apply),
    issuance of an invoice indicating the price and conduct of a
    credit check or, in certain circumstances, receipt of prior
    payment.
    Service, installation and training  Revenue from
    service events not covered by warranty or a service contract is
    recognized upon completion of the service. Service can be
    provided in the field or at our service depot. For a small
    number of products, we offer the option to purchase installation
    services. Installation is billed separately at the time of
    performance and is not part of a package price for instruments.
    We have established a fair value for installation services, as
    installation can be purchased with or without an instrument.
    Further, a third party or the customer can perform the
    installation. Training is billed separately at the time of
    performance and is not part of a package price for instruments.
    Training revenue is recognized upon completion of the training.
    We determine that the SAB No. 104 criteria have been
    met through receipt of a valid purchase order and issuance by us
    of either a sales order confirmation or an invoice, receipt of a
    customer acknowledgment that the service, installation or
    training has been completed, issuance of an invoice indicating
    the price and conduct of a credit check or, in certain
    circumstances, receipt of prior payment.
    Service Contracts  Revenue from service contracts for
    our instruments, generally with a one-year term, is recognized
    ratably over the period of coverage. We determine that the
    SAB No. 104 criteria have been met through receipt of
    a valid purchase order and issuance by us of either a sales
    order confirmation or an invoice, issuance of an invoice
    indicating the price and conduct of a credit check or, in
    certain circumstances, receipt of prior payment.Future warranty costs are estimated based on historical
experience and provided for at the time of sale. Freight costs
for revenue-generating shipments are charged to costs of goods
sold.

ADVERTISING COSTS

We expense the cost of advertising as incurred. Such costs
approximated $1.1 million, $782,000 and $1.1 million
for 2004, 2003 and 2002, respectively.

RECENT ACCOUNTING PRONOUNCEMENT

In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment
(FAS 123R) which is a revision of FASB
Statement No. 123, Accounting for Stock-Based
Compensation (FAS 123), and
supercedes APB Opinion No. 25, Accounting for
Stock Issued to Employees (APB Opinion
25). FAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values, beginning with the first interim or annual period after
June  15, 2005, with early adoption encouraged. The
pro forma disclosures previously permitted under FAS 123
will no longer be an alternative to financial statement
recognition. We are required to adopt FAS 123R in our third
quarter of fiscal 2005, beginning July 1, 2005. Under
FAS 123R, we must determine the appropriate fair value
model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition
method to be used upon adoption. The transition methods include
modified prospective and modified retrospective adoption
options. Under the modified prospective method, compensation
cost is recognized beginning with the effective date
(a) based on the requirements of FAS 123R for all
share-based payments granted after the effective date and
(b) based on the requirements of FAS 123 for all
awards granted to employees prior to the effective date of
FAS 123R that remain unvested on the effective date. The
modified retrospective method includes the requirements of the
modified prospective method described above, but also permits



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 51


entities to restate, based on the amounts previously recognized
under Statement 123 for purposes of pro forma disclosures,
either (a) all prior periods presented or (b) prior
interim periods of the year of adoption. As permitted by
FAS 123, we currently account for share-based payments to
employees using APB Opinion 25s intrinsic value method
and, as such, recognize no compensation cost for employee stock
options. Although expected to be material, we cannot predict the
impact of adoption of FAS 123R at this time because it will
depend on levels of share-based payments granted in the future.
However, had we adopted FAS 123R in prior periods, the
impact of that standard would have approximated the impact of
FAS 123 as described in the disclosure of pro forma net
income and earnings per share in Note 1 to our consolidated
financial statements. FAS 123R also requires the benefits
of tax deductions in excess of recognized compensation cost to
be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase
net financing cash flows in periods after adoption. While we
cannot estimate what those amounts will be in the future
(because they depend on, among other things, when employees
exercise stock options), the amount of operating cash flows
recognized in prior periods for such excess tax deductions were
$3.9 million, $1.9 million and $0 in 2004, 2003 and
2002, respectively.

PER SHARE DATA

Basic net income per share is computed based on the weighted
average number of shares of our common stock outstanding.
Diluted net income per share is computed based on the weighted
average number of shares of our common stock outstanding and
other dilutive securities. Dilutive securities consist of the
incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method).

Computation of diluted earnings per share is as follows (in
thousands, except per share amounts):

|                                                                                                |  |                          |        |  |      |   |        |      |  |   |        | 
|----------------------------------------------------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                                |  | YEARS ENDED DECEMBER 31, |       
|                                                                                                |  |                          |       
|                                                                                                |  | 2004                     |        |  | 2003 |   |        | 2002 | 
|                                                                                                |  |                          |       
|Weighted average common shares
    outstanding for the period                                   |  |                          | 16,028 |  |      |   | 15,067 |      |  |   | 15,348 | 
|Common equivalent shares assuming
    exercise of stock options under the treasury stock method |  |                          | 504    |  |      |   | 112    |      |  |   | 109    | 
|                                                                                                |  |                         
|Shares used in computing diluted
    net income per share                                       |  |                          | 16,532 |  |      |   | 15,179 |      |  |   | 15,457 | 
|                                                                                                |  |                         
|Net income                                                                                      |  | $                        | 17,233 |  |      | $ | 7,742  |      |  | $ | 6,805  | 
|                                                                                                |  |                         
|Basic net income per share                                                                      |  | $                        | 1.08   |  |      | $ | 0.51   |      |  | $ | 0.44   | 
|                                                                                                |  |                         
|Diluted net income per share                                                                    |  | $                        | 1.04   |  |      | $ | 0.51   |      |  | $ | 0.44   | 
|                                                                                                |  |                         









---



##### Table of Contents

52 / MOLECULAR DEVICES 2004


purchase plans as prescribed by FAS 123, net income (loss)
and net income (loss) per share would have been changed to the
pro forma amounts indicated in the table below (in thousands,
except per share amounts):

|                                                                                                |  |                          |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                |  | YEARS ENDED DECEMBER 31, |       
|                                                                                                |  |                          |       
|                                                                                                |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                                                                                                |  |                          |       
|Net income  as reported                                                                        |  | $                        | 17,233 |   |      | $ | 7,742  |      |  | $ | 6,805  |  
|Plus: Stock based employee
    compensation expense included in reported net income, net of tax |  |                          | 65     |   |      |   |       |      |  |   |       |  
|Less: Stock based compensation
    expense determined using the fair value method, net of tax   |  |                          | (6,301 | ) |      |   | (7,520 | )    |  |   | (7,886 | )
|                                                                                                |  |                         
|Net income (loss)  pro
    forma                                                               |  | $                        | 10,997 |   |      | $ | 222    |      |  | $ | (1,081 | )
|                                                                                                |  |                         
|Net income (loss) per share:                                                                    |  |                          |        |   |      |   |        |      |  |   |        |  
|Basic  as reported                                                                             |  | $                        | 1.08   |   |      | $ | 0.51   |      |  | $ | 0.44   |  
|Basic  pro forma                                                                               |  |                          | 0.69   |   |      |   | 0.01   |      |  |   | (0.07  | )
|Diluted  as reported                                                                           |  |                          | 1.04   |   |      |   | 0.51   |      |  |   | 0.44   |  
|Diluted  pro forma                                                                             |  |                          | 0.67   |   |      |   | 0.01   |      |  |   | (0.07  | )





|                                |  |      |           |   |      |  |           |      |  |  |           |  
|------------------------------- |  | ---- | --------- | - | ---- |  | --------- | ---- |  |  | --------- | -
|                                |  | 2004 |           |   | 2003 |  |           | 2002 | 
|                                |  |      |          
|Expected dividend yield         |  |      | 0         | % |      |  | 0         | %    |  |  | 0         | %
|Expected stock price volatility |  |      | 86        | % |      |  | 81        | %    |  |  | 85        | %
|Risk-free interest rate         |  |      | 4.1       | % |      |  | 2.9       | %    |  |  | 4.4       | %
|Expected life of options        |  |      | 5.2 years |   |      |  | 6.2 years |      |  |  | 5.6 years |  













