##### Table of Contents



---

---

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549



---



FORM 10-K



---



|                                            |  |                                                                                                         
|------------------------------------------- |  | --------------------------------------------------------------------------------------------------------
|[X]                                         |  | ANNUAL REPORT PURSUANT TO
        SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934    
|                                            |  |                                                                                                         
|FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
|                                            |  |                                                                                                         
|OR                                         
|                                            |  |                                                                                                         
|[   ]                                       |  | TRANSITION REPORT PURSUANT
        TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________.

COMMISSION FILE NUMBER 0-27316

MOLECULAR DEVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                |  |                       
|------------------------------- |  | ----------------------
|DELAWARE                        |  | 94-2914362            
|(STATE OR OTHER JURISDICTION OF |  | (I.R.S. EMPLOYER      
|INCORPORATION OR ORGANIZATION)  |  | IDENTIFICATION NUMBER)

1311 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

(408) 747-1700
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

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

TITLE OF EACH CLASS
COMMON STOCK, $.001 PAR VALUE

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

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

The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 28, 2002, based upon the last sale price reported
for such date on the Nasdaq National Market, was $117,053,847*.

The number of outstanding shares of the Registrants Common Stock as of
March 28, 2002 was 15,279,436.





---



##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the Proxy Statement for Registrants 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K Report.



---

|* |  | Excludes approximately
8,837,287 shares of common stock held by
directors, officers and holders of 5% or more of the Registrants
outstanding Common Stock at March 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.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

2



---

TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1       
|              | ITEM 1. BUSINESS                                                                             
|              | 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                                      
|PART IV      
|              | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 3.3  
|EXHIBIT 10.4 
|EXHIBIT 10.36
|EXHIBIT 10.37
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 23.2 



---



##### Table of Contents



TABLE OF CONTENTS

MOLECULAR DEVICES CORPORATION

|         |  |                                                                                               |  |   
|-------- |  | --------------------------------------------------------------------------------------------- |  | --
|PART I   |  |                                                                                              
|Item 1.  |  | Business                                                                                      |  | 4 
|         |  | The Company                                                                                   |  | 4 
|         |  | Industry Background                                                                           |  | 4 
|         |  | The Molecular
        Devices Solution                                                        |  | 5 
|         |  | Our Products                                                                                  |  | 6 
|         |  | Drug Discovery
        Products                                                               |  | 6 
|         |  | Life Sciences
        Research Products                                                       |  | 8 
|         |  | Software and Customer
        Service                                                         |  | 9 
|         |  | Research and Development                                                                      |  | 9 
|         |  | Marketing and
        Customers                                                               |  | 10
|         |  | Manufacturing                                                                                 |  | 10
|         |  | Patents and Proprietary
        Technologies                                                  |  | 10
|         |  | Competition                                                                                   |  | 10
|         |  | Government Regulations                                                                        |  | 11
|         |  | Employees                                                                                     |  | 11
|         |  | Business Risks                                                                                |  | 11
|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 |  |   
|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  |  | 28
|PART
III |  |                                                                                              
|Item 10. |  | Directors and
        Executive Officers of the Registrant                                    |  | 29
|Item 11. |  | Executive Compensation                                                                        |  | 29
|Item 12. |  | Security Ownership
        of Certain Beneficial Owners and Management                        |  | 29
|Item 13. |  | Certain Relationships
        and Related Transactions                                        |  | 29
|PART IV  |  |                                                                                              
|Item 14. |  | Exhibits, Financial
        Statement Schedules and Reports on Form 8-K                       |  | 30
|         |  | (a) Documents
        Filed with Report                                                       |  |   
|         |  | (b) Reports on
        Form 8-K                                                               |  |   
|         |  | (c) Exhibits                                                                                  |  |   
|         |  | (d) Financial
        Statement Schedules                                                     |  |   

3



---



##### Table of Contents






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, 2001.

We are a leading developer 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.

INDUSTRY BACKGROUND

Life sciences research, particularly drug discovery, is currently
undergoing a revolution as a result of two converging trends. Following the
worldwide effort to sequence the human genome, researchers are beginning 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 biochemical assays and cell-based 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.



