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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON D.C. 20549




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FORM 10-K



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|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)           |  | 94-2914362
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
|                                                                                  |  |                                                   
|1311 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | 94089
(ZIP CODE)                                  

(408) 747-1700

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:


TITLE OF EACH CLASS

COMMON STOCK, $.001 PAR VALUE


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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [  ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 28, 2002, based upon the last sale price reported
for such date on the Nasdaq National Market, was $151,440,762.

The number of outstanding shares of the Registrants Common Stock as of
March 21, 2003 was 15,363,394.

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the Proxy Statement for Registrants 2003 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K Report.



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|* |  | Excludes approximately 6,782,034 shares of common stock held by directors, officers and holders of 5% or more of the Registrants
outstanding Common Stock at June 28, 2002. Exclusion of shares held by
any person should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, or that such person is
controlled by or under common control with the Registrant.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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TABLE OF CONTENTS



|              |                                                                                               |                                      |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ------------------------------------ |  |  |  |  |  | 
|PART 1       
|              | ITEM 1. BUSINESS                                                                             
|              |                                                                                               | THE COMPANY                         
|              |                                                                                               | INDUSTRY BACKGROUND                 
|              |                                                                                               | THE MOLECULAR DEVICES SOLUTION      
|              |                                                                                               | OUR PRODUCTS                        
|              |                                                                                               | DRUG DISCOVERY PRODUCTS             
|              |                                                                                               | LIFE SCIENCES RESEARCH PRODUCTS     
|              |                                                                                               | OTHER SOFTWARE AND CUSTOMER SERVICE 
|              |                                                                                               | RESEARCH AND DEVELOPMENT            
|              |                                                                                               | MARKETING AND CUSTOMERS             
|              |                                                                                               | MANUFACTURING                       
|              |                                                                                               | PATENTS AND PROPRIETARY TECHNOLOGIES
|              |                                                                                               | COMPETITION                         
|              |                                                                                               | GOVERNMENT REGULATION               
|              |                                                                                               | EMPLOYEES                           
|              |                                                                                               | BUSINESS RISKS                      
|              | ITEM 2. PROPERTIES                                                                           
|              | ITEM 3. LEGAL PROCEEDINGS                                                                    
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II      
|              | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|              | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|              | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|              | ITEM 11. EXECUTIVE COMPENSATION                                                              
|              | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|              | ITEM 14. CONTROLS AND PROCEDURES                                                             
|PART IV      
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES   
|CERTIFICATION
|EXHIBIT INDEX
|EXHIBIT 10.25
|EXHIBIT 10.38
|EXHIBIT 10.39
|EXHIBIT 10.40
|EXHIBIT 10.41
|EXHIBIT 10.42
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 99.1 



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##### Table of Contents



TABLE OF CONTENTS

MOLECULAR DEVICES CORPORATION

|               |  |                                                                                                |  |   
|-------------- |  | ---------------------------------------------------------------------------------------------- |  | --
|PART I        
|Item 1.        |  | Business                                                                                       |  | 3 
|               |  | The Company                                                                                    |  | 3 
|               |  | Industry Background                                                                            |  | 3 
|               |  | The Molecular Devices Solution                                                                 |  | 4 
|               |  | Our Products                                                                                   |  | 5 
|               |  | Drug Discovery Products                                                                        |  | 5 
|               |  | Life Sciences Research Products                                                                |  | 7 
|               |  | Other Software and Customer Service                                                            |  | 9 
|               |  | Research and Development                                                                       |  | 9 
|               |  | Marketing and Customers                                                                        |  | 9 
|               |  | Manufacturing                                                                                  |  | 9 
|               |  | Patents and Proprietary Technologies                                                           |  | 10
|               |  | Competition                                                                                    |  | 10
|               |  | Government Regulations                                                                         |  | 10
|               |  | Employees                                                                                      |  | 10
|               |  | Business Risks                                                                                 |  | 10
|Item 2.        |  | Properties                                                                                     |  | 19
|Item 3.        |  | Legal Proceedings                                                                              |  | 19
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                            |  | 19
|PART II       
|Item 5.        |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 20
|Item 6.        |  | Selected Consolidated Financial Data                                                           |  | 21
|Item 7.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 22
|Item 7A.       |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 27
|Item 8.        |  | Financial Statements and Supplementary Data                                                    |  | 27
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 27
|PART III      
|Item 10.       |  | Directors and Executive Officers of the Registrant                                             |  | 28
|Item 11.       |  | Executive Compensation                                                                         |  | 28
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |  | 28
|Item 13.       |  | Certain Relationships and Related Transactions                                                 |  | 28
|Item 14.       |  | Controls and Procedures                                                                        |  | 28
|PART IV       
|Item 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 29
|SIGNATURES     |  | 32                                                                                            
|CERTIFICATIONS |  | 33                                                                                            

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PART 1




ITEM 1. BUSINESS




THE COMPANY

Except for the historical information contained herein, the following
discussion contains forward-looking statements. 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 under Business Risks as well as under Qualitative and Quantitative
Disclosures about Market Risk and the risks detailed from time to time in the
Companys SEC reports, including this Annual Report on Form 10-K for the year
ended December 31, 2002.

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 combinatorial
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.

We were incorporated in California in 1983 and reincorporated in Delaware
in 1995.




INDUSTRY BACKGROUND

Life sciences research, particularly drug discovery, is currently
undergoing a revolution as a result of two converging trends. Aided by the
sequencing of the human genome, researchers have begun to identify a large
number of previously unknown natural molecules that play a role in disease and
thus are likely targets for new therapeutic products. Until recently, only a
few hundred disease targets were available to drug discovery researchers. In
2000, researchers completed the sequencing of the human genome; the estimated
30,000 genes that were revealed suggest the existence of thousands of
previously unknown drug targets. At the same time, advances in combinatorial
chemistry have provided chemists with techniques that allow them to synthesize
a greater number of and diversity of compounds than ever before. Pharmaceutical
companies previously maintained libraries of hundreds of thousands of
compounds to test against disease targets to determine their potential as
drugs; now, drug researchers have access to millions of such compounds.

The identification of disease targets and synthesis of chemical compounds
are key first steps in the drug discovery process. Prior to entering clinical
development, researchers undertake additional steps to determine which
compounds are the most promising drug candidates. Among the most important
downstream steps in the drug discovery process are assay development, drug
candidate screening and lead optimization.

Assay Development. Once a disease target has been identified, researchers
must develop a test, or assay, to determine whether a particular compound has a
desired effect on the target. Most assays involve creating a biochemical
reaction that takes place in a microplate, which is a plate containing an array
of small wells that are similar to miniature test tubes. The plate is inserted
into a microplate reader, which measures the light absorbed or emitted by the
sample in each well. Depending upon its underlying technology, the reader
detects light in the form of absorption, fluorescence or luminescence. The type
of assay developed depends upon the characteristics of the disease target and
the type of information the researcher is seeking. Two major categories of
assays are cell-based assays and biochemical assays. A cell-based assay
measures how a target on or inside a living cell responds to a compound; in a
biochemical assay, the target is isolated from the cell environment. Cell-based
assays are often considered particularly valuable in predicting how well a
compound is likely to function as a drug because they mimic the targets
natural function.

Drug Candidate Screening. Once an assay has been developed, it is
performed repeatedly to test the effects of a variety of compounds on the
disease target, a process known as screening. Primary screening identifies
hits, or compounds that exhibit significant activity against a target;
secondary screening gathers more information on the hits to confirm and
characterize their activity. Because drug companies now have a rapidly
increasing number of compounds to test, they are interested in high-throughput
screening, or HTS, to reduce the amount of time that is required for primary
and secondary screening. Traditional bioanalytical instruments and methods were
not designed for high-throughput screening, which has contributed to a
bottleneck at this stage of the drug discovery process.

Lead Optimization. Compounds that emerge from the secondary screening
process, now called leads, are next subjected to successive rounds of
additional testing and chemical manipulations to make them even more suitable
as drug candidates. This process, known as lead optimization, involves a
variety of tests, such as cell-based assays, that yield a higher level of
biological information

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than screening assays. As drug companies generate increasing numbers of
leads, bottlenecks have emerged in this stage, resulting in demand for more
efficient lead optimization tools.

After optimization, a lead compound must pass a lengthy and expensive set
of pre-clinical and clinical trials before becoming a drug. Because of the
substantial resources required to conduct such trials, the cost of failure is
high; thus, companies are interested in tools which allow more accurate
assessment of a compounds probability of success as early as possible in the
drug discovery process.

To reduce the length and cost of the drug discovery process, researchers
increasingly need tools that speed up the steps described above and increase
the value of the information generated by them. Traditional bioanalytical
instruments and methods do not adequately address these needs because of
several limitations, including:



| |  |  | Low sensitivity. One way to increase the speed of drug development is
to conduct assays in high-density microplates, such that many samples
can be analyzed in one equipment run. Microplates are now made in
standard formats with either 96, 384 or 1,536 wells; the more wells
there are, the smaller the sample volume in each well. Reading very
small-volume samples requires a higher level of sensitivity than is
available in most traditional detection equipment.                                                                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Lack of automation. Throughput is often enhanced by incorporating
automation into the drug discovery process. Some assays that provide
high levels of information, such as live cell-based assays, require a
particularly high degree of automation to run efficiently. For example,
gaining certain kinetic data from a live cell assay, which is valuable
in lead optimization, requires integrated liquid handling equipment so
that compounds can be added to the cells and the detector can read the
result of the assay almost instantaneously. Traditionally, many
bioanalytical instruments have not been designed to integrate easily
with automation equipment.
|
| |  |  | Assay complexity. Many assays in use today are performed in a
complex, multi-step process and are expensive, time-consuming and
difficult to adapt to a high-throughput mode of operation. Thus,
researchers are interested in assay formats that yield as much
information as traditional assays but follow simplified protocols.                                                                                                                                                                                                                                                                                                                                       

The proliferation in disease targets and chemical compounds coupled with
the limitations of traditional technologies have created bottlenecks at each of
the downstream steps of the drug discovery process which our products are
specifically designed to address.




THE MOLECULAR DEVICES SOLUTION

We offer a full range of high-performance bioanalytical systems that
address the sensitivity, automation and assay complexity challenges currently
faced by researchers. We had revenues of $102.2 million in 2002, $92.2 million
in 2001, and $96.0 million in 2000. Our major products possess levels of
detection sensitivity that enable the analysis of high-density microplates,
thereby increasing throughput. These products also include, or are easily
integrated with, automation equipment to further enhance throughput and allow
complex assays to be performed with high efficiency. Additionally, we develop
novel assays that simplify the process of obtaining key information about the
activity of drug candidates; in particular, we are an industry leader in
providing technologies for performing information-rich live cell assays in
high-throughput mode.

We group our product offerings into two categories based on the markets
that are primarily served by each. Our Drug Discovery products include four
major families of products: our Fluorometric Imaging Plate Reader, or FLIPR®,
system, our multimode Analyst system, our IonWorks automated electrophysiology
system and our Discovery-1 cellular imaging system. In addition to high
performance instrumentation, we offer reagent kits that enable researchers to
perform popular assays with higher-throughput than can be achieved using
conventional technologies. Our Drug Discovery product family also includes our
Chemiluminescence Imaging Plate Reader, or CLIPR, system, which performs live
cell analysis at an ultra high-throughput rate. Together, our Drug Discovery
products provide a wide array of solutions for both biochemical and cell-based
research in the high-throughput screening and lead optimization market
segments.

Our Life Sciences Research products include our Maxline family of
microplate readers, our FlexStation system, our Skatron liquid handling
systems, our Threshold® system and our MetaMorph line of cellular imaging
software. Maxline microplate readers primarily address the assay development
market and offer the assay development scientist nine differentiated
instruments that include a wide range of innovative and flexible feature sets.
We are widely perceived as a leader in microplate reader technology, and we
believe that we have been the first to offer a number of innovative features
into the premium end of the microplate reader market. FlexStation is a benchtop
workstation that combines fluorescence detection with integrated fluidics,
allowing researchers to perform the type of assays enabled by FLIPR in a
lower-throughput, less expensive format. Skatron liquid handling systems
facilitate assays by dispensing liquids into microplates and washing microplate
wells, a key step in many of the most widely used laboratory tests. Our
Threshold system is aimed at the biopharmaceutical manufacturing and quality
control process, and we believe that the Threshold system is the only
commercially available fully integrated system that rapidly and reproducibly
detects potential contaminants with picogram level sensitivity. Finally,
MetaMorph is a market-leading suite of software products that allows
researchers to perform a wide range of sophisticated analyses on cellular
images.

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OUR PRODUCTS




DRUG DISCOVERY PRODUCTS

Our Drug Discovery systems, which represented 45% of our total revenues in
2002, 48% of our total revenues in 2001 and 51% of our total revenues in 2000,
are used to perform both biochemical and cell-based assays and are primarily
targeted toward high-throughput screening and lead optimization.

FLIPR System

Our FLIPR system satisfies a key demand from pharmaceutical companies for
live cell analysis at a high-throughput rate. Many therapeutic drugs are
targeted to cell membrane receptors: special proteins that function as control
switches for cell activity and are triggered by the specific binding of soluble
natural substances to relay messages to the cell via signal transduction
mechanisms. Therapeutic drugs which act on receptors either mimic or block the
action of the natural receptor-specific substance. The therapeutic potential of
such drugs is, therefore, most appropriately studied using live cell systems.
These studies are inherently challenging, but a high value is placed upon them
by the pharmaceutical industry and the research community.

Our FLIPR was the first instrument to enable high-throughput screening of
live cells with high information content on cellular activation. The primary
applications for our FLIPR system are the measurement of intracellular calcium
ion flux and membrane potential change, both of which provide critical
information on the activation of cells by test compounds.

In our FLIPR system, cells, along with appropriate fluorescent dyes, are
maintained in microplates in a thermally-controlled compartment together with
compound-addition plates. Fluorescence activity is evaluated before, during and
after delivery of compounds to the wells to evaluate the effect of compounds on
the cells. Laser light provides excitation illumination to the wells and
fluorescence from the cells on the bottom of the wells is quantified with an
electronic camera. During the reading cycle, a built-in pipettor transfers
compound samples from the compound-addition plate to the cell plate and the
reaction is continuously monitored by an ultrasensitive charge coupled device,
a CCD camera, at intervals of less than one second. This strategy allows for
real-time monitoring of cells before and after compound addition, thus allowing
the measurement of rapid, non-linear response kinetics. Our FLIPR systems
limited depth-of-field fluorometry optical design is patented. We currently
offer two primary products based on our FLIPR technology platform.



| |  |  | FLIPR2. This product is the second generation FLIPR product. It
combines all of the benefits of the original FLIPR along with new
automation capabilities and the ability to analyze samples in both 384
well and 96 well microplates. FLIPR2 can screen as many as 50,000
samples daily, and offers optional integrated plate stacker and washer
accessories which can dramatically reduce the need for human
intervention during sample processing. In addition, the instrument also
incorporates interfaces that enable it to integrate into automated
screening lines.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | FLIPR3. The third
generation FLIPR product, FLIPR3 is a more
sensitive, higher-throughput version of FLIPR2. It also incorporates a
new detection mode, luminescence, expanding the menu of applications
that can be performed on the FLIPR platform.                                                                                                                                                                                                                                                                                                                     

Analyst System

Our Analyst family of products complements our other drug discovery
offerings by providing industry-leading flexibility and throughput for a wide
range of biochemical assays. Instruments in this family include the Analyst AD,
Analyst HT and Analyst GT, each of which features several different readout
modalities, allowing customers to choose the one that is optimal for their
particular screen. One of these readout modalities, fluorescence polarization,
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 fluorescence polarization, and our proprietary High Efficiency Fluorescence
Polarization (HEFP) technology is incorporated into the Analyst platform. Our
HEFP technology enables miniaturized biochemical assays to be performed in a
single step, a significant advantage over traditional biochemical assays.

Analyst provides several important customer benefits, including: increased
throughput, improved analytical performance and flexibility (especially in
higher density formats), lower reagent costs and compatibility with automation
equipment. Analyst HT, launched in 1998, performs up to 70,000 screens per day.
In 1999, we launched Analyst AD, which was designed specifically for assay
development and is fully compatible with Analyst HT. ScreenStation, launched
in 2001, integrates assay assembly and detection capabilities, allowing highly
automated screening on the Analyst platform. In 2002, we introduced the next
generation of the Analyst platform, Analyst GT, a highly sensitive instrument
capable of screening over 400,000 wells per day.

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IonWorks HT

In 2002, we launched IonWorks HT, a first-of-a-kind product for drug
discovery. Like our FLIPR system, IonWorks HT addresses a key demand of
pharmaceutical companies for live cell analysis with substantially improved
throughput. For years researchers have sought more efficient ways to study ion
channels, an important class of drug targets. Traditionally, the best
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 are available use
indirect methods to assay ion channels, an approach that yields less useful
data than patch clamping. IonWorks HT is an automated system that obtains 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,
IonWorks HT operates at speeds of up to 3,000 data points per day. The system
consists of an instrument and a proprietary consumable, the PatchPlate.

Discovery-1

Discovery-1, our first generation high-throughput, high-resolution imaging
instrument, was developed by our Universal Imaging Corporation (UIC)
subsidiary. The system comprises instrumentation and a specialized version of
our MetaMorph software, which together enable the automated imaging and
analysis of individual cells in microwell plates. As cell-based assays become
more important and attention shifts from genomics to the study of the activity
of proteins within cells, high-throughput visualization of cellular events is
increasingly in demand by drug discovery customers. Researchers generally use
microscopes to view such intracellular events, using software such as MetaMorph
to capture and analyze the images they obtain. However, in a drug screening
environment, higher-throughput is required than can be achieved through
traditional microscope studies. Discovery-1 automates the process of acquiring
detailed images of individual cells and allows researchers to do so in the
automation-friendly format of a microwell plate. The MetaMorph software that
is included in the Dicovery-1 system provides efficient and flexible analysis
of the complex images captured by the instrument.