---



##### Table of Contents

MOLECULAR DEVICES 2004 / 53




Note 2.
    Balance Sheet Amounts

|                                                   |                                                |                |         |        |      |   |         |        | 
|-------------------------------------------------- | ---------------------------------------------- | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                                   |                                                | DECEMBER 31,   |        
|                                                   |                                                |                |        
|                                                   |                                                | 2004           |         |        | 2003 |  
|                                                   |                                                |                |        
|                                                   |                                                | (In thousands) |        
|Inventories, net:                                  |                                                |                |         |        |      |   |         |       
|                                                   | Raw materials                                  |                | $       | 12,521 |      |   | $       | 6,213  | 
|                                                   | Work-in-process                                |                |         | 2,202  |      |   |         | 600    | 
|                                                   | Finished goods and demonstration
    equipment |                |         | 11,062 |      |   |         | 10,212 | 
|                                                   |                                                |               
|                                                   |                                                | $              | 25,785  |        |      | $ | 17,025  |       
|                                                   |                                                |               
|Equipment and leasehold
    improvements:          |                                                |                |         |        |      |   |         |       
|                                                   | Machinery and equipment                        |                | $       | 21,474 |      |   | $       | 15,170 | 
|                                                   | Software                                       |                |         | 4,299  |      |   |         | 3,727  | 
|                                                   | Furniture and fixtures                         |                |         | 4,331  |      |   |         | 3,028  | 
|                                                   | Leasehold improvements                         |                |         | 8,206  |      |   |         | 6,225  | 
|                                                   |                                                |               
|                                                   |                                                |                | 38,310  |        |      |   | 28,150  |       
|Less accumulated depreciation and
    amortization |                                                |                | (26,548 | )      |      |   | (18,444 | )     
|                                                   |                                                |               
|                                                   |                                                | $              | 11,762  |        |      | $ | 9,706   |       
|                                                   |                                                |               
|Intangible and other assets:                       |                                                |                |         |        |      |   |         |       
|                                                   | Equity investments                             |                | $       | 2,200  |      |   | $       | 12,353 | 
|                                                   | Intangible assets                              |                |         | 13,904 |      |   |         | 4,079  | 
|                                                   | Other assets                                   |                |         | 1,407  |      |   |         | 3,094  | 
|                                                   |                                                |               
|                                                   |                                                | $              | 17,511  |        |      | $ | 19,526  |       
|                                                   |                                                |               
|Other accrued liabilities:                         |                                                |                |         |        |      |   |         |       
|                                                   | Accrued income tax                             |                | $       | 3,128  |      |   | $       | 939    | 
|                                                   | Warranty accrual                               |                |         | 2,276  |      |   |         | 1,502  | 
|                                                   | Other                                          |                |         | 9,591  |      |   |         | 3,501  | 
|                                                   |                                                |               
|                                                   |                                                | $              | 14,995  |        |      | $ | 5,942   |       
|                                                   |                                                |               



|        |                              
|------- | -----------------------------
|Note 3. | Commitments and Contingencies













---



##### Table of Contents

54 / MOLECULAR DEVICES 2004


WARRANTY

At the time of sale, we record an estimate for warranty costs
that may be incurred under product warranties. Warranty expense
and activity are estimated based on historical experience. The
warranty accrual is evaluated periodically and adjusted for
changes in experience. Changes in the warranty liability during
the years ended December 31, 2004 and 2003 were as follows
(in thousands):

|                          |                                                   |   |       |        |  
|------------------------- | ------------------------------------------------- | - | ----- | ------ | -
|Balance December 31, 2002 |                                                   | $ | 1,295 |       
|                          | New warranties issued during the
    period       |   |       | 1,472  |  
|                          | Cost of warranties incurred during
    the period |   |       | (1,265 | )
|                          |                                                   |   |      
|Balance December 31, 2003 |                                                   |   | 1,502 |       
|                          | New warranties issued during the
    period       |   |       | 1,976  |  
|                          | Cost of warranties incurred during
    the period |   |       | (1,721 | )
|                          | Warranties assumed from Axon                      |   |       | 519    |  
|                          |                                                   |   |      
|Balance December 31, 2004 |                                                   | $ | 2,276 |       
|                          |                                                   |   |      









Accounting for Contingencies.




|        |                               
|------- | ------------------------------
|Note 4. | Acquisitions and Restructuring







---



##### Table of Contents

MOLECULAR DEVICES 2004 / 55


The acquisition was accounted for under the purchase method of
accounting. The results of operations of Axon have been included
in the accompanying consolidated financial statements from the
date of acquisition. The total cost of the acquisition is as
follows (in thousands):

|                             |  |   |         | 
|---------------------------- |  | - | ------- | 
|Common stock issued          |  | $ | 67,207  | 
|Cash paid                    |  |   | 67,153  | 
|Common stock options assumed |  |   | 3,225   | 
|Direct transaction costs     |  |   | 2,337   | 
|                             |  |   |        
|Total purchase price         |  | $ | 139,922 | 
|                             |  |   |        



|                                |  |      |                  |  
|------------------------------- |  | ---- | ---------------- | -
|                                |  | 2004 |                 
|                                |  |      |                 
|Expected dividend yield         |  |      | 0                | %
|Expected stock price volatility |  |      | 53               | %
|Risk-free interest rate         |  |      | 1.5              | %
|Expected life of options        |  |      | 0.57  2.0 years |  







---



##### Table of Contents

56 / MOLECULAR DEVICES 2004


project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market
acceptance and penetration, and market growth rates and risks
related to the impact of potential changes in future target
markets.

Goodwill, representing the excess of the purchase price over the
fair value of the net assets acquired, will not be amortized,
consistent with the guidance in FAS 142. The goodwill
associated with the Axon acquisition is not deductible for tax
purposes. The acquired goodwill value is primarily based on the
complimentary technology that is expected to strengthen
Molecular Devices product portfolio with systems for
cellular neurosciences and genomics, and that combines
complimentary product lines in the areas of high-throughput
imaging and electrophysiology.