---

|Many
      of our product names mentioned throughout this document are our trademarks
      and service marks. Other trademarks, trade names and service marks referred
      to in this report are the property of their respective owners.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4



---



##### Table of Contents



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 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
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 above steps 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 which 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. 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 which 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 two
major families of high-throughput instrument and reagent systems: our
Fluorometric Imaging Plate Reader, or FLIPR, system, and our multimode Analyst,
Acquest and ScreenStation systems. In each of these systems, our
high-performance instrumentation is complemented by 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
and our Threshold system. Maxline microplate readers primarily address the
assay development market and offer the assay development scientist eight
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.
Finally, 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.

5



---



##### Table of Contents





|OUR PRODUCTS
|------------

DRUG DISCOVERY PRODUCTS

Our Drug Discovery systems, which represented 48% of our total revenues in
2001, 51% of our total revenues in 2000 and 46% of our total revenues in 1999,
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.



| |  |  | FLIPR384. This product, was 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 384 well
microplates, as well as 96 well microplates. FLIPR384 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 FLIPR384. It also incorporates
a new detection mode, luminescence, expanding the menu of applications
that can be performed on the FLIPR platform.                                                                                                                                                                                                                                                                                                                                        

Analyst, Acquest and ScreenStation Systems

Our Analyst, Acquest and ScreenStation systems complement our other drug
discovery offerings by providing industry-leading flexibility and throughput
for a wide range of biochemical assays. These systems each feature seven
different readout modalities, allowing customers to choose the one that is
optimal for the particular screen they are performing. 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 and Acquest systems. Our HEFP technology enables
miniaturized biochemical assays to be performed in a single step, a significant
advantage over traditional biochemical assays.

Analyst and Acquest provide 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 1998 we also introduced the ultra-
high-throughput Acquest, capable of reading microplates in 96-, 384- and
1,536-well formats and running up to 200,000 assays 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 both the Analyst or Acquest platforms.

6



---



##### Table of Contents



CLIPR System

Our Chemiluminescence Imaging Plate Reader, or CLIPR, system was developed
based on telecentric lens luminometer technology licensed from Affymax Research
Institute in 1998. We introduced this system in the third quarter of 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
unprecedented speeds. 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 FLIPR, Analyst and
Acquest systems, offering solutions for a wide range of biochemical and
cell-based assays.

The system combines an ultra sensitive CCD camera with proprietary wide
field optics to achieve ultra high-throughput by simultaneously imaging all of
the wells on a microplate. As a result of the simultaneous imaging, CLIPR is
compatible with any microwell plate format including 96, 384, 1536 and beyond.
Our CLIPR system can be integrated with a linear track robot, used in
workstation mode with an optional light-tight plate stacker module, or used in
a stand-alone mode. CLIPR can support the analysis of over 200,000 samples in
an eight-hour day.

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, Analyst and Acquest. 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:



| |  |  | FLIPR Calcium Assay Kit. This product has begun to revolutionize the
way FLIPR calcium assays are performed. The kits unique feature is that
it enables researchers to eliminate a step in the assay protocol,
thereby saving up to 15 minutes of processing time for each 384 well
plate. This kit has the potential to significantly increase throughput,
reduce costs and increase screening efficiency.                                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | FLIPR Calcium Plus Assay Kit. This product is compatible with a wide
variety of targets, including 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.                                                                                                                                                                                                      
|
| |  |  | FLIPR Membrane Potential Assay Kit. Based on the same proprietary,
time-saving methodology as the Calcium Assay Kit, this product allows
researchers to measure changes in the electrical potential of live cell
membranes, a key indicator of ion channel activity. Ion channels are
implicated in many major diseases and are therefore a target of great
interest to drug discovery customers.                                                                                        
|
| |  |  | FLIPR Multidrug Resistance Assay Kit. This product applies our
proprietary time-saving technology to the field of oncology, where
over-expression of multidrug resistance (MDR) pumps is characterized by
drug resistance in tumor cells. This product enables researchers to
identify and screen, in high-throughput mode, MDR pump inhibitors that
can reverse or circumvent cancer drug resistance.                                                                                   
|
| |  |  | STX-1 Assay Kit. A member of HEFP reagent kit family, and optimized
for use on our Analyst and Acquest systems, the STX-1 assay system
measures the activity of serine/threonine kinases via a competitive
immunoassay for the product of enzyme activity, phosphoserine
(pSer)-containing peptide.                                                                                                                                                                                      
|
| |  |  | TKXtra Assay Kit. Another member of the HEFP reagent kit family, the
TKXtra Assay Kit assays kinases in in vitro enzyme preparations or
extracts of cells. Many kinases have been detected with good
sensitivity, including v-abl, EGF receptor, insulin receptor, and c-src.
The assay can also be used for screening of agonists or antagonists of
tyrosine kinases.                                                                                                                  
|
| |  |  | IMAP Technology and 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.
In 2001, we launched two kits, SGK and Akt, based on this technology.
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.
|
| |  |  | CatchPoint cyclic-AMP Assay Kit. This kit measures cAMP, an
important indicator of cellular signaling, in a more sensitive and
simpler format than traditional methods. This product is designed for
use on both our Gemini XS instrument and our Analyst, Acquest and
ScreenStation family of instruments.                                                                                                                                                                             

7



---



##### Table of Contents



LIFE SCIENCES RESEARCH PRODUCTS

Our Life Sciences Research products, which represented 52% of total
revenues in 2001, 49% of total revenues in 2000 and 54% of total revenues in
1999, encompass our Maxline, FlexStation, Skatron and Threshold 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

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 PLUS, introduced in 1997, was
our first microplate reader aimed at the spectrophotometer market. It
was the industrys first microplate reader that was able to combine the
high-throughput of a microplate reader with the performance of a cuvette
based spectrophotometer as a result of our patented PathCheck Sensor
technology. The SPECTRAmax PLUS was also the first microplate reader
with the ability to read wavelengths as short as 190 nanometers and as
long as 1,000 nanometers, the equivalent range to a spectrophotometer.
The SPECTRAmax PLUS384, introduced in 2000, addresses the needs of the
high-throughput screening market by adding 384-well plate compatibility.                                                                  
|
| |  |  | SPECTRAmax GEMINI XS. SPECTRAmax GEMINI, introduced in late 1998, was
the worlds first dual-scanning microplate spectrofluorometer. By
incorporating two scanning monochromators, the SPECTRAmax 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.

8



---



##### Table of Contents





| |  |  | SPECTRAmax LMax. SPECTRAmax LMax, introduced in 2000, is our first
reader to offer customers sensitive luminescence detection in a
bench-top instrument.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

FlexStation

Our FlexStation system, introduced in 2001, 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.

In addition to our introduction of FlexStation, in 2001 we launched four
proprietary reagent kits optimized to perform on this system. These products
are our FlexStation Calcium Assay Kit, FlexStation Membrane Potential Assay
Kit, FlexStation Multidrug Resistance Assay Kit, and FlexStation Calcium Plus
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 in response to
the growing number of biopharmaceutical therapeutics both entering clinical
trials and receiving regulatory approval for commercial sale. The Threshold
system emerged from a need by biopharmaceutical companies for more sensitive
and reproducible methods to detect contaminants in biopharmaceuticals during
the manufacturing and quality control process. Traditional detection methods,
such as DNA hybridization, can be slow, difficult to use in a manner that
provides reproducible and transferable results, and often require the use of
radioactive materials for detection. 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.

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 106 full time employees as of
December 31, 2001. We have typically invested 16% to 21% of our revenues in
research and development, which has resulted in a track record of technological
innovation. 76% of our revenues in 2001 were derived from products that we
introduced in the last three years. Our research and development expenditures
were approximately $15.1 million in 2001, $16.8 million in 2000 and $14.1
million in 1999.

9



---



##### Table of Contents



Our research and development activities are focused on:



| |  |  | broadening our technology solution, including development of new
proprietary reagent kits and 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 124 full time employees in
North America, Europe and Japan as of December 31, 2001. 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 2001 revenues.