CLIPR System

Our Chemiluminescence Imaging Plate Reader, or CLIPR, system was
introduced in 1999. It satisfies a key demand from
pharmaceutical companies for live cell analysis at an ultra high-throughput
rate using luminescence technology. This allows customers to perform popular
assays, such as those involving reporter genes, at rates of up to 200,000 wells
per day. CLIPRs applications also include non-cell-based assays such as SPA,
which is among the most frequently-performed tests in the drug discovery
market. These applications complement those of our other Drug Discovery
systems, offering solutions for a wide range of biochemical and cell-based
assays.

Drug Discovery Reagents

We are expanding our reagent business by focusing on the internal
development of proprietary reagent kits optimized for our Drug Discovery
instruments. We have historically developed and produced reagent kits for our
Threshold systems, and in 1999 we began to sell consumables for our installed
base of Drug Discovery instruments with the introduction of kits for performing
important assays on FLIPR, CLIPR and Analyst. Our reagent business is supported
by a reagent development and marketing team, in-house organic chemistry labs
and significant reagent production capacity. Our current Drug Discovery reagent
offerings include the following four product families:



| |  |  | FLIPR Assay Kits. This product family includes the FLIPR Calcium Flux
Kit, the FLIPR Calcium Plus Kit and the FLIPR Membrane Potential Kit,
products that have revolutionized the way FLIPR assays are performed.
The unique feature of these kits is that they enable researchers to
eliminate a step in the assay protocol, thereby saving up to 15 minutes
of processing time for each 384 well plate. 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, a test for detecting the activation of GPCRs, a major
category of drug targets. The FLIPR Calcium Plus Kit extends the
applicability of this assay by allowing researchers to test problematic
but important targets such as chemokines and small peptides. In
addition, this kit offers a significant improvement in data quality
compared to traditional methods. The FLIPR Membrane Potential Assay Kit
allows researchers to measure changes in the electrical potential of
live cell membranes, a key indicator of ion channel activity.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 introduced
the first two kits based on this technology in 2001; in 2002, we
introduced an additional 16 kits. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | HEFP Assay Kits. This family of kits is optimized for use on the
Analyst platform and includes the STX-1 Assay kit for measuring the
activity of serine/threonine kinases, the TKXtra Assay Kit for detecting
additional kinases, and the cAMP Assay Kit for measuring an important
indicator of cellular signaling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |  |  | CatchPoint Assay Kits. These kits use a more sensitive and simpler
format than traditional methods and are designed for use on both our
Gemini instruments and our Analyst platform. This product line includes
assay kits for cAMP, cGMP and tyrosine kinase.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




LIFE SCIENCES RESEARCH PRODUCTS

Our Life Sciences Research products, which represented 55% of total
revenues in 2002, 52% of total revenues in 2001 and 49% of total revenues in
2000, encompass our Maxline, FlexStation, Skatron, Threshold and MetaMorph
product lines. The Maxline and FlexStation family of products consists
primarily 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. Microplate readers provide scientists the
benefit of high-throughput analysis in a standardized, multi-sample format.
Because of the productivity gains using a multi-sample format, microplates have
largely replaced test tubes and cuvettes for many life sciences applications.

A microplate is a disposable plastic vessel that is used with a microplate
reader to measure light. The basic principles of microplate readers are that
light from an appropriate source is directed to a wavelength selection device,
such as a monochromator, and its intensity is measured before and after passing
through each of the sample wells of a microplate. Application of a mathematical
formula to the light intensity measurements of each microplate well provides a
measure of the sample present in the well. The measurement, known as optical
density, relative fluorescence, or luminescence, is proportional to the
concentration of the substance that is being measured. Historically, the
standard microplate was comprised of 96 individual wells. As cost and
throughput have become increasingly important, however, the industry has begun
to move to higher density plates including 384 wells and 1536 wells. We believe
that this trend towards miniaturization will continue to be a significant
factor affecting the microplate reader market in the future.

Maxline Detection Systems

Our Maxline 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 Maxline family currently includes the following primary
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | VERSAmax. 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.                                                                                                                                                                                                                                                                                                                               
|
| |  |  | SPECTRAmax GEMINI XS. SPECTRAmax GEMINI was
the worlds first dual-scanning microplate spectrofluorometer. By
incorporating two scanning monochromators, the GEMINI allows
the user to automatically optimize the instrument setting for the
particular assay characteristics as well as for every fluorophore that
is in use today. GEMINI also was our first microplate reader capable of
multi-mode operation, in that the product is capable of fluorescence,
luminescence and time-resolved fluorescence measurements. The GEMINI XS
(Extra Sensitive), introduced in 2000, extends the GEMINI franchise by
significantly improving sensitivity and adding well scanning capability
which allows researchers to perform more complex cell based assays.

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| |  |  | SPECTRAmax GEMINI EM. The GEMINI EM
expands the capabilities of the GEMINI XS through several new features,
including the ability to read microplates from either the top or the
bottom. These features expand the menu of applications that can be
performed on the GEMINI platform to include cell-based assays.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | SPECTRAmax LMax. SPECTRAmax LMax is our first
reader to offer customers sensitive luminescence detection in a
bench-top instrument.                                                                                                                                                                               

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 can play a key role in reducing assay
development bottlenecks by providing 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.

We offer three 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 and FlexStation Membrane Potential Assay Kit.

Skatron

We acquired a line of liquid handling systems, primarily washers, through
our acquisition of Skatron Instruments AS in 1999. Washers are used to dispense
and remove fluid from microwell plates and are used as an integral step during
the course of many assays. The Skatron products bring a complete line of
state-of-the-art microwell plate washers and other related tools, including
cell harvesters, to the Life Sciences Research product family. These products
include a variety of cell and plate washers that offer 96, 384 and 1536 well
dispensing and washing capabilities.

Threshold System

Our Threshold system is comprised of a detection instrument and
proprietary reagents. Our Threshold system incorporates our LAPS technology to
quantitate a variety of biomolecules such as DNA, proteins and mRNA rapidly and
accurately. The demand for systems which can quantitate contaminants in the
manufacturing and quality control of bioengineered products is a result of the
growing number of biopharmaceutical therapeutics both entering clinical trials
and receiving regulatory approval for commercial sale. The Threshold system
emerged from a need by biopharmaceutical companies for more sensitive and
reproducible methods to detect contaminants in biopharmaceuticals during the
manufacturing and quality control process. Traditional detection methods, such
as DNA hybridization, can be slow, difficult to use in a manner that provides
reproducible and transferable results, and often require the use of radioactive
materials for detection. We believe that the Threshold system is the only
commercially available, fully-integrated system capable of rapidly and
accurately quantitating DNA with picogram level sensitivity. The Threshold
family of products includes a workstation, software and consumable reagent
kits.

MetaMorph Software

MetaMorph is a suite of software products for the acquisition and analysis
of detailed cellular images. The software works in tandem with microscope and
camera systems to acquire images of cells; once acquired, the images can be
quantified and analyzed in a variety of ways. The product family, developed by
our UIC subsidiary, consists of the following software packages:

|                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     MetaMorph. The latest version of UICs flagship product 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.                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                
|     MetaVue. A lower-cost version of MetaMorph, MetaVue is an entry-level
product tailored to common imaging applications.                                                                                                                                                                    

We sell MetaMorph 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 MetaMorph.

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OTHER SOFTWARE AND CUSTOMER SERVICE

All of our instrument products incorporate internally designed and
developed software which are 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 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-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 117 full time employees as of
December 31, 2002. We have typically invested 16% to 21% of our revenues in
research and development, which has resulted in a strong track record of
technological innovation. 72% of our revenues in 2002 were derived from
products that we introduced in the last three years. Our research and
development expenditures were approximately $18.0 million in 2002, $15.1
million in 2001 and $16.8 million in 2000.

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 158 full time employees in
North America, Europe and Japan as of December 31, 2002. We distribute our
products primarily through direct sales representatives in North America. We
have subsidiaries in the United Kingdom, Germany and Japan 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. No single customer accounted for more
than 5% of our total 2002 revenues.

Sales to customers outside the United States accounted for 39%, 36% and
37% of total revenues and total sales denominated in foreign currencies
accounted for 31%, 31% and 20% of total revenues in 2002, 2001 and 2000,
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, California and
Norway. Both of these facilities are ISO 9001 certified. We assemble the
Discovery-1 system at our facility in Downingtown, Pennsylvania. 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 instruments are
manufactured in accordance with Good Manufacturing Practices.

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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 December 31, 2002, we were maintaining 57 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 2003 and
2018. In addition, as of that date, we had 38 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 life sciences 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 life sciences research market is characterized by intense competition
among a number of companies, including 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 microplate reader market. Our Maxline products are generally priced at a
premium to other microplate readers. We compete in the microplate reader market
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.

The drug discovery market is also characterized by intense competition
among a number of companies, including Amersham Biosciences, 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.

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 Maxline 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 Maxline 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, 2002, we employed 433 persons full time, including 117
in research and development, 119 in manufacturing, 158 in marketing and sales
and 39 in general administration and finance. Of these employees, 85 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.




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.

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| |  | 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 $494,500. 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 materially 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 30 to 90 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 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

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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. 72% of our
revenues in 2002 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.

We currently anticipate that our IonWorks product family will include in the near
term our recently launched IonWorks HT system and an additional IonWorks system
based on technology acquired through the acquisition of Cytion S.A. Our IonWorks product
family may not achieve significant commercial acceptance or generate significant
revenues within the time frame that we have anticipated, or at all. Any such failure would
adversely affect our financial performance. In particular, we recently launched our
IonWorks HT system. This system has not achieved, and may not achieve or maintain,
significant commercial acceptance. The system could fail to obtain significant
commercial acceptance due to general economic conditions, competitive conditions,
customer concerns related to the price or performance of the IonWorks HT system or
other factors. In addition, we recently commenced the process of transferring the
production of PatchPlates, a component of our IonWorks HT system, from the current
manufacturer to in-house manufacturing. Any problems or delays in this transfer could
adversely affect the ability of the IonWorks HT system to achieve or maintain significant
commercial acceptance. It is likely that any failure of the IonWorks HT system to achieve
commercial acceptance within the time frame that we have anticipated would cause us to
fail to meet our previously stated 2003 revenue expectations, which would likely cause
our stock price to decline.

The successful commercialization of our IonWorks product family, as well as the
achievement of the benefits of our 2001 acquisition of Cytion, will depend in part on
our ability to develop new products that include technology acquired through the
acquisition of Cytion, or enhancements thereto, in a timely and efficient manner. Failure
to develop new products in a timely and efficient manner, or at all, may prevent us from
offering first-to-market products in segments of the electrophysiology market. As a
result, we may lose customers, and our business and results of operations may be harmed.
In January 2003, we initiated activities associated with the closure of the Cytion facility
in Switzerland and the integration of Cytions technology and operations into operations
located at our other facilities. In addition to the costs and potential delays associated with
this facility closure, the closure may adversely impact our ability to successfully develop
products that include technology acquired through the acquisition of Cytion, or
enhancements thereto. Further, while we believe that the technology acquired through the
acquisition of Cytion complements our IonWorks HT system, we may not be able to
develop and commercialize any new products that include technology acquired through
the acquisition of Cytion and are complementary to the IonWorks HT system. Any failure
to develop new products that include technology acquired through the acquisition of
Cytion, or enhancements thereto, in a timely and efficient manner, or at all, or any failure
of such products to achieve commercial acceptance within the time frame that we have
anticipated would adversely affect our business and financial performance.



| |  | 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:



| |  |  | we may be unable to obtain an adequate supply of required components;                                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we have reduced control over pricing and 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.

For example, we rely on a single supplier, Essen Instruments, for the
PatchPlate consumable that is part of the IonWorks HT. We decided in 2002 to
bring the production of PatchPlates in-house, and Essen is assisting us in
transferring their PatchPlate manufacturing technology to us. We have
purchased from Essen the inventory we believe is sufficient to meet our needs
for PatchPlates until we commence production on our own. However, we may not
have sufficient inventory and until we have successfully completed the transfer
of the technology and commenced in-house manufacturing on a commercial scale,
we will continue to rely on Essen as our sole supplier of PatchPlates. Any
failures by Essen to meet our requirements for PatchPlates could harm our
business.



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

We assemble our systems in our manufacturing facilities located in
Sunnyvale, California, Downington, Pennsylvania, and Norway. 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 revenues would 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.

For example we are in the process of transferring the production of
PatchPlates, a component of our IonWorks HT system, from the current
manufacturer to in-house manufacturing. Since the production of PatchPlates is
a complex process, it may take longer than we anticipate to reach full
production capacity using our own manufacturing. Any problems or delays in
this transfer could harm our business.



| |  | 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 sometimes have 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.



| |  | 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 payors continue challenging the pricing of medical products and
services, government regulation, and uncertainty of 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.



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| |  | 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.

On April 16, 2002, Caliper Technologies Corp. filed a patent infringement
lawsuit against us alleging that our IMAP assay kits infringe U.S. patents held
by Caliper. We believe that none of our products infringe any claim of the
Caliper patents. On May 8, 2002, we filed an answer and counter-claim to
Calipers lawsuit denying all allegations of infringement, setting forth
certain affirmative defenses and making a counter-claim for declaratory relief
that, among other things, we are not infringing and have not infringed any
valid and enforceable claim of the Caliper patent and that the Caliper patent
is invalid. Caliper has also made a motion for preliminary injunction, expected
to be decided in the second or third quarter of calendar 2003. We intend to
oppose vigorously this motion. If Caliper were to prevail in this motion, we
may be prohibited from selling IMAP assay kits until completion of the
litigation, which may take several additional months. If we do not prevail in
litigation, we may be prohibited permanently from selling IMAP assay kits. Our
inability to sell IMAP assay kits could have an adverse impact on our overall
customer relations. The IMAP product line represented approximately
1% of our revenues in 2002. We can not assure you that we will prevail in the Caliper
lawsuit or that, even if we prevail, attention to the lawsuit will not consume
substantial financial and management 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. We cannot assure you that we will prevail in any of
these suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors 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;                                                                                                 

13



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| |  |  | 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 technology underlying our
products. If they 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 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 or design around our proprietary technologies.

14



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| |  | 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.



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

In 2002, approximately 9% 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 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 materially adverse affect on our business, financial
condition and results of operations.

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| |  | 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, in June 2002
we acquired Universal Imaging Corporation, or UIC. 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
could be expensive and time consuming, disrupt our ongoing business and
distract our management. 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. If we are unable to integrate any acquired
entities, products or technologies effectively, our business will suffer. In
addition, any impairment of goodwill and amortization of other intangible
assets or charges resulting from the costs of acquisitions could harm our
business and operating results.

We acquired Cytion S.A. in 2001.
In January 2003, we initiated activities
associated with the closure of the Cytion facility in Switzerland. We may continue to
incur costs from integrating Cytions technology and operations into operations located at
our other facilities, which may be expensive and time consuming and may adversely
impact our ability to successfully develop products.  Such costs may include costs for
reorganization, closure of the facility, satisfaction of contractual obligations, employee
redeployment or severance, conversion of information systems or other costs arising from
the coordination of our development teams. Successful product development may place a
significant burden on our existing management and our internal resources, which could
have a materially adverse effect on our business, financial condition and operating
results. Finally, the market price of our common stock could decline if we do not achieve
the perceived benefits of the acquisition as rapidly or to the extent anticipated by
financial analysts or investors.



| |  | 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,
software engineering and electronic engineering. Our corporate headquarters is
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.



| |  | WE ARE DEPENDENT ON INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO
FOREIGN CURRENCY EXCHANGE RATE, POLITICAL AND ECONOMIC RISKS.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------

We maintain facilities in Norway, the United Kingdom, Germany and Japan,
and sales to customers outside the United States accounted for approximately
39% our revenues in 2002. We anticipate that international sales will continue
to account for a significant portion of our revenues.

All of our sales to international distributors are denominated in U.S.
dollars. Most of our direct sales in the United Kingdom, Germany, France,
Canada and Japan are denominated in local currencies and totaled $32.2 million
(32% of total revenues) in 2002. 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 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.

Our reliance on international sales and operations exposes us to foreign
political and economic risks, including:



| |  |  | political, social and economic instability;                    
| | - |  | ---------------------------------------------------------------
|
| |  |  | trade restrictions and changes in tariffs;                     
|
| |  |  | import and export license requirements and restrictions;       
|
| |  |  | difficulties in staffing and managing international operations;
|
| |  |  | disruptions in international transport or delivery;            
|
| |  |  | difficulties in collecting receivables; and                    

16



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| |  |  | potentially adverse tax consequences.
| | - |  | -------------------------------------

If any of these risks materialize, our international sales could
decrease and our foreign operations could suffer.



| |  | 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
revenue 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:



| |  |  | 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;           
|
| |  |  | level of product and price competition;                                               
|
| |  |  | length of our sales cycle and customer buying patterns;                               
|
| |  |  | size and timing of individual transactions;                                           
|
| |  |  | timing of new product introductions and product enhancements;                         
|
| |  |  | mix of products sold;                                                                 
|
| |  |  | levels of international transactions;                                                 
|
| |  |  | activities of and acquisitions by competitors;                                        
|
| |  |  | timing of new hires and the allocation of our resources;                              
|
| |  |  | changes in foreign currency exchange rates; and                                       
|
| |  |  | our ability to develop and market new products and control costs.                     

One 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, if sales levels in a particular quarter do not meet
expectations, we may not be able to adjust operating expenses sufficiently
quickly to compensate for the shortfall, and our results of operations for that
quarter may be seriously harmed. We manufacture our products based on
forecasted orders rather than to outstanding orders. Our manufacturing
procedures may in certain instances create a risk of excess or inadequate
inventory levels if orders do not match forecasts. In addition, 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 affected directly by variations in
revenues.

Based upon the preceding factors, we may experience a shortfall in revenue
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.



| |  | 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.
During 2002, the closing sales price of our common stock ranged from $10.22 to
$21.47. Our stock price could decline regardless of our actual operating
performance, and

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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
or buy/sell recommendations by us or 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, merger in which we are not the
surviving company or 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.



| |  | 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 anticipates, plans, predicts,
expects, estimates, intends, will, continue, may, potential,
should and the negative of these terms or other comparable terminology. 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 here under Business Risks 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.

AVAILABLE INFORMATION

We maintain a site on the world wide web at www.moleculardevices.com,
however, information found on our web site is not incorporated by reference
into this report. We make available free of charge on or through our website
our annual report of 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 Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC.