The excess of the purchase price over the identified net assets
of Axon has been allocated as follows (in thousands):

|                                                                                    |  |   |         | 
|----------------------------------------------------------------------------------- |  | - | ------- | 
|Acquired goodwill                                                                   |  | $ | 78,211  | 
|Net book value of acquired assets
    and liabilities which approximates fair value |  |   | 32,111  | 
|Acquired developed technology
    (amortized over ten years)                        |  |   | 15,900  | 
|Acquired tradename                                                                  |  |   | 8,600   | 
|Acquired in-process research and
    development                                    |  |   | 5,000   | 
|Acquired backlog (amortized over
    one year)                                      |  |   | 100     | 
|                                                                                    |  |   |        
|                                                                                    |  | $ | 139,922 | 
|                                                                                    |  |   |        



|                                                      |                                                    |                     |        |        |        | 
|----------------------------------------------------- | -------------------------------------------------- | ------------------- | ------ | ------ | ------ | 
|                                                      |                                                    | AS OF JUNE 30, 2004 |       
|                                                      |                                                    |                     |       
|Assets:                                               |                                                    |                     |        |       
|                                                      | Cash and cash equivalents                          |                     | $      | 22,064 |       
|                                                      | Accounts receivable                                |                     |        | 7,286  |       
|                                                      | Inventories, net                                   |                     |        | 11,253 |       
|                                                      | Other current assets                               |                     |        | 6,256  |       
|                                                      | Fixed assets                                       |                     |        | 1,577  |       
|                                                      | Intangible and other assets                        |                     |        | 1,999  |       
|                                                      |                                                    |                     |       
|                                                      |                                                    | Total assets        |        | $      | 50,435 | 
|Liabilities:                                          |                                                    |                     |        |       
|                                                      | Accounts payable and other current
    liabilities |                     | $      | 11,824 |       
|                                                      | Long-term liabilities                              |                     |        | 6,500  |       
|                                                      |                                                    |                     |       
|                                                      |                                                    | Total liabilities   |        | $      | 18,324 | 
|                                                      |                                                    |                     |       
|Net book value of acquired assets
    and liabilities |                                                    | $                   | 32,111 |       
|                                                      |                                                    |                     |       







---



##### Table of Contents

MOLECULAR DEVICES 2004 / 57


been consummated as of the beginning of each period presented.
The net income includes, on a pre-tax basis, $5.0 million
for the write-off of acquired in-process research and
development costs for each period presented.

|                             |  |      |         |  |      |   |         | 
|---------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                             |  | 2004 |         |  | 2003 |  
|                             |  |      |        
|Revenue                      |  | $    | 168,164 |  |      | $ | 149,060 | 
|Net income                   |  | $    | 11,951  |  |      | $ | 2,789   | 
|Diluted net income per share |  | $    | 0.72    |  |      | $ | 0.15    | 











|                                           |  |         |       |  |          |            |              |      |  |   |       | 
|------------------------------------------ |  | ------- | ----- |  | -------- | ---------- | ------------ | ---- |  | - | ----- | 
|                                           |  |         |       |  |          | Balance at |             
|                                           |  | Initial |       |  |          |            | December 31, |     
|                                           |  | Cost    |       |  | Payments |            |              | 2004 | 
|                                           |  |         |      
|Axon employee severance and
    relocation |  | $       | 500   |  |          | $          | 365          |      |  | $ | 135   | 
|Closure of duplicate facilities            |  |         | 2,200 |  |          |            |             |      |  |   | 2,200 | 
|Molecular Devices employee severance       |  |         | 1,157 |  |          |            | 124          |      |  |   | 1,033 | 
|                                           |  |         |       |  |          |            |              |      | 
|Total                                      |  | $       | 3,857 |  |          | $          | 489          |      |  | $ | 3,368 | 
|                                           |  |         |       |  |          |            |              |      | 







---



##### Table of Contents

58 / MOLECULAR DEVICES 2004


purchase price over the identified net assets of UIC has been
allocated to goodwill, tradename and developed technology as
follows (in thousands):

|                                                                                   |  |   |        | 
|---------------------------------------------------------------------------------- |  | - | ------ | 
|Acquired goodwill                                                                  |  | $ | 18,846 | 
|Net book value of acquired assets
    and liabilities which approximate fair value |  |   | 2,179  | 
|Acquired developed technology
    (amortized over ten years)                       |  |   | 1,468  | 
|Acquired tradename                                                                 |  |   | 707    | 
|                                                                                   |  |   |       
|                                                                                   |  | $ | 23,200 | 
|                                                                                   |  |   |       



|        |                                                       
|------- | ------------------------------------------------------
|Note 5. | Goodwill, Purchased Intangible Assets and License Fees





|                     |       |                   |        |        |                   |   |       |          |  |       |          |        |  |              |       |       |          |   |     |     |  |   |       |       | 
|-------------------- | ----- | ----------------- | ------ | ------ | ----------------- | - | ----- | -------- |  | ----- | -------- | ------ |  | ------------ | ----- | ----- | -------- | - | --- | --- |  | - | ----- | ----- | 
|                     |       | DECEMBER 31, 2004 |        |        | DECEMBER 31, 2003 |  
|                     |       |                   |        |        |                   |  
|                     |       | Gross             |        |        |                   |   | Net   |          |  | Gross |          |        |  |              | Net   |      
|                     |       | Carrying          |        |        | Accumulated       |   |       | Carrying |  |       | Carrying |        |  | Accumulated  |       |       | Carrying |  
|                     |       | Value             |        |        | Amortization      |   |       | Value    |  |       | Value    |        |  | Amortization |       |       | Value    |  
|                     |       |                   |       
|Patents              |       | $                 | 1,372  |        |                   | $ | 472   |          |  | $     | 900      |        |  | $            | 1,372 |       |          | $ | 335 |     |  | $ | 1,037 |      
|Developed Technology |       |                   | 17,368 |        |                   |   | 1,029 |          |  |       | 16,339   |        |  |              | 1,468 |       |          |   | 220 |     |  |   | 1,248 |      
|License Fees         |       |                   | 2,688  |        |                   |   | 513   |          |  |       | 2,175    |        |  |              | 2,588 |       |          |   | 253 |     |  |   | 2,335 |      
|Backlog              |       |                   | 100    |        |                   |   | 42    |          |  |       | 58       |        |  |              |      |       |          |   |    |     |  |   |      |      
|                     |       |                  
|                     | Total |                   | $      | 21,528 |                   |   | $     | 2,056    |  |       | $        | 19,472 |  |              | $     | 5,428 |          |   | $   | 808 |  |   | $     | 4,620 | 
|                     |       |                  



|                                 |  |              |        | 
|-------------------------------- |  | ------------ | ------ | 
|                                 |  | Amortization |       
|For the year ending December 31, |  | Expense      |       
|                                 |  |              |       
|2005                             |  | $            | 2,191  | 
|2006                             |  |              | 2,133  | 
|2007                             |  |              | 2,133  | 
|2008                             |  |              | 2,133  | 
|2009                             |  |              | 2,133  | 
|Thereafter                       |  |              | 8,749  | 
|                                 |  |              |       
|                                 |  | $            | 19,472 | 
|                                 |  |              |       



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 59




Note 6.
    Stockholders EquityTREASURY STOCK

In 2004, we repurchased 1,555,000 shares of our common
stock. These repurchases occurred at various times throughout
the year. As of December 31, 2004, 2,429,446 repurchased
shares remained on our balance sheet as treasury stock, at cost.
As of December 31, 2004, approximately 575,000 shares
remained available for repurchase under the stock repurchase
program initially approved by the Board of Directors in August
2001.