Sales to customers outside the United States accounted for 36%, 37% and
38% of total revenues and total sales denominated in foreign currencies
accounted for 31%, 20% and 23% of total revenues in 2001, 2000 and 1999,
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 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.

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, 2001, we were maintaining 46 U.S. patents and
other corresponding foreign patents based on our discoveries that have been
issued or allowed. In addition, as of that date, we had 41 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

10



---



##### Table of Contents



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, 2001, we employed 370 persons full time, including 106
in research and development, 109 in manufacturing, 124 in marketing and sales
and 31 in general administration and finance. Of these employees, 63 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.

11



---



##### Table of Contents



| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
most of our purchase orders require payment within 30 days of product shipment,
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

12



---



##### Table of Contents



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. 76% of our
revenues in 2001 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 them. Any
significant delay in releasing new systems could 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. We cannot
predict whether new products that we expect to introduce will achieve
commercial acceptance. Our products are generally priced higher than
competitive products, which may impair commercial acceptance.

| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | 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 pricing pressures as third-party payors continue challenging the
pricing of medical products and services, government regulation, uncertainty of
technological change, availability of capital and reduction and delays in
research and development expenditures by companies in these industries.

In addition, our future revenues may be adversely affected by the ongoing
consolidation in the pharmaceutical and biotechnology industries, which will
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.

13



---



##### Table of Contents



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

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

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



| |  |  | assert claims of infringement;                                                       
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | enforce our patents;                                                                 
|
| |  |  | protect our trade secrets or know-how; or                                            
|
| |  |  | determine the enforceability, scope and validity of the proprietary rights of others.

Lawsuits could be expensive, take significant time and divert managements
attention from other business concerns. They would put our patents at risk of
being invalidated or interpreted narrowly and our patent applications at risk
of not issuing. We may also provoke third parties to assert claims against us.
Patent law relating to the scope of claims in the technology fields in which we
operate is still evolving and, consequently, patent positions in our industry
are generally uncertain. 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;                                                                                                 
|
| |  |  | 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;                                                                                                            
|

14



---



##### Table of Contents



| |  |  | 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.

| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

For example, we relied primarily on a single supplier of disposable
plastic tips used with our FLIPR(384) system for most of 2000, and we
experienced delays and customer dissatisfaction due to our suppliers inability
to deliver an adequate supply of tips. We now have an alternative supplier for
the disposable plastic tips but we cannot predict whether we will encounter
additional similar delays in the future. Our current supplier and known
potential alternative suppliers of disposable plastic tips used with our
FLIPR(384) system are our competitors.

Because the manufacturing of certain of these components and subassemblies
involves extremely complex processes and requires long lead times, we may
experience delays or shortages caused by suppliers. We believe that alternative
sources could be obtained and qualified, if necessary, for most sole and
limited source parts. However, if we were forced to seek alternative sources of
supply or to manufacture such components or subassemblies internally, we may be
forced to redesign our systems, which could prevent us from shipping our
systems to customers on a timely basis. Some of our suppliers have relatively
limited financial and other resources. Any inability to obtain adequate
deliveries, or any other circumstance that would restrict our ability to ship
our products, could damage relationships with current and prospective customers
and could harm our business.

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

We assemble our systems in our manufacturing facilities located in
Sunnyvale, California 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.

15



---



##### Table of Contents



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.

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 acquisition. 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 2001, approximately 5% 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. In January 2001, we
acquired our Japanese distributor, Nihon Molecular Devices. As a result, we are
providing direct sales and service support to customers in this substantial
market. 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.

| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | IF WE DO NOT SUCCESSFULLY DEVELOP AND COMMERCIALIZE NEW PRODUCTS THROUGH
CYTION, WE WILL HAVE INCURRED SIGNIFICANT COSTS THAT MAY HARM OUR BUSINESS.