18



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ITEM 2. PROPERTIES

We lease two facilities in Sunnyvale, California and one facility in
Downington, Pennsylvania which include laboratory, manufacturing and
administrative space. We also lease sales and service offices in the United
Kingdom, Germany and Japan, a manufacturing facility in Norway, and a research and development facility in Switzerland. We believe that our
current facilities will be sufficient for our operations through at least 2003.
These properties are described below:

|                                         |  |           |  |                                                                                |  |                  |                  | 
|---------------------------------------- |  | --------- |  | ------------------------------------------------------------------------------ |  | ---------------- | ---------------- | 
|LOCATION                                 |  | OWNERSHIP |  | FACILITIES                                                                     |  | LEASE EXPIRATION
|                                         |  |           |  |                                                                                |  |                 
|1311 Orleans Drive
Sunnyvale, CA 94089   |  | Leased    |  | Approximately 60,000 square feet of
office, laboratory and manufacturing space |  |                  | October 31, 2007 | 
|                                         |  |           |  |                                                                                |  |                 
|1312 Crossman Avenue
Sunnyvale, CA 94089 |  | Leased    |  | Approximately 54,400 square feet of
office, laboratory and manufacturing space |  | October 31, 2007
|                                         |  |           |  |                                                                                |  |                 
|402 Boot Road
Downington, PA 19335       |  | Leased    |  | Approximately 27,900 square feet of
office, laboratory and manufacturing space |  | August 25, 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
|                                         |  |           |  |                                                                                |  |                 
|Osaka, Japan                             |  | Leased    |  | Approximately 3,700 square feet of
office space                                |  | March 31, 2005  
|                                         |  |           |  |                                                                                |  |                 
|Tokyo, Japan                             |  | Leased    |  | Approximately 1,100 square feet of
office space                                |  | June 30, 2003   
|                                         |  |           |  |                                                                                |  |                 
|Lausanne, Switzerland                    |  | Leased    |  | Approximately 2,200 square feet of
office and laboratory space                 |  | April 1, 2004   




ITEM 3. LEGAL PROCEEDINGS

On April 16, 2002, Caliper Technologies Corp. filed a patent infringement
lawsuit against us alleging that our IMAP assay kits infringe U.S. patents held
by Caliper. We believe that none of our products infringe any claim of the
Caliper patents. On May 8, 2002, we filed an answer and counter-claim to
Calipers lawsuit denying all allegations of infringement, setting forth
certain affirmative defenses and making a counter-claim for declaratory relief
that, among other things, we are not infringing and have not infringed any
valid and enforceable claim of the Caliper patent and that the Caliper patent
is invalid. Caliper has also made a motion for preliminary injunction which is
expected to be decided in the second or third quarter of calendar 2003. We
intend to oppose vigorously this motion. If Caliper were to prevail in this
motion, we may be prohibited from selling IMAP assay kits until completion of
the litigation, which may take several additional months. If we do not prevail
in litigation, we may be prohibited permanently from selling IMAP assay kits.
Our inability to sell IMAP assay kits could have an adverse impact on our
overall customer relations.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
MDCC.

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

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | HIGH |       | LOW  |  | HIGH |       | LOW
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 21.47 |      |  | $    | 17.83 |     |  | $ | 77.38 |  |  | $ | 38.88 | 
|Second Quarter |  |      | 19.64 |      |  |      | 14.40 |     |  |   | 49.99 |  |  |   | 17.00 | 
|Third Quarter  |  |      | 16.15 |      |  |      | 10.22 |     |  |   | 24.58 |  |  |   | 17.51 | 
|Fourth Quarter |  |      | 19.32 |      |  |      | 10.87 |     |  |   | 22.46 |  |  |   | 15.50 | 

Historically, we have not paid cash dividends on our common stock and do
not intend to pay any cash dividends in the foreseeable future. The Board of
Directors will determine any future cash dividends. As of
March 21, 2003, we had approximately 158 stockholders of
record. On March 21, 2003, the last sale price reported on the Nasdaq National Market for our
common stock was $11.00 per share.

We entered into an employment arrangement with Patricia Sharp, Vice
President of Human Resources, pursuant to which we were obligated to issue to
her shares of our common stock in exchange for services rendered. As a result
of this arrangement, we issued shares of our common stock to Ms. Sharp in 2001
and 2002 on the dates and amounts indicated below in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933, as
amended.

|          |  |  |               | 
|--------- |  |  | ------------- | 
|Number of |  |  |               | 
|Shares    |  |  | Date of Issue | 
|          |  |  |               | 
|312       |  |  | 03/05/2001    | 
|312       |  |  | 06/05/2001    | 
|313       |  |  | 09/05/2001    | 
|312       |  |  | 12/05/2001    | 
|313       |  |  | 03/05/2002    | 
|312       |  |  | 06/05/2002    | 
|313       |  |  | 09/05/2002    | 



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Certain information required to be disclosed by Item 201(d) of Regulation S-K
is incorporated herein by reference.

20



---



##### Table of Contents






ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical financial information
for Molecular Devices, 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.

|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |        | 
|--------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------ | - | ------------------------------------- | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                          |                                                              |                                                  |   | Years Ended December 31,             
|                                                          |                                                              |                                                  |   |                                      
|                                                          |                                                              |                                                  |   | 2002                                  |        | 2001 |   | 2000   |        | 1999 |   | 1998  
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |       
|                                                          |                                                              |                                                  |   | (in
thousands, except per share data)
|Consolidated
Statements of Operations Data:               |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Revenues                                                     |                                                  | $ | 102,157                               |        |      | $ | 92,231 |        |      | $ | 96,035 |        |  | $ | 71,902 |        |  | $ | 52,234 |       
|                                                          | Cost of revenues                                             |                                                  |   | 40,561                                |        |      |   | 35,538 |        |      |   | 35,583 |        |  |   | 26,299 |        |  |   | 20,203 |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Gross profit                                                 |                                                  |   | 61,596                                |        |      |   | 56,693 |        |      |   | 60,452 |        |  |   | 45,603 |        |  |   | 32,031 |       
|                                                          | Operating expenses:                                          |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |       
|                                                          |                                                              | Research and development                         |   |                                       | 18,002 |      |   |        | 15,105 |      |   |        | 16,796 |  |   |        | 14,150 |  |   |        | 11,158 | 
|                                                          |                                                              | Acquired in-process research and development (1) |   |                                       |       |      |   |        | 12,625 |      |   |        |       |  |   |        | 2,037  |  |   |        | 876    | 
|                                                          |                                                              | Merger expenses (1)                              |   |                                       |       |      |   |        |       |      |   |        | 15,181 |  |   |        |       |  |   |        |       | 
|                                                          |                                                              | Selling, general and administrative              |   |                                       | 35,435 |      |   |        | 33,381 |      |   |        | 31,906 |  |   |        | 25,630 |  |   |        | 19,386 | 
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Total operating expenses                                     |                                                  |   | 53,437                                |        |      |   | 61,111 |        |      |   | 63,883 |        |  |   | 41,817 |        |  |   | 31,420 |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Income (loss) from operations (1)                            |                                                  |   | 8,159                                 |        |      |   | (4,418 | )      |      |   | (3,431 | )      |  |   | 3,786  |        |  |   | 611    |       
|                                                          | Other income, net                                            |                                                  |   | 1,562                                 |        |      |   | 3,806  |        |      |   | 4,912  |        |  |   | 1,921  |        |  |   | 2,178  |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Income (loss) before income taxes                            |                                                  |   | 9,721                                 |        |      |   | (612   | )      |      |   | 1,481  |        |  |   | 5,707  |        |  |   | 2,789  |       
|                                                          | Income tax provision                                         |                                                  |   | 2,916                                 |        |      |   | 4,625  |        |      |   | 6,415  |        |  |   | 2,056  |        |  |   | 956    |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Net income (loss)                                            |                                                  | $ | 6,805                                 |        |      | $ | (5,237 | )      |      | $ | (4,934 | )      |  | $ | 3,651  |        |  | $ | 1,833  |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Basic net income (loss) per share                            |                                                  | $ | 0.44                                  |        |      | $ | (0.32  | )      |      | $ | (0.32  | )      |  | $ | 0.27   |        |  | $ | 0.15   |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Diluted net income (loss) per share                          |                                                  | $ | 0.44                                  |        |      | $ | (0.32  | )      |      | $ | (0.32  | )      |  | $ | 0.26   |        |  | $ | 0.14   |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Shares used in computing basic net
income (loss) per share   |                                                  |   | 15,348                                |        |      |   | 16,192 |        |      |   | 15,246 |        |  |   | 13,347 |        |  |   | 12,407 |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          | Shares used in computing diluted net
income (loss) per share |                                                  |   | 15,457                                |        |      |   | 16,192 |        |      |   | 15,246 |        |  |   | 14,149 |        |  |   | 12,965 |       
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|Pro Forma Consolidated Statements of Operations Data (2): |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          |                                                              | Pro forma operating income                       |   | $                                     | 8,159  |      |   | $      | 8,207  |      |   | $      | 11,750 |  |   | $      | 5,823  |  |   | $      | 1,487  | 
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          |                                                              | Pro forma net income                             |   | $                                     | 6,805  |      |   | $      | 7,388  |      |   | $      | 10,247 |  |   | $      | 4,954  |  |   | $      | 2,409  | 
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                                                          |                                                              | Pro forma diluted net income per share           |   | $                                     | 0.44   |      |   | $      | 0.45   |      |   | $      | 0.62   |  |   | $      | 0.35   |  |   | $      | 0.19   | 
|                                                          |                                                              |                                                  |   |                                       |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       

|                                                  |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |        |  |  |   |        |  
|------------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ |  |  | - | ------ | -
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2002               |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                  |  |                    |         |      |  |      |         |      |  |     
|Consolidated Balance Sheet Data:                  |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |        |  |  |   |        |  
|Cash, cash equivalents and short-term investments |  | $                  | 53,783  |      |  | $    | 67,257  |      |  | $    | 97,091  |   |  | $ | 36,650 |  |  | $ | 40,030 |  
|Working capital                                   |  |                    | 84,851  |      |  |      | 99,422  |      |  |      | 138,184 |   |  |   | 65,748 |  |  |   | 55,014 |  
|Total assets                                      |  |                    | 162,901 |      |  |      | 152,361 |      |  |      | 180,033 |   |  |   | 86,849 |  |  |   | 72,319 |  
|Retained earnings (accumulated deficit)           |  |                    | (33,848 | )    |  |      | (40,653 | )    |  |      | (4,833  | ) |  |   | 101    |  |  |   | (3,550 | )
|Total stockholders equity                        |  |                    | 142,804 |      |  |      | 137,485 |      |  |      | 163,633 |   |  |   | 74,304 |  |  |   | 60,700 |  



---

|(1) |  | Our 2001 income from operations included a $12.6 million write-off for
the acquisition of in-process research and development costs relating to
our acquisition of Cytion S.A.. Our 2000 income 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.
Our 1999 income from operations included a $2.0 million write-off for the
acquisition of in-process research and development costs relating to our
acquisition of Skatron Instruments AS. Our 1998 income from operations
included an $876,000 write-off for the acquisition of in-process research
and development relating to our acquisition of certain technology rights
from Affymax Research Institute, a subsidiary of GlaxoSmithKline.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We have excluded the impact of the write-offs of acquired in-process
research and development and merger expenses in 2001, 2000, 1999, and 1998
described in footnote (1) above, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

21



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##### Table of Contents






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 area 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 I. BusinessBusiness Risks and Qualitative
and Quantitative Disclosures about Market Risk and the risks detailed from
time to time in the Companys SEC reports, including this Annual Report on Form
10-K for the year ended December 31, 2002.

We are a leading supplier of high-performance
bioanalytical measurement systems which 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 combinatorial chemistry by facilitating the
high-throughput and cost-effective identification and evaluation of drug candidates.
Our solutions are based on its 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 small and large pharmaceutical, biotechnology and
industrial companies as well as medical centers, universities, government
research laboratories and other institutions throughout the world. No single
customer accounted for more than 5% of our consolidated revenues in 2002, 2001
or 2000. We recognize revenue on the sale of our 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. Service contract revenue
is deferred at the time of sale and recognized ratably over the period of
performance. Total service revenue was 8%, 6% and 4% of total revenues in 2002,
2001 and 2000, respectively. In 2002, sales to customers outside the United
States accounted for 39% of total revenues and total sales denominated in
foreign currencies accounted for 31% of total revenues. We currently do not
hedge our exposure to movements in foreign currency exchange rates, however we
may do so in the future. 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. We expect this trend to continue in future
years.

In June 2002, we acquired Universal Imaging Corporation, a developer and
distributor of cellular imaging software and drug discovery tools. In 2001, we
acquired Nihon Molecular Devices, a sales and service operation in Japan, as
well as Cytion S.A., a research and development company in Switzerland.

We acquired all of the outstanding stock of LJL BioSystems
in a tax-free, stock-for-stock transaction in August 2000, as a result of which
LJL BioSystems became a wholly owned subsidiary. The
transaction was accounted for under the pooling-of-interests method of
accounting and, accordingly, all financial information includes the operations
of LJL BioSystems for all periods presented.

All of the acquired companies were integrated into our existing business
and accordingly no new operating segments were created.

CRITICAL ACCOUNTING POLICIES

Managements discussion and analysis of Molecular Devices 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.



---



##### Table of Contents



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 and Warranty

We
recognize product revenue at the time of shipment and transfer of
title when collectibility is reasonably assured. Software revenue is recognized at the time of sale and in
accordance with AICPA Statement of Position No. 97-2, Software Revenue
Recognition (SOP 97-2). There are no significant customer acceptance requirements or
post-shipment obligations on the part of Molecular Devices for product or
software sales.

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. Amounts received prior to
completion of the earnings process are recorded as customer deposits or
deferred revenue, as appropriate. Service contract revenue is deferred at the
time of sale and recognized ratably over the period of performance.

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 maintain reserves for
potential credit losses, which are based on a number of factors including, but
not limited to, the current financial condition of specific customers, payment
trends and the overall economic environment. Such losses have been
historically within managements expectations.

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.

Equity Investments

We invest in equity instruments of privately held companies for business
and strategic purposes. These investments are included in other long-term
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, 2002, 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.

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, 2002, we had net deferred tax assets of $8.5 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 2003 and subsequent years. These factors include, but
are not limited to, interpretations of existing tax laws, changes in tax laws
and rates, future levels of R&D spending, future levels of capital
expenditures, and our success in R&D and commercializing products.

23



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##### Table of Contents



RESULTS OF OPERATIONS

The following table summarizes our consolidated statement of income as a
percentage of revenues:

|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|--------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                          |  | YEARS ENDED DECEMBER 31,
|                                                          |  |                         
|                                                          |  | 2002                     |       | 2001 |  | 2000
|                                                          |  |                          |       |      |  |     
|Revenues                                                  |  |                          | 100.0 | %    |  |      | 100.0 | %  |  |  | 100.0 | % 
|Cost of revenues                                          |  |                          | 39.7  |      |  |      | 38.5  |    |  |  | 37.1  |   
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Gross profit                                              |  |                          | 60.3  |      |  |      | 61.5  |    |  |  | 62.9  |   
|Research and development                                  |  |                          | 17.6  |      |  |      | 16.4  |    |  |  | 17.5  |   
|Write-off of acquired in-process research and development |  |                          |      |      |  |      | 13.7  |    |  |  |      |   
|Merger expenses                                           |  |                          |      |      |  |      |      |    |  |  | 15.8  |   
|Selling, general and administrative                       |  |                          | 34.7  |      |  |      | 36.2  |    |  |  | 33.2  |   
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Income (loss) from operations                             |  |                          | 8.0   |      |  |      | (4.8  | )  |  |  | (3.6  | ) 
|Other income, net                                         |  |                          | 1.5   |      |  |      | 4.1   |    |  |  | 5.2   |   
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Income (loss) before income taxes                         |  |                          | 9.5   |      |  |      | (0.7  | )  |  |  | 1.6   |   
|Income tax provision                                      |  |                          | 2.8   |      |  |      | 5.0   |    |  |  | 6.7   |   
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Net income (loss)                                         |  |                          | 6.7   | %    |  |      | (5.7  | )% |  |  | (5.1  | )%
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Pro forma operating income(1)                             |  |                          | 8.0   | %    |  |      | 8.9   | %  |  |  | 12.2  | % 
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   
|Pro forma net income(1)                                   |  |                          | 6.7   | %    |  |      | 8.0   | %  |  |  | 10.7  | % 
|                                                          |  |                          |       |      |  |      |       |    |  |  |       |   



---

|(1) |  | Excludes the impact of the write-off of acquired in-process research and
development in 2001 and merger expenses recorded in 2000, net of tax.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31, 2002 AND 2001

Revenues for 2002 increased by 11% to $102.2 million from $92.2 million in
2001. This increase was due to the launch of the IonWorks HT, along
with the inclusion of seven months of revenue from Universal Imaging
Corporation (UIC), acquired on June 1, 2002. Our revenues are
broken into two product families. The Drug Discovery product family, which
includes cell analysis and HTS systems, consists of IonWorks
HT, FLIPR, CLIPR, Analyst, Discovery-1 and Cytosensor systems. The Life
Sciences Research product family, which includes bench top detection and liquid
handling products, consists of Maxline, Skatron, MetaMorph
and Threshold products. Drug Discovery product family revenues
increased 4% in 2002
due to launch of IonWorks HT in the third quarter, increased sales of FLIPR
products and the addition of the Discovery-1 product line from UIC. Revenues
in the Life Sciences Research product family increased 16% in 2002 largely due to the
addition of the MetaMorph product line from UIC and growth in sales of the
Threshold and Skatron product lines.

Gross margin decreased to 60.3% in 2002, from 61.5% in 2001. This
decrease was primarily due to overall product sales that were more heavily
weighted in lower margin products.

Research and development expenses increased by 19% to $18.0 million (18%
of revenues) in 2002 from $15.1 million (16% of revenues) in 2001. This increase was
primarily driven by inclusion of a full years research and development
expenses at Cytion S.A. (Cytion), which we acquired in July 2001, and the
research and development expenses incurred at UIC.

Selling, general and administrative expenses increased by 6% to $35.4
million (35% of revenues) in 2002 from $33.4 million (36% of
revenues) in 2001. This increase
resulted from the inclusion of the selling, general and administrative expenses
of UIC.