Note 7.
    Stock Option and Equity Incentive PlansUnder our 1995 Stock Option Plan (1995 Plan), we are
authorized to grant options to purchase common stock as either
incentive or nonqualified stock options to officers, directors,
employees and consultants. Shares authorized at
December 31, 2004 equal 4,050,000 plus up to
1,000,000 shares previously reserved under our 1988 Stock
Option Plan to the extent they were not previously issued or
subject to outstanding options. Option grants expire in ten
years and generally become exercisable in increments over a
period of four to five years from the date of grant. Options may
be granted with different vesting terms from time to time.

In September 1995, we established the 1995 Non-Employee
Directors Stock Option Plan (the Directors
Plan). Under the Directors Plan, we are authorized
to grant nonqualified stock options to purchase up to
347,500 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 four
equal annual installments commencing one year from the date of
the grant.

In July 2001, we established the 2001 Stock Option Plan (the
2001 Plan). Under the 2001 Plan, we are authorized
to grant options to purchase up to 100,000 shares of common
stock to employees who are working or residing outside of the
United States and are not officers or directors. Option grants
expire in twelve years and generally become exercisable in
increments over a period of four to five years from the date of
grant. Options may be granted with different vesting terms from
time to time.

As a result of our acquisition of Axon, we assumed options
issued by Axon under multiple plans. At December 31, 2004,
we have reserved approximately 433,000 shares of Molecular
Devices common stock under Axons 1993 Employee Stock
Option Plan and its 2001 Equity Incentive Plan (Axon
employee stock options), and approximately
23,000 shares under Entitlement Option plans (Axon
Entitlement options). The Axon employee stock options vest
over a maximum period of five years and expire ten years from
the date of grant. The Axon Entitlement options, which are fully
vested, expire in 2005.



---



##### Table of Contents

60 / MOLECULAR DEVICES 2004


The following table summarizes the activity under all of our
plans, including the plans of companies that we acquired:

|                          |                                     |               |           |          |             |  |           |                |   |  |       |       | 
|------------------------- | ----------------------------------- | ------------- | --------- | -------- | ----------- |  | --------- | -------------- | - |  | ----- | ----- | 
|                          |                                     | Shares        |           |          |             |  | Weighted  |               
|                          |                                     | Available for |           |          | Options     |  |           | Average        |  
|                          |                                     | Future Grant  |           |          | Outstanding |  |           | Exercise Price |  
|                          |                                     |               |          
|Balance December 31, 2001 |                                     |               | 854,571   |          |             |  | 2,225,357 |                |   |  | 30.32 |      
|                          | Authorized                          |               |           | 500,000  |             |  |           |               |   |  |       |      | 
|                          | Granted                             |               |           | (591,813 | )           |  |           | 591,813        |   |  |       | 19.41 | 
|                          | Exercised                           |               |           |         |             |  |           | (24,169        | ) |  |       | 14.28 | 
|                          | Cancelled                           |               |           | 227,669  |             |  |           | (227,669       | ) |  |       | 33.76 | 
|                          | Plan Expired                        |               |           | (24,130  | )           |  |           |               |   |  |       |      | 
|                          |                                     |               |           |          |            
|Balance December 31, 2002 |                                     |               | 966,297   |          |             |  | 2,565,332 |                |   |  | 27.87 |      
|                          | Authorized                          |               |           | 500,000  |             |  |           |               |   |  |       |      | 
|                          | Granted                             |               |           | (562,855 | )           |  |           | 562,855        |   |  |       | 16.08 | 
|                          | Exercised                           |               |           |         |             |  |           | (28,792        | ) |  |       | 10.62 | 
|                          | Cancelled                           |               |           | 139,054  |             |  |           | (139,054       | ) |  |       | 32.93 | 
|                          | Plan Expired                        |               |           | (7,770   | )           |  |           |               |   |  |       |      | 
|                          |                                     |               |           |          |            
|Balance December 31, 2003 |                                     |               | 1,034,726 |          |             |  | 2,960,341 |                |   |  | 25.55 |      
|                          | Authorized                          |               |           | 300,000  |             |  |           |               |   |  |       |      | 
|                          | Granted                             |               |           | (522,500 | )           |  |           | 522,500        |   |  |       | 19.54 | 
|                          | Assumed through acquisition of Axon |               |           |         |             |  |           | 572,570        |   |  |       | 18.55 | 
|                          | Exercised                           |               |           |         |             |  |           | (270,258       | ) |  |       | 12.18 | 
|                          | Cancelled                           |               |           | 271,501  |             |  |           | (271,501       | ) |  |       | 24.74 | 
|                          | Plan Expired                        |               |           | (18,267  | )           |  |           |               |   |  |       |      | 
|                          |                                     |               |           |          |            
|Balance December 31, 2004 |                                     |               | 1,065,460 |          |             |  | 3,513,652 |                |   |  | 24.59 |      
|                          |                                     |               |           |          |            



|                         |  |             |                     |  |             |  |     |                  |  |   |             |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ----------- | ------------------- |  | ----------- |  | --- | ---------------- |  | - | ----------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|Options Outstanding      |  |             | Options Exercisable | 
|                         |  |             |                     | 
|                         |  | Weighted-   |                     |  |             |  |    
|                         |  | average     |                     |  |             |  |    
|                         |  | remaining   |                     |  |             |  |    
|                         |  | Number      |                     |  | contractual |  |     | Weighted-average |  |   | Number      |  |  | Weighted-average |          
|Range of exercise prices |  | outstanding |                     |  | life (Yr.)  |  |     | exercise price   |  |   | exercisable |  |  | exercise price   |          
|                         | 
|$ 0.00 to $12.58         |  |             | 380,187             |  |             |  | 4.2 |                  |  | $ | 6.69        |  |  |                  | 343,303   |  |  | $ | 6.56  | 
|$12.59 to $25.16         |  |             | 2,258,017           |  |             |  | 6.6 |                  |  |   | 19.21       |  |  |                  | 1,288,860 |  |  |   | 19.65 | 
|$25.17 to $37.74         |  |             | 259,587             |  |             |  | 4.2 |                  |  |   | 27.98       |  |  |                  | 257,170   |  |  |   | 27.95 | 
|$37.75 to $50.33         |  |             | 386,273             |  |             |  | 4.5 |                  |  |   | 45.90       |  |  |                  | 383,026   |  |  |   | 45.91 | 
|$50.34 to $62.91         |  |             | 88,939              |  |             |  | 5.2 |                  |  |   | 53.05       |  |  |                  | 87,681    |  |  |   | 53.04 | 
|$62.92 to $75.49         |  |             | 56,500              |  |             |  | 5.7 |                  |  |   | 75.28       |  |  |                  | 54,421    |  |  |   | 75.28 | 
|$75.49 to $88.08         |  |             | 84,149              |  |             |  | 5.5 |                  |  |   | 77.70       |  |  |                  | 83,316    |  |  |   | 77.70 | 
|                         |  |             |                     |  |             |  |     |                  |  |   |             |  |  |                  |          
|                         |  |             | 3,513,652           |  |             |  |     |                  |  | $ | 24.63       |  |  |                  | 2,497,777 |  |  | $ | 27.12 | 
|                         |  |             |                     |  |             |  |     |                  |  |   |             |  |  |                  |          





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 61


DEFERRED COMPENSATION

In connection with the acquisition of Axon, we assumed unvested
stock options held by Axon employees. We recorded deferred stock
compensation totaling $226,000 based on the intrinsic value of
these assumed unvested stock options. The deferred stock
compensation is amortized over the options remaining
vesting period of one year.