Other income, net, consisting primarily of interest income, decreased by
59% to $1.6 million in 2002 from $3.8 million in 2001. This was due to lower average
cash and short-term investment balances (due to the share repurchase plan
executed in the first quarter and the UIC acquisition in the second quarter)
and decreased interest rates in 2002.

We recorded tax provisions of $2.9 million (an effective tax rate of 30%)
and $4.6 million (an effective tax rate of 38.5%) for 2002 and 2001,
respectively. The decrease in our effective tax rate resulted from tax
benefits recognized in 2002 associated with our international operations. The
effective tax rates for 2002 and 2001 are calculated on profit before tax
excluding the write-off of acquired in-process research and development
expenses in 2001, which is not deductible for income tax purposes.

24



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##### Table of Contents



YEARS ENDED DECEMBER 31, 2001 AND 2000

Revenues for 2001 decreased by 4% to $92.3 million from $96.0 million in
2000. The soft economic environment in 2001 affecting purchasing decisions on
our higher priced instrument systems resulted in this top-line decline. Drug
Discovery product family revenues were down 10.8% from 2000, due in large part
to significant declines in the LJL product line. This decline was offset by a 3.2% increase in revenues from our Life Sciences Research product
family, led by the FlexStation, which was introduced in the first quarter of
2001.

Gross margin decreased to 61.5% in 2001, from 62.9% in 2000. The decrease
related in part from decreased list prices for our LJL product line, as well as
increased discounting on other high-cost instruments in an attempt to offset
the impact of the soft economic environment.

Research and development expenses for 2001 decreased to $15.1 million from
$16.8 million in 2000, or a decrease of 10%. Research and development expenses
as a percentage of revenues were 16% in 2001 and 18% in 2000. The decrease was
the result of a reduction in spending in response to our revised economic
outlook, as well as synergies created by our merger with LJL BioSystems, offset
by increased spending related to our acquisition of Cytion. We do not believe
the decreased spending has materially impacted any development projects.

In July 2001, we acquired Cytion and accounted for the acquisition under
the purchase method of accounting. We allocated a portion of the purchase
price to purchased in-process technologies for $12.6 million. We wrote this
off entirely in the third quarter of 2001. The write-off of purchased
in-process technologies represented the fair value at the acquisition date,
calculated utilizing the income approach, of the portion of certain in-process
research and development projects that were not reliant upon core technology.
The acquired in-process research and development had no alternative future use
at the date of acquisition.

Selling, general and administrative expenses for 2001 increased to $33.4
million from $31.9 million in 2000, or an increase of 5%. The increased
spending for the period is primarily the result of additional spending on
marketing, sales and service related activities as we continued our efforts to
expand worldwide market coverage and introduce new products. In 2001, we
purchased our Japanese distributor, Nihon Molecular Devices. Selling, general
and administrative expenses as a percentage of revenues were 36.2% in 2001 and
33.2% in 2000. The increase from 2000 to 2001 was a result of the costs at our
Japanese subsidiary, as well as the decline in overall revenues.

Other income (net), consisting primarily of interest income, decreased by
23% in 2001 to $3.8 million from $4.9 million in 2000 due to lower average cash
and investment balances and the significant decline in interest rates in 2001.
Lower average cash balances result principally from a share repurchase plan
under which we repurchased more than 1.5 million shares of our common stock and
our acquisition of Cytion.

We recorded income tax provisions of $4.6 million in 2001 and $6.4 million
in 2000. These provisions reflected a 38.5% effective tax rate. The effective
tax rates for 2001 and 2000 are calculated on profit before tax excluding the
write-off of acquired in-process research and development expenses in 2001 and
merger expenses related to the LJL BioSystems merger in 2000, which are not
deductible for income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and short-term investments of $53.8 million
at December 31, 2002 compared to $67.3 million at December 31, 2001. In 2002,
operating activities provided $15.3 million in cash.

Net cash used by investing activities was $24.8 million in 2002, which
included $22.9 million spent on the acquisition (net of cash acquired) of UIC
and $2.3 million of capital expenditures, partially offset by the proceeds from
the net maturities of $835,000 of short-term investments.

Net cash used in financing activities was $3.7 million in 2002, due to
$4.5 million spent to repurchase 220,000 shares of our common stock, offset by
$798,000 of proceeds from the issuance of common stock for options exercised
and employee stock purchases. The share repurchases all occurred in the first
quarter of 2002, and accounted for approximately 1.4% of the shares outstanding
as of December 31, 2002 and 2001. Additionally, approximately 1.3 million
shares remain available for repurchase under the stock repurchase program
approved by our Board of Directors in October 2001.

25



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##### Table of Contents



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.

Our facilities are leased under noncancelable operating leases. In
addition, we have a contractual commitment for the purchase of certain resale
products and manufacturing components with certain vendors ending in 2003. As of
December 31, 2002, the following is a summary of our contractual obligations
(in millions):

|                                   |  |                        |      |      |  |      |     |      |  |            |      |         |  |          |     |  |  |   |     | 
|---------------------------------- |  | ---------------------- | ---- | ---- |  | ---- | --- | ---- |  | ---------- | ---- | ------- |  | -------- | --- |  |  | - | --- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |      |      |  |      |     |      |  | 2004 to    |      | 2006 to |  | 2008 and
|                                   |  | Total                  |      | 2003 |  | 2005 |     | 2007 |  | thereafter
|                                   |  |                        |      |      |  |      |     |      |  |           
|Operating leases                   |  | $                      | 26.9 |      |  | $    | 5.2 |      |  | $          | 10.5 |         |  | $        | 9.8 |  |  | $ | 1.4 | 
|Unconditional purchase obligations |  |                        | 1.4  |      |  |      | 1.4 |      |  |            |     |         |  |          |    |  |  |   |    | 
|                                   |  |                        |      |      |  |      |     |      |  |            |      |         |  |          |     |  |  |   |     | 
|Total contractual cash obligations |  | $                      | 28.3 |      |  | $    | 6.6 |      |  | $          | 10.5 |         |  | $        | 9.8 |  |  | $ | 1.4 | 
|                                   |  |                        |      |      |  |      |     |      |  |            |      |         |  |          |     |  |  |   |     | 

RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which supersedes both Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121) and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (Opinion 30), for the disposal of a segment of a business (as
previously defined in that Opinion). FAS 144 retains the fundamental provisions
in FAS 121 for recognizing and measuring impairment losses on long-lived assets
held for use and long-lived assets to be disposed of by sale, while also
resolving significant implementation issues associated with FAS 121. For
example, FAS 144 provides guidance on how a long-lived asset that is used as
part of a group should be evaluated for impairment, establishes criteria for
when a long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. FAS 144 retains
the basic provisions of Opinion 30 on how to present discontinued operations in
the income statement but broadens that presentation to include a component of
an entity (rather than a segment of a business). Unlike FAS 121, an impairment
assessment under FAS 144 will never result in a write-down of goodwill. Rather,
goodwill is evaluated for impairment under FAS No. 142, Goodwill and Other
Intangible Assets. The Company adopted FAS 144 in 2002. The adoption of SFAS
144 did not have a material impact on financial position or results of
operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance
related to accounting for costs associated with disposal activities covered by
SFAS No. 144 or with exit or restructuring activities previously covered by
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS No. 146 supercedes EITF Issue No. 94-3 in its
entirety. SFAS No. 146 requires that costs related to exiting an activity or
to a restructuring not be recognized until the liability is incurred. The
statement further establishes fair value as the objective for initial
measurement of the liability and that employee benefit arrangements requiring
future service beyond a minimum retention period be recognized over the
future service period. SFAS No. 146 will be applied prospectively to exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB released FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others: an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.
FIN 45 establishes new disclosure and liability-recognition requirements for
direct and indirect debt guarantees with specified characteristics. The initial
measurement and recognition requirements of FIN 45 are effective prospectively
for guarantees issued or modified after December 31, 2002. However, the
disclosure requirements are effective for interim and annual
financial-statement periods ending after December 15, 2002. We have adopted
the disclosure provisions and do not expect the full adoption of FIN 45 to have
a material impact on our financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of SFAS
No. 123 (SFAS 148). This statement amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition and annual disclosure requirements of SFAS 148 are
effective for the Companys fiscal year 2002. The interim disclosure
requirements are effective for the first quarter of fiscal year 2003. We
continue to account for stock-based compensation using APB 25 and have not
adopted the recognition provisions of SFAS 123, as amended by SFAS 148. We do
not expect the adoption of SFAS 148 to have material impact on our financial
position or results of operations. See note 8 of the Notes to Consolidated
Financial Statements included in this report for disclosures required by SFAS
148.

26



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##### Table of Contents






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We 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 Consolidated Financial
Statements included in this report.

Our interest income is sensitive to changes in the general level of
interest rates, primarily U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on 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, consisting of $3.4 million of commercial paper and $6.7
million of U.S. government agency securities, are carried at market value,
which approximate cost, typically mature or are redeemable within 90 to 360
days, and bear minimal risk. We have not experienced any significant losses on
the investments.

We are exposed to changes in foreign currency exchange rates primarily in
the United Kingdom, France, Japan, Germany and Canada, where we sell direct 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.
Translation gains and losses related to our foreign subsidiaries in the United
Kingdom, Japan, Germany, Switzerland and Norway 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.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of Molecular Devices and
financial statement schedules are attached to this report as pages 35
through 56.

Financial Statements:



|                                                |  |  | Report of Ernst & Young LLP, Independent Auditors                                                        
|----------------------------------------------- | - |  | ---------------------------------------------------------------------------------------------------------
|                                               
|                                                |  |  | Consolidated Balance Sheets at December 31, 2002 and 2001                                                
|                                               
|                                                |  |  | Consolidated Statements of Operations for each of the three years in the period ended December 31, 2002  
|                                               
|                                                |  |  | Consolidated Statements of Stockholders Equity for the three years in the period ended December 31, 2002
|                                               
|                                                |  |  | Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002  
|                                               
|                                                |  |  | 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 DISCLOSURE

Not applicable.

27



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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to Directors and Executive Officers may be found
in the sections entitled Proposal 1  Election of Directors, and Executive
Officers of the Company, respectively, appearing in the definitive Proxy
Statement to be delivered to stockholders in connection with the solicitation
of proxies for our Annual Meeting of Stockholders to be held on May 29, 2003
(the Proxy Statement). Such information is incorporated herein by reference.




ITEM 11. EXECUTIVE COMPENSATION

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




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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




ITEM 14. CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures:The Companys
principal executive and financial officers reviewed and evaluated the Companys
disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as
of a date within 90 days before the filing date of this Form 10-K. Based on
that evaluation, the Companys principal executive and financial officers
concluded that the Companys disclosure controls and procedures are effective
in timely providing them with material information relating to the Company, as
required to be disclosed in the reports the Company files under the Exchange
Act.

(b)  Changes in internal controls:There were no significant changes in
the Companys internal controls or other factors that could significantly
affect those controls subsequent to the date of the Companys evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

28



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##### Table of Contents






PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

1.     Financial Statements  See Index to Consolidated Financial
Statements as Item 8 on page 27 of this report.

2.     Financial Statement Schedule  See Index to Consolidated Financial
Statements as Item 8 on page 27 of this report.

3.     Exhibits

|          |  |                                                                                                                                                                                                                                                                                                                             
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT   |  |                                                                                                                                                                                                                                                                                                                             
|NUMBER    |  | DESCRIPTION OF DOCUMENT                                                                                                                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                             
|2.1(1)    |  | Form of Agreement and Plan of Merger between the Registrant and Molecular Devices Corporation, a
California Corporation                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                             
|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.                                                             
|          |  |                                                                                                                                                                                                                                                                                                                             
|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(2)* |  | Key Employee Agreement for Joseph D. Keegan, Ph.D., dated March 11, 1998, as amended                                                                                                                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                             
|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 Tim Harkness                                                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.23(3)* |  | Employee Offer Letter for John Senaldi                                                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.24(4)* |  | 1995 Non-Employee Directors Stock Option Plan, as amended                                                                                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.25*    |  | 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                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                             

29



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##### Table of Contents



|           |  |                                                                                                                                                                                                                                                                                                      
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT    |  |                                                                                                                                                                                                                                                                                                      
|NUMBER     |  | DESCRIPTION OF DOCUMENT                                                                                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                                                                      
|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.                                                                                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                      
|10.36(8)*  |  | Key Employee Agreement for Stephen Oldfield                                                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                      
|10.37(8)*  |  | Key Employee Agreement for Tom OLenic                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                      
|10.38*     |  | 2001 Stock Option Plan                                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                      
|10.39      |  | Lease dated May 28, 2002 by and between The Irvine Company and the Registrant                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                      
|10.40*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and Joseph D. Keegan, Ph.D.                                                                                                                                                                                                      
|           |  |                                                                                                                                                                                                                                                                                                      
|10.41*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and Timothy A. Harkness                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                      
|10.42*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and John S. Senaldi                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                                                                      
|21.1       |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                      
|23.1       |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                      
|99.1**     |  | Certification by the Chief Executive Officer and the Chief Financial Officer of Molecular
Devices as required by Section 906 of the Public Company Accounting Reform and Investor
Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002),
dated March 27, 2003.



---

|(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.                                                                                                                                                                                                                                                                 
|    
|(4)  |  | Incorporated by reference to the similarly described exhibit in our
Registration Statement on Form S-8 (File No. 333-86159), as amended.                                                                                                                                                                                                                                                                              
|    
|(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.                                                                                                                                                                                                                                                                                                
|    
|*    |  | Management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                              
|    
|**   |  | This certification
accompanies the Form 10-K to which it relates, is not
deemed filed with the SEC and is not to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as
amended, or
the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such
filing.
|    
|(b)  |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|     |  | None                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(c)  |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|     |  | See Item 15(a) above.                                                                                                                                                                                                                                                                                                                                                                                                 

30



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##### Table of Contents



(d)        Financial Statement Schedule

See Item 15(a) above.

31



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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 27, 2003.

| |                               |  |                                                              
| | ----------------------------- |  | -------------------------------------------------------------
| | MOLECULAR DEVICES CORPORATION
| |                               |  |                                                              
| | By:                           |  | /s/ Joseph D. Keegan                                         
| |                               |  | Joseph D. Keegan, Ph.D.
President and Chief Executive Officer

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       |  |                                                                                                      |  |               
|Joseph D. Keegan, Ph.D.    |  | President, Chief Executive Officer and Director
(Principal Executive Officer)                        |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ Timothy A. Harkness    |  |                                                                                                      |  |               
|Timothy A. Harkness        |  | Vice President, Finance and Chief Financial and
Officer (Principal Financial and Accounting Officer) |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ Moshe H. Alafi         |  |                                                                                                      |  |               
|Moshe H. Alafi             |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ David L. Anderson      |  |                                                                                                      |  |               
|David L. Anderson          |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ A. Blaine Bowman       |  |                                                                                                      |  |               
|A. Blaine Bowman           |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ Paul Goddard           |  |                                                                                                      |  |               
|Paul Goddard, Ph.D.        |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ Andre F. Marion        |  |                                                                                                      |  |               
|Andre F. Marion            |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ Harden M. McConnell    |  |                                                                                                      |  |               
|Harden M. McConnell, Ph.D. |  | Director                                                                                             |  | March 27, 2003
|                           |  |                                                                                                      |  |               
|/s/ J. Allan Waitz         |  |                                                                                                      |  |               
|J. Allan Waitz, Ph.D.      |  | Director                                                                                             |  | March 27, 2003

32



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##### Table of Contents






CERTIFICATION

I, Joseph D. Keegan, Ph.D., certify that:

1.     I have reviewed this annual report on Form 10-K of Molecular Devices
Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based
on my knowledge, the consolidated financial statements, and other financial
information included in this annual report, fairly present in all material
respects the consolidated financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                                                           |  |                |  | 
|---------------------------------------------------------- |  | -------------- |  | 
|Date:                                                      |  | March 27, 2003 |  | 
|                                                           |  |                | 
|                                                           |  |                |  | 
|/s/ Joseph D. Keegan                                       |  |               
|Joseph D. Keegan, Ph.D.
President, Chief Executive Officer | 

33



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##### Table of Contents



CERTIFICATION

I, Timothy A. Harkness, certify that:

1.     I have reviewed this annual report on Form 10-K of Molecular Devices
Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based
on my knowledge, the consolidated financial statements, and other financial
information included in this annual report, fairly present in all material
respects the consolidated financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                                                                     |  |                |  | 
|-------------------------------------------------------------------- |  | -------------- |  | 
|Date:                                                                |  | March 27, 2003 |  | 
|                                                                     |  |                | 
|                                                                     |  |                |  | 
|/s/ Timothy A. Harkness                                              |  |               
|Timothy A. Harkness
Vice President, Finance, Chief Financial Officer | 

34



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Molecular Devices Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Molecular
Devices Corporation and its subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2002.
Our audits also included the financial statement schedule listed in the Index
at Item 15(a). These financial statements and schedules are the responsibility
of the companys management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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, 2002 and 2001, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States. 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.

|                                       |  |                      
|-------------------------------------- |  | ---------------------
|                                       |  | /s/ Ernst & Young LLP
|                                       |  |                      
|Palo Alto, California
January 27, 2003 |  |                      