EMPLOYEE STOCK PURCHASE PLANS

Under our Employee Stock Purchase Plan (the ESPP),
400,000 shares of common stock have been authorized for
issuance. Shares may be purchased under the ESPP at 85% of the
lesser of the fair market value of the common stock on the grant
or the purchase date. As of December 31, 2004,
91,299 shares remained available for purchase under the
ESPP.

401(k) PLAN

Our 401(k) Plan (the Plan) covers substantially all
of our U.S. based employees. Under the Plan, as amended in
November 2004, eligible employees may make contributions subject
to certain Internal Revenue Service restrictions. We began
matching a portion of employee contributions in 1997, up to a
maximum of 3% or $2,500, whichever is less, of each
employees eligible compensation. The match, which is
subject to board approval based on a number of factors, is
effective December 31 of each year and vests over a period
of four years of service. For the years ended December 31,
2004, 2003 and 2002, we recognized as expense approximately
$486,000, $492,000 and $388,000, respectively, under the Plan.

Axon maintained the Axon Instruments, Inc. 401(k) Savings and
Retirement Plan (the Axon Plan), for its eligible
employees. Effective December 31, 2004, the Axon Plan was
discontinued and employee account balances were merged into the
Plan.

STOCK RESERVED FOR ISSUANCE

As of December 31, 2004, we have 4,670,411 shares of
common stock reserved for issuance under our stock option and
employee stock purchase plans.

Note 8.    Income Taxes

The components of the provision for income taxes are as follows
(in thousands):

|          |         |                          |        |       |      |   |       |        |   |   |       |       |  
|--------- | ------- | ------------------------ | ------ | ----- | ---- | - | ----- | ------ | - | - | ----- | ----- | -
|          |         | YEARS ENDED DECEMBER 31, |       
|          |         |                          |       
|          |         | 2004                     |        |       | 2003 |   |       | 2002   |  
|          |         |                          |       
|Current:  |         |                          |        |       |      |   |       |        |   |   |       |      
|          | Federal |                          | $      | 3,374 |      |   | $     | 150    |   |   | $     | 760   |  
|          | State   |                          |        | 1,755 |      |   |       | 215    |   |   |       | 315   |  
|          | Foreign |                          |        | 650   |      |   |       | 1,815  |   |   |       | 1,025 |  
|          |         |                         
|          |         |                          | 5,779  |       |      |   | 2,180 |        |   |   | 2,100 |      
|          |         |                         
|Deferred: |         |                          |        |       |      |   |       |        |   |   |       |      
|          | Federal |                          |        | 6,089 |      |   |       | 1,938  |   |   |       | 1,209 |  
|          | State   |                          |        | 730   |      |   |       | 437    |   |   |       | (393  | )
|          | Foreign |                          |        | 180   |      |   |       | (1,236 | ) |   |       |      |  
|          |         |                         
|          |         |                          | 6,999  |       |      |   | 1,139 |        |   |   | 816   |      
|          |         |                         
|          |         | $                        | 12,778 |       |      | $ | 3,319 |        |   | $ | 2,916 |      
|          |         |                         



---



##### Table of Contents

62 / MOLECULAR DEVICES 2004


The provision for income taxes differs 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 (in thousands):

|                                                                |  |                          |        |   |      |   |        |      |  |   |       |  
|--------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                                |  | YEARS ENDED DECEMBER 31, |       
|                                                                |  |                          |       
|                                                                |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                                                                |  |                          |       
|Income before provision for income
    taxes                    |  | $                        | 30,011 |   |      | $ | 11,061 |      |  | $ | 9,721 |  
|                                                                |  |                         
|Income tax at statutory rate (35%)                              |  |                          | 10,504 |   |      |   | 3,871  |      |  |   | 3,402 |  
|Non-deductible acquired in-process
    research and development |  |                          | 1,750  |   |      |   |       |      |  |   |      |  
|State income tax, net of federal
    benefit                    |  |                          | 1,615  |   |      |   | 424    |      |  |   | 205   |  
|Extraterritorial income exclusion
    benefit                   |  |                          | (410   | ) |      |   | (147   | )    |  |   | (109  | )
|Research and development credits                                |  |                          | (688   | ) |      |   | (197   | )    |  |   | (318  | )
|Foreign losses currently not
    benefited                      |  |                          |       |   |      |   | (708   | )    |  |   | (419  | )
|Other                                                           |  |                          | 7      |   |      |   | 76     |      |  |   | 155   |  
|                                                                |  |                         
|                                                                |  | $                        | 12,778 |   |      | $ | 3,319  |      |  | $ | 2,916 |  
|                                                                |  |                         





|                          |                                                  |                                |       |        |        |   |       |        |       |  
|------------------------- | ------------------------------------------------ | ------------------------------ | ----- | ------ | ------ | - | ----- | ------ | ----- | -
|                          |                                                  | DECEMBER 31,                   |      
|                          |                                                  |                                |      
|                          |                                                  | 2004                           |       |        | 2003   |  
|                          |                                                  |                                |      
|Deferred tax assets:      |                                                  |                                |       |        |        |   |       |       
|                          | Deferred revenue and non-deductible
    reserves |                                | $     | 743    |        |   | $     | 449    |      
|                          | Warranty and accrued expenses                    |                                |       | 4,185  |        |   |       | 2,395  |      
|                          | Net operating losses carryforwards               |                                |       | 3,007  |        |   |       | 4,150  |      
|                          | Foreign loss carryforwards                       |                                |       | 447    |        |   |       | 314    |      
|                          | Tax credit carryforwards                         |                                |       | 1,376  |        |   |       | 2,617  |      
|                          | Intercompany transactions                        |                                |       | 512    |        |   |       | 394    |      
|                          | Other                                            |                                |       | 383    |        |   |       | 229    |      
|                          | Valuation allowances                             |                                |       |       |        |   |       | (2,906 | )    
|                          |                                                  |                               
|                          |                                                  | Total deferred tax assets      |       | $      | 10,653 |   |       | $      | 7,642 |  
|Deferred tax liabilities: |                                                  |                                |       |        |        |   |       |       
|                          | Acquired intangible assets                       |                                |       | (5,125 | )      |   |       |       |      
|                          | Depreciation and amortization                    |                                |       | (886   | )      |   |       | (274   | )    
|                          | Other                                            |                                |       | (198   | )      |   |       |       |      
|                          |                                                  |                               
|                          |                                                  | Total deferred tax liabilities |       | $      | (6,209 | ) |       | $      | (274  | )
|                          |                                                  |                               
|Net deferred tax assets   |                                                  | $                              | 4,444 |        |        | $ | 7,368 |       
|                          |                                                  |                               





---



##### Table of Contents

MOLECULAR DEVICES 2004 / 63


As of December 31, 2004, we had net operating loss
carryforwards for federal income tax purposes of approximately
$8.0 million, which expire in the years 2021 through 2024,
and federal research and development credits of approximately
$500,000 which expire in the years 2012 through 2024. We had net
operating loss carryforwards for state income tax purposes of
approximately $5.3 million which expire in the years 2006
through 2012 and research and development credits of
approximately $700,000 for state income tax purposes which
carryforward indefinitely. Utilization of the net operating loss
carryforwards may be subject to substantial annual limitation
due to the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating
loss carryforwards before utilization.

The federal and state provisions do not reflect the tax savings
resulting from deductions associated with our various stock
option plans. These savings were $900,000, $100,000 and
$1.9 million in 2004, 2003 and 2002, respectively.

As of December 31, 2004, we had unrecognized deferred tax
liabilities of approximately $700,000 related to approximately
$6.7 million of cumulative net undistributed earnings of
foreign subsidiaries. These earnings are considered to be
permanently reinvested in operations outside the United States.

On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the Act). The Act creates a
temporary incentive for U.S. corporations to repatriate
accumulated income earned abroad by providing an 85% dividends
received deduction for certain dividends from controlled foreign
corporations. The deduction is subject to a number of
limitations and may result in the Act not being applicable to
us. We are not yet in a position to decide on whether, and to
what extent, we might repatriate foreign earnings that have not
yet been remitted to the U.S. If we were to repatriate some
amount up to the amount of accumulated earnings of
$6.7 million, we would have a respective tax liability
ranging from $300,000 to $700,000.



Note 9.
    Revolving Credit FacilityIn connection with the acquisition of Axon as described in
Note 4 above, we entered into a new senior unsecured credit
facility with Union Bank of California, N.A., which provides us
with a revolving credit facility in the amount of up to
$30.0 million. The revolving credit facility is guaranteed
by our domestic subsidiaries. All loans outstanding under the
senior unsecured credit facility will bear interest at a rate
per annum equal to, at our option, either the base rate plus
0.50% or the London InterBank Offered Rate (LIBOR) plus
1.25%. The revolving credit facility may be drawn, paid and
reborrowed at our option, and matures on July 1, 2007. We
initially used $15.0 million of this credit facility to
partially finance the cash portion of the merger consideration
paid to Axon shareholders and certain optionholders. The
$15.0 million drawdown was repaid and the revolving credit
facility had no outstanding balance as of December 31,
2004. At December 31, 2004, we were in compliance with all
of the credit facility covenants.



Note 10.
    Industry Segment, Geographic and Customer InformationWe operate in a single industry segment, and the chief operating
decision maker views its operations as follows: the design,
development, manufacture, sale and service of bioanalytical
measurement systems for drug discovery and life sciences
research applications.



---



##### Table of Contents

64 / MOLECULAR DEVICES 2004


Foreign subsidiaries operations consist of research and
development, sales, service, manufacturing and distribution.
Summarized data for our domestic and international operations
was as follows (in thousands):

|                                 |                        |               |   |         |               |                 |   |              |  |  |       |         |   |  |   |         | 
|-------------------------------- | ---------------------- | ------------- | - | ------- | ------------- | --------------- | - | ------------ |  |  | ----- | ------- | - |  | - | ------- | 
|                                 |                        |               |   |         |               | Adjustments and |   |              | 
|                                 |                        | United States |   |         | International |                 |   | Eliminations |  |  | Total |        
|                                 |                        |               |  
|Year-Ended December 31,
    2004 |                        |               |   |         |               |                 |   |              |  |  |       |         |   |  |   |        
|                                 | Revenues               |               | $ | 133,662 |               |                 | $ | 44,577       |  |  | $     | (29,710 | ) |  | $ | 148,529 | 
|                                 | Income from operations |               |   | 10,118  |               |                 |   | 1,624        |  |  |       | (151    | ) |  |   | 11,591  | 
|                                 | Identifiable assets    |               |   | 248,996 |               |                 |   | 31,577       |  |  |       | (25,344 | ) |  |   | 255,229 | 
|Year-Ended December 31,
    2003 |                        |               |   |         |               |                 |   |              |  |  |       |         |   |  |   |        
|                                 | Revenues               |               |   | 98,885  |               |                 |   | 37,193       |  |  |       | (20,497 | ) |  |   | 115,581 | 
|                                 | Income from operations |               |   | 5,768   |               |                 |   | 4,545        |  |  |       | (124    | ) |  |   | 10,189  | 
|                                 | Identifiable assets    |               |   | 157,950 |               |                 |   | 25,754       |  |  |       | (16,791 | ) |  |   | 166,913 | 
|Year-Ended December 31,
    2002 |                        |               |   |         |               |                 |   |              |  |  |       |         |   |  |   |        
|                                 | Revenues               |               |   | 92,058  |               |                 |   | 30,278       |  |  |       | (20,179 | ) |  |   | 102,157 | 
|                                 | Income from operations |               |   | 8,438   |               |                 |   | 261          |  |  |       | (540    | ) |  |   | 8,159   | 
|                                 | Identifiable assets    |               |   | 162,698 |               |                 |   | 22,114       |  |  |       | (21,911 | ) |  |   | 162,901 | 



|                       |                |                          |        |         |      |   |        |         |  |   |        |         | 
|---------------------- | -------------- | ------------------------ | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|                       |                | YEARS ENDED DECEMBER 31, |       
|                       |                |                          |       
|                       |                | 2004                     |        |         | 2003 |   |        | 2002    | 
|                       |                |                          |       
|Drug discovery         |                | $                        | 61,457 |         |      | $ | 51,864 |         |  | $ | 45,826 |        
|Life sciences research |                |                          | 87,072 |         |      |   | 63,717 |         |  |   | 56,331 |        
|                       |                |                         
|                       | Total revenues |                          | $      | 148,529 |      |   | $      | 115,581 |  |   | $      | 102,157 | 
|                       |                |                         



|              |                |                          |        |         |      |   |        |         |  |   |        |         | 
|------------- | -------------- | ------------------------ | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|              |                | YEARS ENDED DECEMBER 31, |       
|              |                |                          |       
|              |                | 2004                     |        |         | 2003 |   |        | 2002    | 
|              |                |                          |       
|North America |                | $                        | 90,454 |         |      | $ | 72,403 |         |  | $ | 64,819 |        
|Europe        |                |                          | 38,515 |         |      |   | 28,090 |         |  |   | 25,331 |        
|Rest of World |                |                          | 19,560 |         |      |   | 15,088 |         |  |   | 12,007 |        
|              |                |                         
|              | Total revenues |                          | $      | 148,529 |      |   | $      | 115,581 |  |   | $      | 102,157 | 
|              |                |                         



|         |                           
|-------- | --------------------------
|Note 11. | Related Party Transactions







---



##### Table of Contents

MOLECULAR DEVICES 2004 / 65


We had an equity investment in Upstate until October 2004. We
paid Upstate $113,000, $139,000 and $46,000 for royalties and
$89,000, $51,000 and $132,000 for inventory in the years ended
December 31, 2004, 2003 and 2002, respectively. At
December 31, 2004, we owed Upstate $11,000 for royalties
payable.

We have an equity investment in Aviva Biosciences Corporation
(Aviva). For the year ended December 31, 2004,
we purchased $845,000 of inventory from Aviva. At
December 31, 2004, accounts payable to Aviva was $119,000.

We lease facilities from our Chief Technology Officer
(CTO). For the year ended December 31, 2004, we
paid our CTO $35,000 in rent.