35



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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |         |   |         | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | -------------------------- | ------- | ------------ | ------- | ------- | ------- | - | ------- | 
|                                          |                                                                                                                                                                                            |   |                            |         | December 31,
|                                          |                                                                                                                                                                                            |   |                            |         |             
|                                          |                                                                                                                                                                                            |   |                            |         | 2002         |         | 2001   
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |        
|ASSETS                                    |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|Current assets:                           |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          | Cash and cash equivalents                                                                                                                                                                  |   | $                          | 43,733  |              |         | $       | 56,372  |  
|                                          | Short-term investments                                                                                                                                                                     |   |                            | 10,050  |              |         |         | 10,885  |  
|                                          | Accounts receivable net of allowance for doubtful
accounts of $434 and $1,148 at
December 31, 2002 and 2001, respectively                                                                  |   |                            | 26,443  |              |         |         | 23,612  |  
|                                          | Inventories                                                                                                                                                                                |   |                            | 17,722  |              |         |         | 17,181  |  
|                                          | Deferred tax assets                                                                                                                                                                        |   |                            | 5,230   |              |         |         | 4,015   |  
|                                          | Other current assets                                                                                                                                                                       |   |                            | 1,770   |              |         |         | 2,233   |  
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            |   | Total current assets       |         |              | 104,948 |         |         |   | 114,298 | 
|Equipment and leasehold improvements, net |                                                                                                                                                                                            |   | 10,943                     |         |              |         | 10,323  |        
|Goodwill                                  |                                                                                                                                                                                            |   | 26,017                     |         |              |         | 7,171   |        
|Other assets                              |                                                                                                                                                                                            |   | 20,993                     |         |              |         | 20,569  |        
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            | $ | 162,901                    |         |              | $       | 152,361 |        
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY      |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|Current liabilities:                      |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          | Accounts payable                                                                                                                                                                           |   | $                          | 2,863   |              |         | $       | 2,470   |  
|                                          | Accrued compensation                                                                                                                                                                       |   |                            | 4,610   |              |         |         | 3,264   |  
|                                          | Other accrued liabilities                                                                                                                                                                  |   |                            | 8,361   |              |         |         | 5,571   |  
|                                          | Deferred revenue                                                                                                                                                                           |   |                            | 4,263   |              |         |         | 3,571   |  
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            |   | Total current liabilities  |         |              | 20,097  |         |         |   | 14,876  | 
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |         |   |         | 
|Commitments                               |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |         |   |         | 
|Stockholders equity:                     |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          | Preferred stock, $.001 par value; 3,000,000 shares
authorized and outstanding                                                                                                              |   |                            |        |              |         |         |        |  
|                                          | Common stock, $.001 par value; 60,000,000
shares authorized; 15,555,190 and 15,491,844 shares issued
and 15,312,892 and 15,481,844 outstanding
at December 31, 2002 and 2001, respectively |   |                            | 15      |              |         |         | 15      |  
|                                          | Additional paid-in capital                                                                                                                                                                 |   |                            | 181,773 |              |         |         | 181,233 |  
|                                          | Accumulated deficit                                                                                                                                                                        |   |                            | (33,848 | )            |         |         | (40,653 | )
|                                          | Treasury stock, at cost; 242,298 and 10,000 shares
at December 31, 2002 and 2001, respectively                                                                                             |   |                            | (4,632  | )            |         |         | (160    | )
|                                          | Deferred compensation                                                                                                                                                                      |   |                            |        |              |         |         | (332    | )
|                                          | Accumulated other comprehensive loss                                                                                                                                                       |   |                            | (504    | )            |         |         | (2,618  | )
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            |   | Total stockholders equity |         |              | 142,804 |         |         |   | 137,485 | 
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        
|                                          |                                                                                                                                                                                            | $ | 162,901                    |         |              | $       | 152,361 |        
|                                          |                                                                                                                                                                                            |   |                            |         |              |         |         |        

See accompanying notes.

36



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##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |        |        | 
|----------------------------------- | -------------------------------------------- | ------------------------ | ------- | ------------------------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                    |                                              |                          |         | Years ended December 31,
|                                    |                                              |                          |         |                         
|                                    |                                              |                          |         | 2002                     |        | 2001 |        | 2000  
|                                    |                                              |                          |         |                          |        |      |        |       
|Revenues                            |                                              | $                        | 102,157 |                          |        | $    | 92,231 |        |        | $ | 96,035 |       
|Cost of revenues                    |                                              |                          | 40,561  |                          |        |      | 35,538 |        |        |   | 35,583 |       
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Gross profit                        |                                              |                          | 61,596  |                          |        |      | 56,693 |        |        |   | 60,452 |       
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Operating expenses:                 |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|                                    | Research and development                     |                          |         | 18,002                   |        |      |        | 15,105 |        |   |        | 16,796 |       
|                                    | Acquired in-process research and
development |                          |         |                         |        |      |        | 12,625 |        |   |        |       |       
|                                    | Merger expenses                              |                          |         |                         |        |      |        |       |        |   |        | 15,181 |       
|                                    | Selling, general and administrative          |                          |         | 35,435                   |        |      |        | 33,381 |        |   |        | 31,906 |       
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|                                    |                                              | Total operating expenses |         |                          | 53,437 |      |        |        | 61,111 |   |        |        | 63,883 | 
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Income (loss) from operations       |                                              |                          | 8,159   |                          |        |      | (4,418 | )      |        |   | (3,431 | )     
|Other income, net                   |                                              |                          | 1,562   |                          |        |      | 3,806  |        |        |   | 4,912  |       
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Income (loss) before income taxes   |                                              |                          | 9,721   |                          |        |      | (612   | )      |        |   | 1,481  |       
|Income tax provision                |                                              |                          | 2,916   |                          |        |      | 4,625  |        |        |   | 6,415  |       
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Net income (loss)                   |                                              | $                        | 6,805   |                          |        | $    | (5,237 | )      |        | $ | (4,934 | )     
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Basic net income (loss) per share   |                                              | $                        | 0.44    |                          |        | $    | (0.32  | )      |        | $ | (0.32  | )     
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       
|Diluted net income (loss) per share |                                              | $                        | 0.44    |                          |        | $    | (0.32  | )      |        | $ | (0.32  | )     
|                                    |                                              |                          |         |                          |        |      |        |        |        |   |        |       

See accompanying notes.

37



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##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---------------- |  | ----------------- | -- | -------------- |  | --------- | ------- | ------------- |  | ------------------- | ------- | ------ |  | - | ------- | - |  | - | ---- | - |  | - | ------ | - |  | - | ------- | -
|                                                                                      |  | Common Stock |            | Additional Paid- |  | Retained Earnings |    |                |  |           |         |               |  | Accumulated Other   |         |       
|                                                                                      |  |              |            | In               |  | (Accumulated      |    | Treasury Stock |  | Deferred  |         | Comprehensive |  | Total
Stockholders
|                                                                                      |  | Shares       |            | Amount           |  | Capital           |    | Deficit)       |  | (at cost) |         | Compensation  |  | Income (Loss)       |         | Equity
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |       
|Balance at December
31, 1999                                                          |  |              | 13,488,821 |                  |  | $                 | 14 |                |  | $         | 75,271  |               |  | $                   | 101     |        |  | $ |        |   |  | $ | (589 | ) |  | $ | (493   | ) |  | $ | 74,304  |  
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                                  |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Net loss                                                                              |  |              |            |                  |  |                   |   |                |  |           |        |               |  |                     | (4,934  | )      |  |   |        |   |  |   |     |   |  |   |       |   |  |   | (4,934  | )
|Currency translation                                                                  |  |              |            |                  |  |                   |   |                |  |           |        |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   | (435   | ) |  |   | (435    | )
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                              |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   | (5,369  | )
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Issuance of shares of
common stock
in public offering, net                            |  |              | 2,234,000  |                  |  |                   | 2  |                |  |           | 79,341  |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   | 79,343  |  
|Issuance of shares of
common stock for options
exercised                              |  |              | 567,162    |                  |  |                   | 1  |                |  |           | 7,074   |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   |       |   |  |   | 7,075   |  
|Issuance of shares of
common stock under
Employee Stock Purchase
Plan                 |  |              | 32,748     |                  |  |                   |   |                |  |           | 847     |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   |       |   |  |   | 847     |  
|Stock compensation expense                                                            |  |              |            |                  |  |                   |    |                |  |           | 798     |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   | 798     |  
|Tax benefits from employee
stock transactions                                         |  |              |            |                  |  |                   |   |                |  |           | 6,266   |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   |       |   |  |   | 6,266   |  
|Deferred stock compensation                                                           |  |              |            |                  |  |                   |    |                |  |           | 223     |               |  |                     |         |        |  |   |         |   |  |   | (223 | ) |  |   |        |   |  |   |        |  
|Amortization of deferred
stock compensation                                           |  |              | 8,436      |                  |  |                   |   |                |  |           |        |               |  |                     |        |        |  |   |        |   |  |   | 369  |   |  |   |       |   |  |   | 369     |  
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Balance at December
31, 2000                                                          |  |              | 16,331,167 |                  |  |                   | 17 |                |  |           | 169,820 |               |  |                     | (4,833  | )      |  |   |        |   |  |   | (443 | ) |  |   | (928   | ) |  |   | 163,633 |  
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                                  |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Net loss                                                                              |  |              |            |                  |  |                   |   |                |  |           |        |               |  |                     | (5,237  | )      |  |   |        |   |  |   |     |   |  |   |       |   |  |   | (5,237  | )
|Currency translation                                                                  |  |              |            |                  |  |                   |   |                |  |           |        |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   | (1,690 | ) |  |   | (1,690  | )
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Total comprehensive loss                                                              |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   | (6,927  | )
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|Issuance of shares of
common stock to acquire
Cytion S.A.                             |  |              | 400,000    |                  |  |                   |   |                |  |           | 7,376   |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   | 7,376   |  
|Issuance of shares of
common stock for options
exercised and restricted stock granted |  |              | 210,204    |                  |  |                   |   |                |  |           | 3,384   |               |  |                     |        |        |  |   |        |   |  |   | 111  |   |  |   |       |   |  |   | 3,495   |  
|Issuance of shares of
common stock under
Employee Stock Purchase
Plan                 |  |              | 37,714     |                  |  |                   |   |                |  |           | 653     |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   |       |   |  |   | 653     |  
|Issuance of shares of
common stock for
cashless warrant exercise                      |  |              | 12,759     |                  |  |                   |   |                |  |           |        |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   |       |   |  |   |        |  
|Repurchase of shares of
common stock                                                  |  |              | (1,510,000 | )                |  |                   |   |                |  |           |         |               |  |                     |         |        |  |   | (30,745 | ) |  |   |      |   |  |   |        |   |  |   | (30,745 | )
|Retirement of common
stock in treasury                                                |  |              |           |                  |  |                   | (2 | )              |  |           |         |               |  |                     | (30,583 | )      |  |   | 30,585  |   |  |   |      |   |  |   |        |   |  |   |        |  
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  
|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                                                                  |  |              |            |                  |  |                   |   |                |  |           |        |               |  |                     |        |        |  |   |        |   |  |   |     |   |  |   | 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 |  
|                                                                                      |  |              |            |                  |  |                   |    |                |  |           |         |               |  |                     |         |        |  |   |         |   |  |   |      |   |  |   |        |   |  |   |         |  

See accompanying notes.

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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |        |  
|---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | - | ------------------------ | ----- | ---- | - | ------- | ------ | - | - | -------- | ------ | -
|                                                                                                           |                                                                                |   | Years Ended December 31,
|                                                                                                           |                                                                                |   |                         
|                                                                                                           |                                                                                |   | 2002                     |       | 2001 |   | 2000   
|                                                                                                           |                                                                                |   |                          |       |      |   |        
|Cash flows from operating activities:                                                                      |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Net income (loss)                                                                                          |                                                                                | $ | 6,805                    |       |      | $ | (5,237  | )      |   | $ | (4,934   | )     
|Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:         |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|                                                                                                           | Depreciation and amortization                                                  |   |                          | 3,847 |      |   |         | 3,710  |   |   |          | 2,077  |  
|                                                                                                           | Charge for acquired in-process research and development                        |   |                          |      |      |   |         | 12,625 |   |   |          |       |  
|                                                                                                           | Amortization of deferred compensation                                          |   |                          | 74    |      |   |         | 111    |   |   |          | 369    |  
|                                                                                                           | Stock compensation expense                                                     |   |                          |      |      |   |         |       |   |   |          | 798    |  
|                                                                                                           | Amortization of goodwill (in 2001 and 2000) and other
intangible assets        |   |                          | 280   |      |   |         | 624    |   |   |          | 314    |  
|                                                                                                           | Income tax benefit realized as a result of employee exercises of
stock options |   |                          |      |      |   |         |       |   |   |          | 6,266  |  
|                                                                                                           | (Increase) decrease in assets:                                                 |   |                          |       |      |   |         |        |   |   |          |        |  
|                                                                                                           | Accounts receivable                                                            |   |                          | (345  | )    |   |         | 3,949  |   |   |          | (8,098 | )
|                                                                                                           | Inventories                                                                    |   |                          | 10    |      |   |         | (5,069 | ) |   |          | (2,547 | )
|                                                                                                           | Deferred tax assets                                                            |   |                          | 827   |      |   |         | 942    |   |   |          | (611   | )
|                                                                                                           | Other current assets                                                           |   |                          | 594   |      |   |         | 3,639  |   |   |          | (4,911 | )
|                                                                                                           | Increase (decrease) in liabilities:                                            |   |                          |       |      |   |         |        |   |   |          |        |  
|                                                                                                           | Accounts payable                                                               |   |                          | (145  | )    |   |         | (3,015 | ) |   |          | 1,033  |  
|                                                                                                           | Accrued compensation                                                           |   |                          | 1,030 |      |   |         | (875   | ) |   |          | 924    |  
|                                                                                                           | Other accrued liabilities                                                      |   |                          | 1,690 |      |   |         | 1,286  |   |   |          | 1,224  |  
|                                                                                                           | Deferred revenue                                                               |   |                          | 595   |      |   |         | 1,083  |   |   |          | 956    |  
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Net cash provided by (used in) operating activities                                                        |                                                                                |   | 15,262                   |       |      |   | 13,773  |        |   |   | (7,140   | )     
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Cash flows from investing activities:                                                                      |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Purchases of investments                                                                                   |                                                                                |   | (17,680                  | )     |      |   | (14,818 | )      |   |   | (113,113 | )     
|Proceeds from sales and maturities of investments                                                          |                                                                                |   | 18,515                   |       |      |   | 59,192  |        |   |   | 62,421   |       
|Capital expenditures                                                                                       |                                                                                |   | (2,295                   | )     |      |   | (3,784  | )      |   |   | (7,436   | )     
|Acquisitions, net of cash on hand                                                                          |                                                                                |   | (22,927                  | )     |      |   | (10,367 | )      |   |   |         |       
|Other assets                                                                                               |                                                                                |   | (372                     | )     |      |   | (472    | )      |   |   | (11,531  | )     
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Net cash provided by (used in) investing activities                                                        |                                                                                |   | (24,759                  | )     |      |   | 29,751  |        |   |   | (69,659  | )     
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Cash flows from financing activities:                                                                      |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Repayment of borrowings                                                                                    |                                                                                |   |                         |       |      |   | (586    | )      |   |   | (282     | )     
|Issuance of common stock                                                                                   |                                                                                |   | 798                      |       |      |   | 4,037   |        |   |   | 87,265   |       
|Purchase of treasury stock                                                                                 |                                                                                |   | (4,472                   | )     |      |   | (30,745 | )      |   |   |         |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Net cash provided by (used in) financing activities                                                        |                                                                                |   | (3,674                   | )     |      |   | (27,294 | )      |   |   | 86,983   |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Effect of exchange rate changes on cash                                                                    |                                                                                |   | 532                      |       |      |   | (1,690  | )      |   |   | (435     | )     
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Net (decrease) increase in cash and cash equivalents                                                       |                                                                                |   | (12,639                  | )     |      |   | 14,540  |        |   |   | 9,749    |       
|Cash and cash equivalents at beginning of year                                                             |                                                                                |   | 56,372                   |       |      |   | 41,832  |        |   |   | 32,083   |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Cash and cash equivalents at end of year                                                                   |                                                                                | $ | 43,733                   |       |      | $ | 56,372  |        |   | $ | 41,832   |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Supplemental cash flow information:                                                                        |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Cash paid during the year for:                                                                             |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|                                                                                                           | Interest                                                                       |   | $                        |      |      |   | $       | 44     |   |   | $        | 88     |  
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|                                                                                                           | Income taxes                                                                   |   | $                        | 496   |      |   | $       | 802    |   |   | $        | 4,300  |  
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Supplemental schedule of noncash
investing and financing activities:                                       |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Disposals of fully depreciated equipment
and leasehold improvements                                        |                                                                                | $ | 333                      |       |      | $ | 10      |        |   | $ | 538      |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       
|Issuance of 400,000 shares of common stock in conjunction with the
acquisition of Cytion S.A. in July 2001 |                                                                                | $ |                         |       |      | $ | 7,376   |        |   | $ |         |       
|                                                                                                           |                                                                                |   |                          |       |      |   |         |        |   |   |          |       

See accompanying notes.

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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

Molecular Devices acquired all of the outstanding stock of LJL BioSystems,
Inc. (LJL BioSystems) in a tax-free, stock-for-stock transaction on August
30, 2000. LJL BioSystems was also engaged in the design, development,
manufacture, sale and service of bioanalytical measurement systems for life
sciences and drug discovery applications. Molecular Devices has accounted for
the transaction as a pooling of interests, and accordingly, the consolidated
financial statements and all financial information have been restated to
reflect the combined operations, financial position and cash flows of both
companies for periods prior to the acquisition. (See Note 5)

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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

Molecular Devices short-term investments consist of marketable securities
classified as available-for-sale, with maturities of one year or less at the
time of purchase. 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 other income,
net line of the consolidated statement of operations.

Fair values of marketable securities are based on quoted market values at
December 31, 2002 and 2001. At December 31, 2002, the difference between the
fair value and amortized cost of marketable securities was not significant.
Short-term investments consisted of $6.7 million and $4.0 million in federal
government securities and $3.4 million and $6.9 million of corporate securities
maturing within twelve months or less as of December 31, 2002 and 2001,
respectively.

Concentration of Credit Risk

Financial instruments, which potentially subject Molecular Devices to
concentrations of credit risk, are primarily cash, cash equivalents, short-term
investments and accounts receivable. Molecular
Devices deposits cash with high credit quality financial institutions.
Molecular Devices cash equivalents and marketable securities are primarily
invested in federal government agency obligations and corporate securities that
have various maturities during 2003.

Molecular Devices sells its products primarily to corporations, academic
institutions, government entities and distributors within the drug discovery
and life sciences research markets. Molecular Devices performs ongoing credit
evaluations of its customers and generally does not require collateral.
Molecular Devices maintains reserves for potential credit losses and such
losses have been historically within managements expectations.

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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.

Capitalized Software Costs

Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with SFAS 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 2002, 2001 and 2000
was $3.2 million, $2.6 million, and $2.1 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 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. The gross
amount of goodwill was $27.0 million and $8.2 million at December 31, 2002 and
2001, respectively.

The following table presents the impact of adopting of FAS 142 had the
standard been in effect for the years ended December 31, 2001 and 2000 (in
thousands, except per share data):

|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|--------------------------- | ------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                            |                                 |  | Years Ended December 31,
|                            |                                 |  |                         
|                            |                                 |  | 2002                     |       | 2001 |  | 2000
|                            |                                 |  |                          |       |      |  |     
|                            | Reported net income (loss)      |  | $                        | 6,805 |      |  | $    | (5,237 | ) |  | $ | (4,934 | )
|                            | Add back: Goodwill amortization |  |                          |      |      |  |      | 338    |   |  |   | 204    |  
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|                            | Adjusted net income (loss)      |  | $                        | 6,805 |      |  | $    | (4,899 | ) |  | $ | (4,730 | )
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|Basic earnings per share:   |                                 |  |                          |       |      |  |      |        |   |  |   |       
|                            | Reported net income (loss)      |  | $                        | 0.44  |      |  | $    | (0.32  | ) |  | $ | (0.32  | )
|                            | Add back: Goodwill amortization |  |                          |      |      |  |      | 0.02   |   |  |   | 0.01   |  
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|                            | Adjusted net income (loss)      |  | $                        | 0.44  |      |  | $    | (0.30  | ) |  | $ | (0.31  | )
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|Diluted earnings per share: |                                 |  |                          |       |      |  |      |        |   |  |   |       
|                            | Reported net income (loss)      |  | $                        | 0.44  |      |  | $    | (0.32  | ) |  | $ | (0.32  | )
|                            | Add back: Goodwill amortization |  |                          |      |      |  |      | 0.02   |   |  |   | 0.01   |  
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  
|                            | Adjusted net income (loss)      |  | $                        | 0.44  |      |  | $    | (0.30  | ) |  | $ | (0.31  | )
|                            |                                 |  |                          |       |      |  |      |        |   |  |   |        |  

Other Assets

Other
assets include patents, developed technology, license fees, 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. Tradename is
assessed to have an indefinite life and therefore is not subject to
amortization.

Impairment of Long-Lived Assets

Molecular Devices evaluates long-lived assets, including goodwill and
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.

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Equity Investments

We invest in equity instruments of privately held companies for business
and strategic purposes. These investments are included in other long-term
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 our net income or loss. As of
December 31, 2002, 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.

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

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

Revenue Recognition and Warranty

We
recognize product revenue at the time of shipment and transfer of
title when collectibility is reasonably assured. Software revenue is recognized at the time of sale and in
accordance with AICPA Statement of Position No. 97-2, Software Revenue
Recognition (SOP 97-2). There are no significant customer acceptance requirements or
post-shipment obligations on the part of Molecular Devices for product or
software sales.

Future warranty costs are estimated and provided for at the time of sale.
Freight costs for revenue-generating shipments are charged to costs of goods
sold. Amounts received prior to completion of the earnings process are recorded
as customer deposits or deferred revenue, as appropriate. Service contract
revenue is deferred at the time of sale and recognized ratably over the period
of performance.

Advertising Costs

Molecular Devices expenses the cost of advertising as incurred. Such costs
approximated $1.1 million, $1.2 million and $1.4 million for 2002, 2001 and
2000, respectively.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which supersedes both Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121) and
the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30), for the disposal of a segment of a business (as previously
defined in that Opinion). FAS 144 retains the fundamental provisions in FAS 121
for recognizing and measuring impairment losses on long-lived assets held for
use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with FAS 121. For example, FAS 144
provides guidance on how a long-lived asset that is used as part of a group
should be evaluated for impairment, establishes criteria for when a long-lived
asset is held for sale, and prescribes the accounting for a long-lived asset
that will be disposed of other than by sale. FAS 144 retains the basic
provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike FAS 121, an impairment
assessment under FAS 144 will never result in a write-down of goodwill. Rather,
goodwill is evaluated for impairment under FAS No. 142, Goodwill and Other
Intangible Assets. The Company adopted FAS 144 in 2002. The adoption of SFAS
144 did not have a material impact on financial position or results of
operations.

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In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance
related to accounting for costs associated with disposal activities covered by
SFAS No. 144 or with exit or restructuring activities previously covered by
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS No. 146 supercedes EITF Issue No. 94-3 in its
entirety. SFAS No. 146 requires that costs related to exiting an activity or
to a restructuring not be recognized until the liability is incurred. The
statement further establishes fair value as the objective for initial
measurement of the liability and that employee benefit arrangements requiring
future service beyond a minimum retention period be recognized over the
future service period. SFAS No. 146 will be applied prospectively to exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB released FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of
Others. FIN 45 establishes new disclosure
and liability-recognition requirements for direct and indirect debt guarantees
with specified characteristics. The initial measurement and recognition
requirements of FIN 45 are effective prospectively for guarantees issued or
modified after December 31, 2002. However, the disclosure requirements are
effective for interim and annual financial-statement periods ending after
December 15, 2002. We have adopted the disclosure provisions and do not expect
the full adoption of FIN 45 to have a material impact on our financial position
or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of SFAS No.
123 (SFAS 148). This statement amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition and annual disclosure requirements of SFAS 148 are
effective for the Companys fiscal year 2002. The interim disclosure
requirements are effective for the first quarter of fiscal year 2003. We
continue to account for stock-based compensation using APB 25 and have not
adopted the recognition provisions of SFAS 123, as amended by SFAS 148. We do
not expect the adoption of SFAS 148 to have material impact on our financial
position or results of operations. (See Note 8)

Per Share Data

Basic net income per share is computed based on the weighted average
number of shares of Molecular Devices common stock outstanding. Dilutive net
income per share is computed based on the weighted average number of shares of
Molecular Devices common stock 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 (loss) per share is as follows (in thousands,
except per share amounts):

|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                            |  | Years Ended December 31,
|                                                                                            |  |                         
|                                                                                            |  | 2002                     |        | 2001 |  | 2000
|                                                                                            |  |                          |        |      |  |     
|Weighted average common shares outstanding for
The period                                   |  |                          | 15,348 |      |  |      | 16,192 |   |  |   | 15,246 |  
|Common equivalent shares assuming exercise of
stock options under the treasury stock method |  |                          | 109    |      |  |      |       |   |  |   |       |  
|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|Shares used in diluted per share calculation                                                |  |                          | 15,457 |      |  |      | 16,192 |   |  |   | 15,246 |  
|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|Net income (loss)                                                                           |  | $                        | 6,805  |      |  | $    | (5,237 | ) |  | $ | (4,934 | )
|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|Basic net income (loss) per share                                                           |  | $                        | 0.44   |      |  | $    | (0.32  | ) |  | $ | (0.32  | )
|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  
|Diluted net income (loss) per share                                                         |  | $                        | 0.44   |      |  | $    | (0.32  | ) |  | $ | (0.32  | )
|                                                                                            |  |                          |        |      |  |      |        |   |  |   |        |  

Options to purchase 2,115,476 shares of common stock at a weighted average
per share exercise price of $30.84 were outstanding during 2002, but were not
included in the computation of diluted earnings per share for that years as the
options weighted-average exercise price was greater than the average market
price of the common shares and, therefore, the effect would have been
anti-dilutive. In 2001 and 2000, the
total number of shares excluded from the calculations of diluted net loss
per share was 307,000 and 1,163,000, respectively. Such securities, had they
been dilutive, would have been included in the computations of diluted net loss
per share using the treasury stock method.

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Stock Based Compensation

As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation, Molecular Devices applies the
intrinsic value method of accounting as described in APB Opinion 25 and related
interpretations in accounting for its stock option plans and, accordingly,
recognizes no compensation expense for stock option grants with an exercise
price equal to the fair market value of the shares at the date of grant. If
Molecular Devices and LJL BioSystems had elected to recognize compensation cost
based on the fair value of the options granted at grant date and shares issued
under stock purchase plans as prescribed by SFAS 123, net income
(loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated in the
table below (in thousands, except per share amounts):

|                                                                                    |                       |   |                          |       |      |   |         |       |   |   |        |       |  
|----------------------------------------------------------------------------------- | --------------------- | - | ------------------------ | ----- | ---- | - | ------- | ----- | - | - | ------ | ----- | -
|                                                                                    |                       |   | Years ended December 31,
|                                                                                    |                       |   |                         
|                                                                                    |                       |   | 2002                     |       | 2001 |   | 2000   
|                                                                                    |                       |   |                          |       |      |   |        
|Net income (loss) - as reported                                                     |                       | $ | 6,805                    |       |      | $ | (5,237  | )     |   | $ | (4,934 | )    
|Stock based compensation expense determined
using the fair value method, net of tax |                       |   | 7,886                    |       |      |   | 6,552   |       |   |   | 4,431  |      
|                                                                                    |                       |   |                          |       |      |   |         |       |   |   |        |      
|Net
loss - pro forma                                                                |                       | $ | (1,081                   | )     |      | $ | (11,789 | )     |   | $ | (9,365 | )    
|                                                                                    |                       |   |                          |       |      |   |         |       |   |   |        |      
|Net income (loss) per share:                                                        |                       |   |                          |       |      |   |         |       |   |   |        |      
|                                                                                    | Basic - as reported   |   | $                        | 0.44  |      |   | $       | (0.32 | ) |   | $      | (0.32 | )
|                                                                                    | Basic - pro forma     |   |                          | (0.07 | )    |   |         | (0.73 | ) |   |        | (0.61 | )
|                                                                                    | Diluted - as reported |   |                          | 0.44  |      |   |         | (0.32 | ) |   |        | (0.32 | )
|                                                                                    | Diluted - pro forma   |   |                          | (0.07 | )    |   |         | (0.73 | ) |   |        | (0.61 | )

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

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

|                                |  |           |      |           |  |           |     |   |  |  |           |  
|------------------------------- |  | --------- | ---- | --------- |  | --------- | --- | - |  |  | --------- | -
|                                |  | 2002      |      | 2001      |  | 2000     
|                                |  |           |      |           |  |          
|Expected dividend yield         |  |           | 0    | %         |  |           | 0   | % |  |  | 0         | %
|Expected stock price volatility |  |           | 85   | %         |  |           | 94  | % |  |  | 84-100    | %
|Risk-free interest rate         |  |           | 4.35 | %         |  |           | 4.6 | % |  |  | 5.48-5.85 | %
|Expected life of options        |  | 5.6 years |      | 3.5 years |  | 3-5 years

The weighted average fair value of options granted during the year ended
December 31, 2002, 2001 and 2000 was $14.06, $18.05, and $38.37, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other
items of comprehensive income (loss). Other comprehensive income (loss)
includes cumulative translation adjustments from the translation of foreign
subsidiaries financial statements, and unrealized gains and losses on
available-for-sale securities, if material.

Change in Presentation

Certain prior year amounts have been reclassified to conform to the
current year presentation.

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NOTE 2. BALANCE SHEET AMOUNTS

|                                               |                                            |   |                |        |      |   |         |        | 
|---------------------------------------------- | ------------------------------------------ | - | -------------- | ------ | ---- | - | ------- | ------ | 
|                                               |                                            |   | December 31,  
|                                               |                                            |   |               
|                                               |                                            |   | 2002           |        | 2001
|                                               |                                            |   |                |        |     
|                                               |                                            |   | (In thousands)
|Inventories:                                   |                                            |   |                |        |      |   |         |       
|                                               | Raw materials                              |   | $              | 6,462  |      |   | $       | 6,999  | 
|                                               | Work-in-process                            |   |                | 1,840  |      |   |         | 1,347  | 
|                                               | Finished goods and demonstration equipment |   |                | 9,420  |      |   |         | 8,835  | 
|                                               |                                            |   |                |        |      |   |         |        | 
|                                               |                                            | $ | 17,722         |        |      | $ | 17,181  |       
|                                               |                                            |   |                |        |      |   |         |        | 
|Equipment and leasehold improvements:          |                                            |   |                |        |      |   |         |       
|                                               | Machinery and equipment                    |   | $              | 14,683 |      |   | $       | 12,718 | 
|                                               | Software                                   |   |                | 2,817  |      |   |         | 1,577  | 
|                                               | Furniture and fixtures                     |   |                | 2,716  |      |   |         | 1,981  | 
|                                               | Leasehold improvements                     |   |                | 5,887  |      |   |         | 5,694  | 
|                                               |                                            |   |                |        |      |   |         |        | 
|                                               |                                            |   | 26,103         |        |      |   | 21,970  |       
|Less accumulated depreciation and amortization |                                            |   | (15,160        | )      |      |   | (11,647 | )     
|                                               |                                            |   |                |        |      |   |         |        | 
|Net equipment and leasehold improvements       |                                            | $ | 10,943         |        |      | $ | 10,323  |       
|                                               |                                            |   |                |        |      |   |         |        | 
|Other assets:                                  |                                            |   |                |        |      |   |         |       
|                                               | Equity investments                         |   | $              | 12,353 |      |   | $       | 12,353 | 
|                                               | Longterm deferred tax asset               |   |                | 3,278  |      |   |         | 5,310  | 
|                                               | Patents                                    |   |                | 2,569  |      |   |         | 1,311  | 
|                                               | Other                                      |   |                | 2,793  |      |   |         | 1,595  | 
|                                               |                                            |   |                |        |      |   |         |        | 
|                                               |                                            | $ | 20,993         |        |      | $ | 20,569  |       
|                                               |                                            |   |                |        |      |   |         |        | 
|Other accrued liabilities:                     |                                            |   |                |        |      |   |         |       
|                                               | Accrued income tax                         |   | $              | 3,060  |      |   | $       | 1,793  | 
|                                               | Warranty accrual                           |   |                | 1,295  |      |   |         | 1,183  | 
|                                               | Other                                      |   |                | 4,006  |      |   |         | 2,595  | 
|                                               |                                            |   |                |        |      |   |         |        | 
|                                               |                                            | $ | 8,361          |        |      | $ | 5,571   |       
|                                               |                                            |   |                |        |      |   |         |        | 

NOTE 3. LONG-TERM DEBT

In February 1998, LJL BioSystems entered into an equipment financing
agreement that provided a $1.3 million line of credit. The initial term of this
agreement was through February 16, 1999. Amounts borrowed under this agreement
incurred interest at 11.08% to 12.16%. The agreement was extended twice with
the latest extension expiring on December 31, 1999. In March 2001, Molecular
Devices paid $571,000 in principal and interest to terminate this agreement.
As of December 31, 2002, Molecular Devices had no debt obligations.

NOTE 4. COMMITMENTS

Molecular Devices facilities are leased under noncancelable operating
leases. The leases generally require payment of taxes, insurance and
maintenance costs on leased facilities. Minimum annual rental commitments under
these noncancelable operating leases for the years ended 2003, 2004, 2005,
2006, 2007 and thereafter, are approximately $5.2 million, $5.3 million, $5.3
million, $5.4 million, and $5.8 million, respectively.

Net rental expense under operating leases related to Molecular Devices
facilities was approximately $5.0 million, $2.8 million, and $2.5 million,
respectively, for each of the three years ended December 31, 2002, 2001 and
2000.

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Molecular Devices has a contractual commitment for the purchase of certain
resale products and manufacturing components with vendors, ending in 2003. The
minimum purchase commitment is based on a set percentage of our forecasted
production, and for 2003, at current prices, is approximately $1.4 million.
These purchase commitments are not expected to result in a loss.

At the time of sale, the Company records 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
Companys warranty liability during 2002 were as follows (in thousands):

|                                                   |  |   |        |  
|-------------------------------------------------- |  | - | ------ | -
|Balance December 31, 2001                          |  | $ | 1,183  |  
|New warranties issued during the period            |  |   | 1,323  |  
|Cost of warranties incurred during the period      |  |   | (1,140 | )
|Changes in liabilities for pre-existing warranties |  |   | (71    | )
|                                                   |  |   |        |  
|Balance December 31, 2002                          |  | $ | 1,295  |  
|                                                   |  |   |        |  

NOTE 5. ACQUISITIONS AND INVESTMENTS

Universal Imaging Corporation

On June 1, 2002, Molecular Devices acquired Universal Imaging Corporation
(UIC) pursuant to a Stock Purchase Agreement, in exchange for $22 million in
cash. In addition, Molecular Devices incurred $1.2 million of acquisition
costs. As a result of the acquisition, UIC became a wholly-owned subsidiary of
Molecular Devices. The results of operations for UIC were included in
Molecular Devices results of operations beginning June 1, 2002. The
acquisition expands Molecular Devices portfolio of novel tools for cell
analysis to include MetaMorph, cellular imaging software widely used in life
sciences research, and the Discovery-1 screening system for drug discovery.
The excess of the 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 | 
|Acquired developed technology (amortized over ten years)                       |  |   | 1,468  | 
|Acquired tradename                                                             |  |   | 707    | 
|Net book value of acquired assets and liabilities which approximate fair value |  |   | 2,179  | 
|                                                                               |  |   |        | 
|                                                                               |  | $ | 23,200 | 
|                                                                               |  |   |        | 

The condensed balance sheet of UIC as of May 31, 2002 was as follows (in thousands):

|                                               |                      |   |       |       | 
|---------------------------------------------- | -------------------- | - | ----- | ----- | 
|Cash and cash equivalents                      |                      | $ | 274   |      
|Accounts receivable                            |                      |   | 1,351 |      
|Inventories                                    |                      |   | 1,000 |      
|Other current assets                           |                      |   | 91    |      
|                                               |                      |   |       |      
|                                               | Total current assets |   |       | 2,716 | 
|Fixed assets                                   |                      |   | 1,141 |      
|                                               |                      |   |       |      
|Total assets                                   |                      | $ | 3,857 |      
|                                               |                      |   |       |      
|Accounts payable and other current liabilities |                      | $ | 895   |      
|Longterm liabilities                          |                      |   | 783   |      
|                                               |                      |   |       |      
|                                               | Total liabilities    |   |       | 1,678 | 
|Stockholders equity                           |                      |   | 2,179 |      
|                                               |                      |   |       |      
|Total
liabilities and stockholders equity     |                      | $ | 3,857 |      
|                                               |                      |   |       |      

Cytion S.A.