Note 12.
    Subsequent EventIn February 2005, we repurchased 397,000 shares of our
common stock for approximately $8.4 million under our stock
repurchase program. These shares will be accounted for as
treasury stock, at cost.

On March 9, 2005, we completed the purchase of certain
assets from Xsira Pharmaceuticals, Inc. (Xsira)
relating to the Transfluor® technology, a cell-based
fluorescent assay system for monitoring the function of
G-protein coupled receptors, pursuant to an Asset Purchase
Agreement for $11.0 million in cash. Pursuant to the terms
of the Asset Purchase Agreement, we paid Xsira
$8.25 million on March 9, 2005, with $1.1 million
of the $11.0 million purchase price deposited into an
escrow account to secure certain indemnification, compensation
and reimbursement obligations of Xsira. We have agreed to pay
the remaining $1.65 million of the $11.0 million
purchase price upon the completion of Xsiras training of
our employees on the use of the Transfluor technology and the
transfer of certain Transfluor technology-related biological
materials, scientific and technical documents, and promotional
materials.



Note 13.
    Quarterly Financial Data (Unaudited)Summarized quarterly financial data is as follows:

|            |                                     |                                          |   |        |        |  |   |        |  |  |        |        |   |  |   |        | 
|----------- | ----------------------------------- | ---------------------------------------- | - | ------ | ------ |  | - | ------ |  |  | ------ | ------ | - |  | - | ------ | 
|            |                                     | First                                    |   |        | Second |  |   | Third  |  |  | Fourth |       
|            |                                     |                                          |  
|            |                                     | (In thousands, except per share amounts) |  
|Fiscal 2004 |                                     |                                          |   |        |        |  |   |        |  |  |        |        |   |  |   |       
|            | Revenues                            |                                          | $ | 27,337 |        |  | $ | 32,205 |  |  | $      | 41,502 |   |  | $ | 47,485 | 
|            | Gross profit                        |                                          |   | 17,095 |        |  |   | 20,130 |  |  |        | 25,700 |   |  |   | 29,331 | 
|            | Net income (loss)                   |                                          |   | 1,430  |        |  |   | 2,505  |  |  |        | (1,268 | ) |  |   | 14,567 | 
|            | Basic net income (loss) per share   |                                          |   | 0.10   |        |  |   | 0.18   |  |  |        | (0.07  | ) |  |   | 0.84   | 
|            | Diluted net income (loss) per share |                                          |   | 0.10   |        |  |   | 0.17   |  |  |        | (0.07  | ) |  |   | 0.81   | 
|Fiscal 2003 |                                     |                                          |   |        |        |  |   |        |  |  |        |        |   |  |   |       
|            | Revenues                            |                                          | $ | 24,550 |        |  | $ | 28,505 |  |  | $      | 29,276 |   |  | $ | 33,250 | 
|            | Gross profit                        |                                          |   | 15,022 |        |  |   | 17,921 |  |  |        | 18,513 |   |  |   | 20,870 | 
|            | Net income                          |                                          |   | 721    |        |  |   | 1,781  |  |  |        | 2,279  |   |  |   | 2,961  | 
|            | Basic net income per share          |                                          |   | 0.05   |        |  |   | 0.12   |  |  |        | 0.15   |   |  |   | 0.20   | 
|            | Diluted net income per share        |                                          |   | 0.05   |        |  |   | 0.12   |  |  |        | 0.15   |   |  |   | 0.20   | 



---



##### Table of Contents

66 / MOLECULAR DEVICES 2004


SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

|                                                |                              |            |   |       |            |  |   |            |     |            |             |      |   |  |   |     | 
|----------------------------------------------- | ---------------------------- | ---------- | - | ----- | ---------- |  | - | ---------- | --- | ---------- | ----------- | ---- | - |  | - | --- | 
|                                                |                              | BALANCE AT |   |       | CHARGED TO |  |   |            |     |           
|                                                |                              | BEGINNING  |   |       | COSTS AND  |  |   |            |     | BALANCE AT |            
|Description                                     |                              | OF YEAR    |   |       | EXPENSES   |  |   | DEDUCTIONS |     |            | END OF YEAR |     
|                                                |                             
|Allowance for doubtful accounts
    receivables |                              |            |   |       |            |  |   |            |     |            |             |      |   |  |   |    
|                                                | Year ended December 31, 2002 |            | $ | 1,148 |            |  | $ |           |     |            | $           | (714 | ) |  | $ | 434 | 
|                                                | Year ended December 31, 2003 |            | $ | 434   |            |  | $ | 77         |     |            | $           | (103 | ) |  | $ | 408 | 
|                                                | Year ended December 31, 2004 |            | $ | 408   |            |  | $ | 436        | (A) |            | $           | (505 | ) |  | $ | 339 | 



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(A) | Of this amount, $206,000 in reserves was associated with
    receivables acquired from Axon (see Note 4).



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 67


exhibit index

|        |    |                         |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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                                                                                                                                                                                                                 
|        | 2  | .2(2)                   |  | Stock and Asset Purchase Agreement,
    dated as of May 17, 1999, among Molecular Devices
    Corporation, a Delaware corporation, Helge Skare, Wiel Skare,
    Steinar Faanes and Sten Skare, each an individual resident in
    Norway, Skatron Instruments AS, a Norwegian company, and Skatron
    Instruments, Inc., a Virginia corporation
|        | 2  | .4(5)                   |  | Agreement and Plan of Merger and
    Reorganization dated as of June 7, 2000 by and among
    Molecular Devices Corporation, Mercury Acquisition Sub, Inc. and
    LJL BioSystems, Inc.                                                                                                                                                         
|        | 2  | .5(11)                  |  | Stock Purchase Agreement dated as
    of November 14, 2000 by and among JCR Pharmaceuticals, K.K.
    and Molecular Devices Corporation                                                                                                                                                                                                         
|        | 2  | .6(12)                  |  | Stock Purchase Agreement dated as
    of July 6, 2001 by and among Molecular Devices, Cytion
    S.A., Jean-Pierre Rosat (as agent for the stockholders of
    Cytion) and each of the stockholders of Cytion.                                                                                                                                  
|        | 2  | .7(13)                  |  | Stock Purchase Agreement dated as
    of June 1, 2002 by and among Molecular Devices, Universal
    Imaging Corporation, Theodore Inoue (as agent for the
    stockholders of Universal Imaging Corporation) and each of the
    stockholders of Universal Imaging Corporation.                                                                 
|        | 2  | .8(15)                  |  | Agreement and Plan of Merger and
    Reorganization, dated as of March 20, 2004, by and among
    Molecular Devices Corporation, Astros Acquisition Sub I,
    Inc., Astros Acquisition Sub II, LLC and Axon Instruments,
    Inc.                                                                                                              
|        | 2  | .9(16)                  |  | Amendment to Agreement and Plan of
    Merger and Reorganization, dated as of May 21, 2004, by and
    among Molecular Devices Corporation, Astros Acquisition
    Sub I, Inc., Astros Acquisition Sub II, LLC and Axon
    Instruments, Inc.                                                                                                   
|        | 3  | .1(1)                   |  | Amended and Restated Certificate of
    Incorporation of Registrant                                                                                                                                                                                                                                                                             
|        | 3  | .2(1)                   |  | Bylaws of the Registrant                                                                                                                                                                                                                                                                                                                        
|        | 3  | .3(8)                   |  | Certificate of Amendment to
    Certificate of Incorporation                                                                                                                                                                                                                                                                                    
|        | 4  | .1(1)                   |  | Specimen Certificate of Common
    Stock of Registrant                                                                                                                                                                                                                                                                                          
|        | 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(8)*                  |  | 1995 Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                               
|        | 10 | .6(1)*                  |  | Form of Nonstatutory Stock Option
    under the 1995 Non-Employee Directors 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 | .19(17)*                |  | Amended Key Employee Agreement for
    Joseph D. Keegan, Ph.D., dated July 29, 2004.                                                                                                                                                                                                                                                            
|        | 10 | .20(3)                  |  | Exclusive License and Technical
    Support Agreement dated August 28, 1998 by and between the
    Registrant and Affymax                                                                                                                                                                                                                       
|        | 10 | .21(3)*                 |  | Employee Offer Letter for Timothy
    A. Harkness                                                                                                                                                                                                                                                                                               
|        | 10 | .24(17)*                |  | 1995 Non-Employee Directors
    Stock Option Plan, as amended                                                                                                                                                                                                                                                                                  
|        | 10 | .25(17)*                |  | 1995 Stock Option Plan, as amended                                                                                                                                                                                                                                                                                                              
|        | 10 | .26(6)*                 |  | Employee Offer Letter for Patricia
    Sharp                                                                                                                                                                                                                                                                                                    
|        | 10 | .27(7)*                 |  | LJL BioSystems 1994 Equity
    Incentive Plan and Forms of Agreements                                                                                                                                                                                                                                                                           
|        | 10 | .28(7)*                 |  | LJL BioSystems 1997 Stock Plan and
    Forms of Agreements                                                                                                                                                                                                                                                                                      
|        | 10 | .29(7)*                 |  | LJL BioSystems
    1998 Directors Stock Option Plan and Forms of
    Agreements                                                                                                                                                                                                                                                                
|        | 10 | .33(9)                  |  | Lease Agreement dated May 26,
    2000 by and between Aetna Life Insurance Company and the
    Registrant                                                                                                                                                                                                                                       
|        | 10 | .34(10)*                |  | Change in Control Severance Benefit
    Plan                                                                                                                                                                                                                                                                                                    



---



##### Table of Contents

68 / MOLECULAR DEVICES 2004

|        |    |          |                         |                                                                                                                                                              
|------- | -- | -------- | ----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |    |          |                        
|NUMBER  |    |          | DESCRIPTION OF DOCUMENT
|       
|        | 10 | .35(12)  |                         | Rights Agreement, dated
    October 25, 2001, among the Registrant and EquiServe Trust
    Company, N.A.                                                     
|        | 10 | .37(8)*  |                         | Key Employee Agreement for Tom
    OLenic                                                                                                                   
|        | 10 | .38(17)* |                         | 2001 Stock Option Plan, as amended                                                                                                                           
|        | 10 | .39(14)  |                         | Lease dated May 28, 2002 by
    and between The Irvine Company and the Registrant                                                                            
|        | 10 | .40(14)* |                         | Letter Agreement dated
    April 11, 2002 by and between the Registrant and Joseph D.
    Keegan, Ph.D.                                                      
|        | 10 | .41(14)* |                         | Letter Agreement dated
    April 11, 2002 by and between the Registrant and Timothy A.
    Harkness                                                          
|        | 10 | .43*     |                         | Amended Key Employment Agreement
    for Timothy A. Harkness                                                                                                 
|        | 10 | .44*     |                         | Employee Offer Letter for Alan
    Finkel, Ph.D.                                                                                                             
|        | 10 | .45*     |                         | Employee Offer Letter for Steven
    Davenport                                                                                                               
|        | 10 | .46*     |                         | Employee Offer Letter for Jan Hughes                                                                                                                         
|        | 10 | .47*     |                         | Amended Employee Offer Letter for
    Jan Hughes                                                                                                             
|        | 10 | .48(18)* |                         | Non-Employee Director Compensation
    Arrangements                                                                                                          
|        | 10 | .49(19)* |                         | Executive Officer Compensation
    Arrangements                                                                                                              
|        | 21 | .1       |                         | Subsidiaries of the Registrant                                                                                                                               
|        | 23 | .1       |                         | Consent of Independent Registered
    Public Accounting Firm                                                                                                 
|        | 31 | .1       |                         | Certification required by Rule
    13a-14(a) or Rule 15d-14(a).                                                                                              
|        | 31 | .2       |                         | Certification required by Rule
    13a-14(a) or Rule 15d-14(a).                                                                                              
|        | 32 | .1**     |                         | Certifications required by Rule
    13a-14(b) or Rule 15d-14(b) and Section 1350 of
    Chapter 63 of Title 18 of the United States Code (18
    U.S.C 1350).






| |     |                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the similarly described exhibit in
    our Registration Statement on Form S-1 (File
    No. 33-98926), as amended.                                                  
|
| | (2) | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated June 30, 1998,
    and filed August 13, 1998.                                           
|
| | (3) | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    1998, and filed November 13, 1998.                                    
|
| | (5) | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed June 12, 2000.                                                                          
|
| | (6) | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    2000 and filed on November 13, 2000.                                  
|
| | (7) | Incorporated by reference to the similarly described exhibit
    filed with LJL BioSystems Registration Statement on
    Form S-1 (File No. 333-43529) declared effective on
    March 12, 1998.
|
| | (8) | Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2001
    and filed on April 1, 2002.                                          
|
| | (9) | Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2000
    and filed on March 30, 2001.                                         



|     |                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated March 31, 2001
    and filed on May 11, 2001.  
|    
|(11) | Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated June 30, 2001 and
    filed on August 14, 2001.
|    
|(12) | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed October 30, 2001.                              
|    
|(13) | Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed on June 12, 2002.                              



---



##### Table of Contents

MOLECULAR DEVICES 2004 / 69




(14)
    Incorporated by reference to the similarly described exhibit in
    our Form 10-K Annual Report dated December 31, 2003
    and filed on March 27, 2003.(15)
    Incorporated by reference to the similarly described exhibit in
    our Current Report on Form 8-K filed on March 22, 2004.(16)
    Incorporated by reference to the similarly described exhibit in
    our Registration Statement on Form S-4 (File
    No. 333-114934), as amended.(17)
    Incorporated by reference to the similarly described exhibit in
    our Form 10-Q Quarterly Report dated September 30,
    2004, and filed on November 9, 2004.

(18)
    
    Incorporated by reference to the information in our Registration
    Statement on form S-4 (File No. 333-114934), as
    amended, under the heading Molecular Devices Executive
    Compensation  Compensation of Directors.(19)
    
    Incorporated by reference to the information in our Current
    Report on Form 8-K filed February 23, 2005 under the
    heading Item 1.01. Entry Into a Material Definitive
    Agreement.

*
    Management contract or compensatory plan or arrangement.**
    The certification attached as Exhibit 32.1 accompanies the
    Annual Report on Form 10-K pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 and shall not be deemed
    filed by the Company for purposes of Section 18
    of the Securities Exchange Act of 1934, as amended.