On July 19, 2001, Molecular Devices acquired all of the capital stock of
Cytion S.A. (Cytion) in exchange for $7.5 million in cash and 400,000 shares
of Molecular Devices common stock valued at $7.4 million, based on the
five-day average closing stock price as of July 10, 2001 announcement date. In
addition, Molecular Devices assumed $581,000 of liabilities and incurred
$900,000 of acquisition costs both of which were offset by deferred
taxes of $549,000 generated by the transaction. Cytion was a Swiss developer of
automated patch clamping systems based in Switzerland. The excess of the
purchase price over the identified net assets

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of Cytion has been allocated to goodwill, acquired in-process research and
development and patents. The following is the allocation of the purchase price
(in thousands):

|                                             |  |   |        |  
|-------------------------------------------- |  | - | ------ | -
|Acquired goodwill                            |  | $ | 1,355  |  
|Acquired in-process research and development |  |   | 12,625 |  
|Deferred taxes                               |  |   | (549   | )
|Acquired patents                             |  |   | 1,372  |  
|Fair value of acquired assets                |  |   | 973    |  
|                                             |  |   |        |  
|Total purchase price                         |  | $ | 15,776 |  
|                                             |  |   |        |  

The condensed balance sheet of Cytion as of July 19, 2001 was as follows (in
thousands):

|                                               |                      |   |       |       | 
|---------------------------------------------- | -------------------- | - | ----- | ----- | 
|Cash and cash equivalents                      |                      | $ | 1,183 |      
|Inventories                                    |                      |   | 119   |      
|Other current assets                           |                      |   | 81    |      
|                                               |                      |   |       |      
|                                               | Total current assets |   |       | 1,383 | 
|Fixed assets                                   |                      |   | 171   |      
|                                               |                      |   |       |      
|Total assets                                   |                      | $ | 1,554 |      
|                                               |                      |   |       |      
|Accounts payable and other accrued liabilities |                      | $ | 581   |      
|                                               |                      |   |       |      
|Stockholders equity                           |                      |   | 973   |      
|                                               |                      |   |       |      
|Total
liabilities and stockholders equity     |                      | $ | 1,554 |      
|                                               |                      |   |       |      

A one-time charge of $12.6 million for purchased in-process research and
development expenses was recorded upon closing of the acquisition in the third
quarter of 2001. The amounts allocated to in-process research and development
were expensed upon acquisition because technological feasibility had not been
established and no future alternative uses existed. The value of the projects
was determined by estimating the costs to develop the in-process technology
into commercially feasible products and estimating the present value of the net
cash flows which management believed would result from the products.

The results of operations for Cytion are included in Molecular Devices
results of operations beginning July 20, 2001.

Nihon Molecular Devices

On January 5, 2001, Molecular Devices acquired all of the capital stock of
Nihon Molecular Devices (NMD), its Japanese distributor, in exchange for $3.2
million in cash. The acquisition was accounted for as a purchase. As a
result, NMD became a wholly owned subsidiary of Molecular Devices. The results
of operations for NMD are included in Molecular Devices results of operations
beginning January 5, 2001. JCR Pharmaceuticals Co., Ltd. and Molecular Devices
jointly established NMD in 1995 to import and sell Molecular Devices products
in Japan. The excess of the purchase price over the identified net tangible
assets of NMD ($2.1 million) has been allocated to goodwill.

LJL BioSystems

On August 30, 2000, Molecular Devices acquired all of LJL BioSystems
outstanding stock in a tax-free, stock-for-stock transaction. LJL BioSystems
stockholders received 0.30 of a share of Molecular Devices common stock for
each share of LJL BioSystems common stock. Molecular Devices issued
approximately 4.5 million shares of common stock to acquire the outstanding LJL
BioSystems shares on the closing date. In addition, Molecular Devices assumed
outstanding options to acquire LJL BioSystems shares, which were converted into
options to acquire approximately 557,000 shares of Molecular Devices common
stock. Molecular Devices has accounted for the transaction as a pooling of
interests, and, accordingly, the consolidated financial statements and all
financial information have been restated to reflect the combined operations,
financial position and cash flows of both companies. During the quarter ended
September 30, 2000, Molecular Devices incurred approximately $15.2 million in
merger related expenses, including transition costs, investment banking, legal
and other advisory services, which were charged to operations as incurred.

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Pro Forma Results

The unaudited pro forma results of operations for the years ended December 31,
2002, 2001, and 2000 for Molecular Devices are set forth below. This
presentation assumes that the UIC acquisition had been consummated January 1,
2001 and that the Cytion and NMD acquisitions had been consummated on January
1, 2000. In accordance with FAS 141 and SEC regulations, this presentation
excludes the charges for acquired in-process research and development, and the
merger expenses associated with the LJL BioSystems pooling (in thousands,
except per share amounts):

|                             |  |                          |         |      |  |      |         |  |  |   |        | 
|---------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                             |  | Years ended December 31,
|                             |  |                         
|                             |  | 2002                     |         | 2001 |  | 2000
|                             |  |                          |         |      |  |     
|Revenue                      |  | $                        | 107,143 |      |  | $    | 101,900 |  |  | $ | 98,883 | 
|Net income                   |  | $                        | 7,039   |      |  | $    | 6,729   |  |  | $ | 6,402  | 
|Diluted net income per share |  | $                        | 0.46    |      |  | $    | 0.41    |  |  | $ | 0.42   | 

The unaudited pro forma information does not purport to be indicative of the
results that actually would have occurred had the UIC acquisition been
consummated on January 1, 2001, and had the Cytion and NMD acquisitions
occurred on January 1, 2000, or of results that may occur in the future.

Upstate Group, Inc.

In December 2000, Molecular Devices acquired a minority equity interest in
Upstate Group, Inc, (Upstate), a private company, for $10 million in cash. The companies also
announced the launch of a ten-year strategic partnership to provide new
consumable reagent kits to the high-throughput screening market. Under the
partnership agreement, Molecular Devices is the exclusive distributor of all
kits co-developed by Upstate and Molecular Devices, which will be optimized to
perform on Molecular Devices drug discovery instrumentation platforms. Upstate
is a leading supplier of reagents to the drug discovery and life sciences
research markets, with particular strength in cell-signaling reagents such as
kinases. Molecular Devices accounts for its investment in Upstate using the
cost method because Molecular Devices does not have the ability to exercise
significant influence over Upstates operating and financial
policies.

NOTE 6. GOODWILL AND PURCHASED INTANGIBLE ASSETS

In 2002, $18.8 million of goodwill was acquired, bringing the December 31,
2002 balance to $26.0 million.

Purchased intangible assets not subject to amortization are comprised of
tradename, valued at $707,000 and $0 at December 31, 2002 and 2001,
respectively.

Purchased intangible assets subject to amortization consisted of the
following (in thousands):

|                     |       |   |                   |       |                   |   |          |     |          |   |              |       |          |   |       |       |     |   |    |    |  |   |       |       | 
|-------------------- | ----- | - | ----------------- | ----- | ----------------- | - | -------- | --- | -------- | - | ------------ | ----- | -------- | - | ----- | ----- | --- | - | -- | -- |  | - | ----- | ----- | 
|                     |       |   | December 31, 2002 |       | December 31, 2001
|                     |       |   |                   |       |                  
|                     |       |   | Gross             |       |                   |   |          |     | Net      |   | Gross        |       |          |   |       |       | Net
|                     |       |   | Carrying          |       | Accumulated       |   | Carrying |     | Carrying |   | Accumulated  |       | Carrying
|                     |       |   | Value             |       | Amortization      |   | Value    |     | Value    |   | Amortization |       | Value   
|                     |       |   |                   |       |                   |   |          |     |          |   |              |       |         
|Patents              |       | $ | 1,372             |       |                   | $ | 198      |     |          | $ | 1,174        |       |          | $ | 1,372 |       |     | $ | 61 |    |  | $ | 1,311 |      
|Developed technology |       |   | 1,468             |       |                   |   | 73       |     |          |   | 1,395        |       |          |   |      |       |     |   |   |    |  |   |      |      
|                     |       |   |                   |       |                   |   |          |     |          |   |              |       |          |   |       |       |     |   |    |    |  |   |       |       | 
|                     | Total |   | $                 | 2,840 |                   |   | $        | 271 |          |   | $            | 2,569 |          |   | $     | 1,372 |     |   | $  | 61 |  |   | $     | 1,311 | 
|                     |       |   |                   |       |                   |   |          |     |          |   |              |       |          |   |       |       |     |   |    |    |  |   |       |       | 

The estimated future amortization expense of purchased intangible assets
is as follows (in thousands):

|                                  |  |              |       | 
|--------------------------------- |  | ------------ | ----- | 
|                                  |  | Amortization
|For the years ending December 31, |  | Expense     
|                                  |  |             
|2003                              |  | $            | 284   | 
|2004                              |  |              | 284   | 
|2005                              |  |              | 284   | 
|2006                              |  |              | 284   | 
|2007                              |  |              | 284   | 
|Thereafter                        |  |              | 1,149 | 
|                                  |  |              |       | 
|                                  |  | $            | 2,569 | 
|                                  |  |              |       | 

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NOTE 7. STOCKHOLDERS EQUITY

Treasury Stock

In the first quarter of 2002, Molecular Devices completed the repurchase
of 220,000 shares of its common stock. In the third and fourth quarters of
2001, Molecular Devices completed the repurchase of 1,510,000 shares of its
common stock. These repurchases occurred at various times throughout the
periods subsequent to approval of two repurchase programs by the Molecular
Devices Board of Directors in July 2001 and October 2001, each allowing for the
repurchase of up to 1.5 million shares. In October 2001, 1,500,000 shares were
retired. As of December 31, 2002, 242,298 shares remained on our balance sheet
as treasury stock, at cost.

NOTE 8. EQUITY INCENTIVE PLANS

Under Molecular Devices 1995 Stock Option Plan (1995 Plan), a total of
3,250,000 shares of Molecular Devices common stock have been reserved for
issuance as either incentive or nonqualified stock options to officers,
directors, employees and consultants of Molecular Devices. 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, Molecular Devices established the 1995 Non-Employee
Directors Stock Option Plan (the Directors Plan). Under the Directors
Plan, Molecular Devices is 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 three equal annual installments commencing one
year from the date of the grant.

In July 2001, Molecular Devices established the 2001 Stock Option Plan
(the 2001 Plan). Under the 2001 Plan, a total of 100,000 shares of Molecular
Devices common stock have been reserved for issuance to employees of Molecular
Devices or its affiliates who are working or residing outside of the United
States and are not officers or directors of Molecular Devices. 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.

LJL BioSystems stock plans included the 1994 Equity Incentive Plan (the
1994 Plan), the 1997 Stock Plan (the 1997 Plan), and the 1998 Directors
Plan (the Directors Plan). Upon closing of the merger, Molecular Devices
assumed all outstanding options under these plans, which were converted into
options to purchase Molecular Devices common stock. Molecular Devices also
assumed the shares available for grant under the 1994 and 1997 Plans to LJL
BioSystems employees. Options granted under the 1994 Plan and 1997 Plan
generally vest over a five-year period.

In connection with an increase of 1,000,000 shares to the Molecular
Devices 1995 Plan on May 24, 2001, an amendment to LJL BioSystems stock plans
was approved to prohibit future grants under the plans and to decrease the
aggregate number of shares authorized for issuance to the number of shares
subject to outstanding options under the plans. In 2002 and 2001, the
aggregate number of shares authorized under the LJL BioSystems plans was
decreased by 634,521 and 610,391, respectively.

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The following table summarizes the activity under all of the Molecular
Devices plans and LJL BioSystems plans on a combined basis:

|                          |              |  |               |           |             |  |                |          |          |   |       |       | 
|------------------------- | ------------ |  | ------------- | --------- | ----------- |  | -------------- | -------- | -------- | - | ----- | ----- | 
|                          |              |  | Shares        |           |             |  |                |          | Weighted
|                          |              |  | Available for |           | Options     |  | Average       
|                          |              |  | Future Grant  |           | Outstanding |  | Exercise Price
|                          |              |  |               |           |             |  |               
|Balance December 31, 1999 |              |  | 1,134,745     |           |             |  | 2,001,782      |          |          | $ | 16.70 |      
|                          | Authorized   |  |               | 242,500   |             |  |                |         |          |   |       |      | 
|                          | Granted      |  |               | (768,034  | )           |  |                | 765,534  |          |   |       | 52.49 | 
|                          | Exercised    |  |               |          |             |  |                | (577,254 | )        |   |       | 13.74 | 
|                          | Cancelled    |  |               | 342,594   |             |  |                | (342,594 | )        |   |       | 31.19 | 
|                          |              |  |               |           |             |  |                |          |          |   |       |      
|Balance December 31, 2000 |              |  | 951,805       |           |             |  | 1,847,468      |          |          |   | 29.89 |      
|                          | Authorized   |  |               | 1,100,000 |             |  |                |         |          |   |       |      | 
|                          | Granted      |  |               | (884,950  | )           |  |                | 884,950  |          |   |       | 27.75 | 
|                          | Exercised    |  |               |          |             |  |                | (208,954 | )        |   |       | 15.43 | 
|                          | Cancelled    |  |               | 298,107   |             |  |                | (298,107 | )        |   |       | 30.48 | 
|                          | Plan Expired |  |               | (610,391  | )           |  |                |         |          |   |       |      | 
|                          |              |  |               |           |             |  |                |          |          |   |       |      
|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 |      
|                          |              |  |               |           |             |  |                |          |          |   |       |      

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The following table is a summary of Molecular Devices outstanding and
exercisable options at December 31, 2002:

|                    |  |                     |           |                            |  |                  |     |             |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | -------------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|Options outstanding |  | Options exercisable
|                    |  |                    
|Range of            |  | Number              |           | Weighted-average remaining |  | Weighted-average |     | Number      |  | Weighted-average
|exercise prices     |  | outstanding         |           | contractual life (Yr.)     |  | exercise price   |     | exercisable |  | exercise price  
|                    |  |                     |           |                            |  |                  |     |             |  |                 
|$0.33 to $3.33      |  |                     | 16,739    |                            |  |                  | 3.8 |             |  | $                | 3.01  |  |  |  | 16,739    |  |  | $ | 3.01  | 
|$5.25 to $8.54      |  |                     | 101,350   |                            |  |                  | 3.2 |             |  |                  | 6.43  |  |  |  | 95,935    |  |  |   | 6.31  | 
|$10.22 to $14.50    |  |                     | 217,008   |                            |  |                  | 6.3 |             |  |                  | 13.72 |  |  |  | 165,671   |  |  |   | 14.23 | 
|$15.00 to $19.50    |  |                     | 304,917   |                            |  |                  | 6.8 |             |  |                  | 18.15 |  |  |  | 168,614   |  |  |   | 18.03 | 
|$20.20 to $23.54    |  |                     | 1,088,140 |                            |  |                  | 8.5 |             |  |                  | 21.75 |  |  |  | 289,060   |  |  |   | 22.72 | 
|$26.63 to $29.19    |  |                     | 249,441   |                            |  |                  | 6.4 |             |  |                  | 26.79 |  |  |  | 177,906   |  |  |   | 26.80 | 
|$35.25 to $39.69    |  |                     | 119,675   |                            |  |                  | 7.3 |             |  |                  | 38.63 |  |  |  | 65,425    |  |  |   | 38.34 | 
|$48.00 to $53.33    |  |                     | 300,413   |                            |  |                  | 6.9 |             |  |                  | 48.09 |  |  |  | 155,115   |  |  |   | 48.11 | 
|$74.94 to $78.75    |  |                     | 167,649   |                            |  |                  | 7.6 |             |  |                  | 76.74 |  |  |  | 81,045    |  |  |   | 76.79 | 
|                    |  |                     |           |                            |  |                  |     |             |  |                  |       |  |  |  |           |  |  |   |       | 
|                    |  |                     | 2,565,332 |                            |  |                  |     |             |  | $                | 27.87 |  |  |  | 1,215,510 |  |  | $ | 27.63 | 
|                    |  |                     |           |                            |  |                  |     |             |  |                  |       |  |  |  |           |  |  |   |       | 

There were 684,296, and 450,161 options exercisable under the various
plans at December 31, 2001 and 2000, respectively.

Deferred Compensation

Deferred compensation is recorded when the exercise price of an option is
less than the deemed fair value of the underlying stock on the date of grant.
For options granted in September 1995, Molecular Devices recognized $578,000 as
deferred compensation. The deferred compensation expense was being amortized
ratably over the vesting period of the options, generally 3 - 5 years. The
amortization of this deferred compensation was completed during 2000.

For options granted in 1997, LJL BioSystems recognized $772,000 as
deferred compensation. On March 10, 1998, LJL BioSystems granted an option to
an employee to purchase shares of common stock at a price 15% below fair market
value at the date of the grant. Deferred compensation of $33,600 was recorded
based on the estimated fair value of the options granted. The amortization of
this deferred compensation was completed during 2000.

During 1998, Molecular Devices granted 42,500 shares of restricted stock
to certain employees. These restricted shares vested in quarterly increments
from the date of grant over two years. Molecular Devices recognized $782,000 of
deferred compensation for the total value of these shares on their respective
dates of grant. The deferred compensation expense was recognized ratably over
the two-year vesting period. The amortization of this deferred compensation was
completed during 2000.

During 2000, Molecular Devices granted 2,500 shares of restricted stock to
an employee. These restricted shares vest in quarterly increments from the date
of grant over two years. Molecular Devices recognized $223,000 of deferred
compensation for the total value of these shares on the date of grant. The
deferred compensation expense is being recognized ratably over the two-year
vesting period.

Employee Stock Purchase Plans

Under the Molecular Devices Employee Stock Purchase Plan (the Molecular
Devices Purchase Plan), 400,000 shares of common stock have been authorized
for issuance. Shares may be purchased under the Molecular Devices Purchase Plan
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, 2002, 216,097 shares remained
available for purchase.

401(k) Plan

Molecular Devices 401(k) Plan (Plan) covers substantially all of its
U.S. based employees. Under the Plan, as amended in February 2001, eligible
employees may contribute up to 25% of their eligible compensation, subject to
certain Internal Revenue Service restrictions. Molecular Devices 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

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December 31, 2002, 2001 and 2000, Molecular Devices recognized
as expense and provided approximately $388,000, $406,000 and $270,000,
respectively, under the Plan.

LJL BioSystems maintained the tax deferred LJL BioSystems, Inc. 401(k)
Plan (LJL Plan), that covered all employees over twenty-one years of age whom
became eligible to enroll the first day of the calendar month following their
employment date. Employees were allowed to contribute up to 15% of their
compensation to the 401(k) Plan on a pre-tax basis, subject to the maximum
amount allowable under IRS regulations. Effective November 1, 2001, the LJL
Plan was discontinued and employee account balances were merged into the Plan.

NOTE 9. INCOME TAXES

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

|          |         |   |                          |       |      |   |       |       |   |   |       |       |  
|--------- | ------- | - | ------------------------ | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|          |         |   | Years ended December 31,
|          |         |   |                         
|          |         |   | 2002                     |       | 2001 |   | 2000 
|          |         |   |                          |       |      |   |      
|Current:  |         |   |                          |       |      |   |       |       |   |   |       |      
|          | Federal |   | $                        | 760   |      |   | $     | 2,042 |   |   | $     | 5,498 |  
|          | State   |   |                          | 315   |      |   |       | 300   |   |   |       | 1,012 |  
|          | Foreign |   |                          | 1,025 |      |   |       | 1,340 |   |   |       | 516   |  
|          |         |   |                          |       |      |   |       |       |   |   |       |       |  
|          |         |   | 2,100                    |       |      |   | 3,682 |       |   |   | 7,026 |      
|          |         |   |                          |       |      |   |       |       |   |   |       |       |  
|Deferred: |         |   |                          |       |      |   |       |       |   |   |       |      
|          | Federal |   |                          | 1,209 |      |   |       | 1,572 |   |   |       | (488  | )
|          | State   |   |                          | (393  | )    |   |       | (577  | ) |   |       | (123  | )
|          | Foreign |   |                          |      |      |   |       | (52   | ) |   |       |      |  
|          |         |   |                          |       |      |   |       |       |   |   |       |       |  
|          |         |   | 816                      |       |      |   | 943   |       |   |   | (611  | )    
|          |         |   |                          |       |      |   |       |       |   |   |       |       |  
|          |         | $ | 2,916                    |       |      | $ | 4,625 |       |   | $ | 6,415 |      
|          |         |   |                          |       |      |   |       |       |   |   |       |       |  

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

|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                   |  | Years ended December 31,
|                                                   |  |                         
|                                                   |  | 2002                     |       | 2001 |  | 2000
|                                                   |  |                          |       |      |  |     
|Income (loss) before provisions for income taxes   |  | $                        | 9,721 |      |  | $    | (612  | ) |  | $ | 1,481 |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|Income tax at statutory rate (35%)                 |  |                          | 3,402 |      |  |      | (214  | ) |  |   | 519   |  
|Non-deductible merger expenses                     |  |                          |      |      |  |      |      |   |  |   | 5,313 |  
|Non-deductible in-process research and development |  |                          |      |      |  |      | 4,417 |   |  |   |      |  
|State income tax, net of federal benefit           |  |                          | 205   |      |  |      | 383   |   |  |   | 580   |  
|Foreign sales corporation benefit                  |  |                          | (109  | )    |  |      | (251  | ) |  |   | (248  | )
|Research and development credits                   |  |                          | (318  | )    |  |      | (381  | ) |  |   |      |  
|Foreign losses currently benefited (not benefited) |  |                          | (419  | )    |  |      | 530   |   |  |   | 182   |  
|Other                                              |  |                          | 155   |      |  |      | 141   |   |  |   | 69    |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|                                                   |  | $                        | 2,916 |      |  | $    | 4,625 |   |  | $ | 6,415 |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  

Foreign pretax income was $3.9 million, $1.3 million, and $308,000 in
2002, 2001 and 2000, respectively.

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

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|                     |                                  |                      |   |              |       |      |   |        |       | 
|-------------------- | -------------------------------- | -------------------- | - | ------------ | ----- | ---- | - | ------ | ----- | 
|                     |                                  |                      |   | December 31,
|                     |                                  |                      |   |             
|                     |                                  |                      |   | 2002         |       | 2001
|                     |                                  |                      |   |              |       |     
|Deferred tax assets: |                                  |                      |   |              |       |      |   |       
|                     | Deferred revenue                 |                      | $ | 1,184        |       |      | $ | 1,250  |      
|                     | Non-deductible reserves          |                      |   | 380          |       |      |   | 1,477  |      
|                     | Warranty and accrued expenses    |                      |   | 2,510        |       |      |   | 1,448  |      
|                     | Net operating loss carryforwards |                      |   | 3,738        |       |      |   | 5,954  |      
|                     | Foreign loss carryforwards       |                      |   | 709          |       |      |   | 1,307  |      
|                     | Tax credit carryforwards         |                      |   | 2,827        |       |      |   | 1,277  |      
|                     | Other                            |                      |   | 802          |       |      |   | 1,224  |      
|                     | Valuation allowances             |                      |   | (3,642       | )     |      |   | (4,612 | )    
|                     |                                  |                      |   |              |       |      |   |        |      
|                     |                                  | Total deferred taxes |   | $            | 8,508 |      |   | $      | 9,325 | 
|                     |                                  |                      |   |              |       |      |   |        |      

The net valuation allowance decreased by $970,000 in 2002 and increased by
$2.2 million in 2001. Approximately, $2.9 million of the valuation allowance
relates to stock option deductions that will be credited to equity when
realized.

As of December 31, 2002, Molecular Devices had net operating loss
carryforwards for federal income tax purposes of approximately $9.9 million,
which expire in the years 2012 through 2019 and federal research and
development tax credits of approximately $1.8 million, which expire in the
years 2012 through 2022. Molecular Devices had net operating loss
carryforwards for state income tax purposes of approximately $8.0 million which
expire in the years 2004 through 2010 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.

NOTE 10. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

Molecular Devices operates 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.

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

|                             |                               |  |               |         |               |     |              |        |       |  |                 |         |   |  |   |         |  
|---------------------------- | ----------------------------- |  | ------------- | ------- | ------------- | --- | ------------ | ------ | ----- |  | --------------- | ------- | - |  | - | ------- | -
|                             |                               |  |               |         |               |     |              |        |       |  | Adjustments and |         |   |  |  
|                             |                               |  | United States |         | International |     | eliminations |        | Total
|                             |                               |  |               |         |               |     |              |        |      
|Year-Ended
December 31, 2002 |                               |  |               |         |               |     |              |        |       |  |                 |         |   |  |   |        
|                             | Revenues                      |  | $             | 92,058  |               |     | $            | 30,278 |       |  | $               | (20,179 | ) |  | $ | 102,157 |  
|                             | Income (loss) from operations |  |               | 8,438   |               |     |              | 261    |       |  |                 | (540    | ) |  |   | 8,159   |  
|                             | Identifiable assets           |  |               | 162,698 |               |     |              | 22,114 |       |  |                 | (21,911 | ) |  |   | 162,901 |  
|Year-Ended
December 31, 2001 |                               |  |               |         |               |     |              |        |       |  |                 |         |   |  |   |        
|                             | Revenues                      |  |               | 82,934  |               |     |              | 29,490 |       |  |                 | (20,193 | ) |  |   | 92,231  |  
|                             | Income (loss) from operations |  |               | (6,350  | )             | (1) |              | 1,925  |       |  |                 | 7       |   |  |   | (4,418  | )
|                             | Identifiable assets           |  |               | 151,848 |               |     |              | 19,601 |       |  |                 | (19,088 | ) |  |   | 152,361 |  
|Year-Ended
December 31, 2000 |                               |  |               |         |               |     |              |        |       |  |                 |         |   |  |   |        
|                             | Revenues                      |  |               | 90,478  |               |     |              | 17,302 |       |  |                 | (11,745 | ) |  |   | 96,035  |  
|                             | Income (loss) from operations |  |               | (3,657  | )             | (1) |              | 732    |       |  |                 | (506    | ) |  |   | (3,431  | )
|                             | Identifiable assets           |  |               | 170,468 |               |     |              | 12,738 |       |  |                 | (3,173  | ) |  |   | 180,033 |  



---

|(1) |  | Includes the write-off of acquired in-process research and
development and merger and acquisition related expenses
|--- |  | ------------------------------------------------------------------------------------------------------------------

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Molecular Devices products are broken into two product families. The Drug
Discovery family includes the IonWorks HT, FLIPR, CLIPR, Cytosensor, Analyst,
and Discovery-1 product lines, and related consumables. The Life Sciences
Research family includes the Maxline, Threshold, MetaMorph and Skatron product
lines. Consolidated revenue from Molecular Devices product families was as
follows (in thousands):

|                       |                |   |                          |         |      |   |        |        |  |   |        |        | 
|---------------------- | -------------- | - | ------------------------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                       |                |   | Years ended December 31,
|                       |                |   |                         
|                       |                |   | 2002                     |         | 2001 |   | 2000  
|                       |                |   |                          |         |      |   |       
|Drug discovery         |                | $ | 45,826                   |         |      | $ | 43,859 |        |  | $ | 49,168 |       
|Life
sciences research |                |   | 56,331                   |         |      |   | 48,372 |        |  |   | 46,867 |       
|                       |                |   |                          |         |      |   |        |        |  |   |        |       
|                       | Total revenues |   | $                        | 102,157 |      |   | $      | 92,231 |  |   | $      | 96,035 | 
|                       |                |   |                          |         |      |   |        |        |  |   |        |       

Sources of consolidated revenue from significant geographic regions were
as follows (in thousands):

|              |                |   |                          |         |      |   |        |        |  |   |        |        | 
|------------- | -------------- | - | ------------------------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|              |                |   | Years ended December 31,
|              |                |   |                         
|              |                |   | 2002                     |         | 2001 |   | 2000  
|              |                |   |                          |         |      |   |       
|North America |                | $ | 64,819                   |         |      | $ | 61,649 |        |  | $ | 63,477 |       
|Europe        |                |   | 25,331                   |         |      |   | 20,136 |        |  |   | 25,381 |       
|Rest of world |                |   | 12,007                   |         |      |   | 10,446 |        |  |   | 7,177  |       
|              |                |   |                          |         |      |   |        |        |  |   |        |       
|              | Total revenues |   | $                        | 102,157 |      |   | $      | 92,231 |  |   | $      | 96,035 | 
|              |                |   |                          |         |      |   |        |        |  |   |        |       

NOTE 11. LEGAL PROCEEDING

On
April 16, 2002, Caliper Technologies Corporation (Caliper) filed a patent
infringement lawsuit against Molecular Devices alleging that our IMAP assay
kits infringe U.S. patents held by Caliper. We believe that none of our
products infringe any claim of the Caliper patents. On May 8, 2002, we filed an
answer and counter-claim to Calipers lawsuit denying all allegations of
infringement, setting forth certain affirmative defenses and making a
counter-claim for declaratory relief that, among other things, we are not
infringing and have not infringed any valid and enforceable claim of the
Caliper patent and that the Caliper patent is invalid. Caliper has also made a
motion for preliminary injunction, expected to be decided in the second or
third quarter of calendar 2003. We intend to oppose vigorously this motion.
If Caliper were to prevail in this motion, we may be prohibited from selling
IMAP assay kits until completion of the litigation, which may take several
additional months. If we do not prevail in litigation, we may be prohibited
permanently from selling IMAP assay kits.

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NOTE 12. COMPARATIVE QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows:

|            |                                     |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |        | 
|----------- | ----------------------------------- |  | ---------------------------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------- | ---- |  | - | ------ | 
|            |                                     |  | First                                    |        | Second |  | Third |        | Fourth
|            |                                     |  |                                          |        |        |  |       |        |       
|            |                                     |  | (In thousands, except per share amounts)
|Fiscal 2002 |                                     |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |       
|            | Revenues                            |  | $                                        | 20,625 |        |  | $     | 25,440 |        |  | $ | 25,907  |      |  | $ | 30,184 | 
|            | Gross profit                        |  |                                          | 12,575 |        |  |       | 14,985 |        |  |   | 15,534  |      |  |   | 18,502 | 
|            | Net income                          |  |                                          | 723    |        |  |       | 1,680  |        |  |   | 1,795   |      |  |   | 2,607  | 
|            | Basic net income per share          |  |                                          | 0.05   |        |  |       | 0.11   |        |  |   | 0.12    |      |  |   | 0.17   | 
|            | Diluted net income per share        |  |                                          | 0.05   |        |  |       | 0.11   |        |  |   | 0.12    |      |  |   | 0.17   | 
|Fiscal 2001 |                                     |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |       
|            | Revenues                            |  | $                                        | 20,732 |        |  | $     | 23,981 |        |  | $ | 22,140  |      |  | $ | 25,378 | 
|            | Gross profit                        |  |                                          | 12,756 |        |  |       | 14,648 |        |  |   | 13,487  |      |  |   | 15,802 | 
|            | Net income (loss)                   |  |                                          | 1,644  |        |  |       | 2,435  |        |  |   | (11,212 | )(1) |  |   | 1,896  | 
|            | Basic net income (loss) per share   |  |                                          | 0.10   |        |  |       | 0.15   |        |  |   | (0.69   | )    |  |   | 0.12   | 
|            | Diluted net income (loss) per share |  |                                          | 0.10   |        |  |       | 0.15   |        |  |   | (0.69   | )    |  |   | 0.12   | 
|Fiscal 2000 |                                     |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |       
|            | Revenues                            |  | $                                        | 20,179 |        |  | $     | 24,038 |        |  | $ | 24,341  |      |  | $ | 27,477 | 
|            | Gross profit                        |  |                                          | 12,818 |        |  |       | 15,053 |        |  |   | 15,274  |      |  |   | 17,307 | 
|            | Net income (loss)                   |  |                                          | 1,186  |        |  |       | 2,037  |        |  |   | (12,395 | )(2) |  |   | 4,238  | 
|            | Basic net income (loss) per share   |  |                                          | 0.09   |        |  |       | 0.14   |        |  |   | (0.77   | )    |  |   | 0.26   | 
|            | Diluted net income (loss) per share |  |                                          | 0.08   |        |  |       | 0.13   |        |  |   | (0.77   | )    |  |   | 0.25   | 



---

|(1) |  | Includes a charge of approximately $12.6 million for the write-off of
acquired in-process research and development related to the acquisition of
Cytion S.A.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a charge of approximately $15.2 million of direct costs related
to the LJL BioSystems merger.                                                      

NOTE 13. RELATED PARTY TRANSACTION

Molecular
Devices paid $700,000 to Essen Instruments
(Essen), primarily for inventory, in 2002. There were no
similar transactions in 2001 and 2000. Molecular Devices Chief Financial
Officer is a member of the Board of Directors of Essen and Molecular
Devices is also a minority investor in Essen.

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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

|                                                                                 |  |                      |       |            |  |            |     |      |  |                   |      |   |  |   |       | 
|-------------------------------------------------------------------------------- |  | -------------------- | ----- | ---------- |  | ---------- | --- | ---- |  | ----------------- | ---- | - |  | - | ----- | 
|                                                                                 |  | BALANCE              |       | CHARGED TO |  |            |     |      |  | BALANCE AT END OF
|Description                                                                      |  | AT BEGINNING OF YEAR |       | COSTS      |  | DEDUCTIONS |     | YEAR
|                                                                                 |  |                      |       |            |  |            |     |     
|Allowance for doubtful accounts receivables
for the year ended December 31, 2000 |  | $                    | 452   |            |  | $          | 161 |      |  | $                 | (52  | ) |  | $ | 561   | 
|Allowance for doubtful accounts receivables
for the year ended December 31, 2001 |  | $                    | 561   |            |  | $          | 597 |      |  | $                 | (10  | ) |  | $ | 1,148 | 
|Allowance for doubtful accounts receivables
for the year ended December 31, 2002 |  | $                    | 1,148 |            |  | $          |    |      |  | $                 | (714 | ) |  | $ | 434   | 

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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.                                                             
|          |  |                                                                                                                                                                                                                                                                                                                             
|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(2)* |  | Key Employee Agreement for Joseph D. Keegan, Ph.D., dated March 11, 1998, as amended                                                                                                                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                             
|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 Tim Harkness                                                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.23(3)* |  | Employee Offer Letter for John Senaldi                                                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.24(4)* |  | 1995 Non-Employee Directors Stock Option Plan, as amended                                                                                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                             
|10.25*    |  | 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                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                             

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|           |  |                                                                                                                                                                                                                                                                                                      
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT    |  |                                                                                                                                                                                                                                                                                                      
|NUMBER     |  | DESCRIPTION OF DOCUMENT                                                                                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                                                                      
|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.                                                                                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                      
|10.36(8)*  |  | Key Employee Agreement for Stephen Oldfield                                                                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                      
|10.37(8)*  |  | Key Employee Agreement for Tom OLenic                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                      
|10.38*     |  | 2001 Stock Option Plan                                                                                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                      
|10.39      |  | Lease dated May 28, 2002 by and between The Irvine Company and the Registrant                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                      
|10.40*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and Joseph D. Keegan, Ph.D.                                                                                                                                                                                                      
|           |  |                                                                                                                                                                                                                                                                                                      
|10.41*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and Timothy A. Harkness                                                                                                                                                                                                          
|           |  |                                                                                                                                                                                                                                                                                                      
|10.42*     |  | Letter Agreement dated April 11, 2002 by and between the
Registrant and John S. Senaldi                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                                                                      
|21.1       |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                      
|23.1       |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                      
|99.1**     |  | Certification by the Chief Executive Officer and the Chief Financial Officer of Molecular
Devices as required by Section 906 of the Public Company Accounting Reform and Investor
Protection Act of 2002 (18 U.S.C. Section 1350, as adopted) (the Sarbanes-Oxley Act of 2002),
dated March 27, 2003.



---

|(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.                                                                                                                                                                                                                                                                 
|    
|(4)  |  | Incorporated by reference to the similarly described exhibit in our
Registration Statement on Form S-8 (File No. 333-86159), as amended.                                                                                                                                                                                                                                                                              
|    
|(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.                                                                                                                                                                                                                                                                                                
|    
|*    |  | Management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                              
|    
|**   |  | This certification
accompanies the Form 10-K to which it relates, is not
deemed filed with the SEC and is not to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as
amended, or
the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such
filing.

58