We expect that our research and development costs will increase as a
result of the acquisition of Cytion S.A. Achieving the benefits of the
acquisition of Cytion will depend in part on our ability to develop new
products through Cytion 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 the electrophysiology market segment. As
a result, we may lose customers and our business and results of operations may
be harmed. We have made an investment in, and obtained exclusive world-wide
rights to commercialize the high-throughput patch clamp system products of,
Essen Instruments. While we believe that Cytions technology complements the
high-throughput patch clamp system products of Essen Instruments, we cannot
assure you that the acquisition of Cytion will be complementary to the Essen
products. Our ability to successfully develop products through Cytion will
depend in part on the retention of key personnel, particularly technical
personnel. We cannot assure you that we will be able to retain the key
personnel or that the anticipated benefits of their expertise will be realized.
Further, 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 Molecular Devices common stock could decline as a
result of the acquisition if we do not achieve the perceived benefits of the
acquisition as rapidly or to the extent anticipated by financial analysts or
investors.

16



---



##### Table of Contents



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 may choose to do so in the future. We do not know if we will be
able to complete any 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 shareholders. If we are unable to integrate any acquired
entities, products or technologies effectively, our business will suffer. In
addition, any amortization of goodwill or other assets or charges resulting
from the costs of acquisitions could harm our business and operating results.

| |                                                                                      
| | -------------------------------------------------------------------------------------
| | 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
36% our revenues in 2001. 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. All of our direct sales in the United Kingdom, Germany, France, Canada
and Japan are denominated in local currencies and totaled $28.9 million (31% of
total revenues) in 2001. 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 intend to 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                    
|
| |  |  | potentially adverse tax consequences.                          

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

17



---



##### Table of Contents



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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 particular, 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.

It is possible that in some future quarter or quarters, our operating
results will be below the expectations of securities analysts or investors. In
this event, the market price of our common stock may fall abruptly and
significantly. 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 2001, our stock price ranged from $15.50 to $77.38. Our stock price
could decline regardless of our actual operating performance, and stockholders
could lose a substantial part of their investment as a result of industry or
market-based fluctuations. In the past, our stock has traded relatively thinly.
If a more active public market for our stock is not sustained, it may be
difficult for stockholders to resell shares of our common stock. Because we do
not anticipate paying cash dividends on our common stock for the foreseeable
future, stockholders will not be able to receive a return on their shares
unless they sell them.

| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | THE MARKET PRICE OF OUR COMMON STOCK WILL LIKELY FLUCTUATE IN RESPONSE TO A
NUMBER OF FACTORS, INCLUDING THE FOLLOWING:



| |  |  | our failure to meet the performance estimates of securities analysts;                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in financial estimates of our revenues and operating results or buy/sell recommendations by securities analysts;                                                              
|
| |  |  | 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; and
|
| |  |  | general stock market conditions, other economic or external factors.                                                                                                                  

| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

18



---



##### Table of Contents



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | 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.




ITEM 2. PROPERTIES

We lease or sublease
three facilities with approximately 125,000 square feet
of laboratory, manufacturing and administrative space in Sunnyvale, California.
We also lease sales and service offices in the United Kingdom, Germany and
Japan, a small manufacturing facility in Norway, and a small research and
development facility in Switzerland. We believe that our current facilities
will be sufficient for our operations through at least 2002. These properties
are described below:

|                      |  |           |  |                                                                    |  |                 
|--------------------- |  | --------- |  | ------------------------------------------------------------------ |  | ----------------
|LOCATION              |  | OWNERSHIP |  | FACILITIES                                                         |  | LEASE EXPIRATION
|                      |  |           |  |                                                                    |  |                 
|1311 Orleans Drive    |  | Leased    |  | Approximately 60,000 square feet of                                |  | October 31, 2007
|Sunnyvale, CA 94089   |  |           |  | office and manufacturing space                                     |  |                 
|1312 Crossman Avenue  |  | Subleased |  | Approximately 54,400 square feet of                                |  | April 30, 2003  
|Sunnyvale, CA 94089   |  |           |  | office and manufacturing space                                     |  |                 
|405 Tasman Drive      |  | Subleased |  | Approximately 9,600 square feet of                                 |  | August 30, 2002 
|Sunnyvale, CA 94089   |  |           |  | office and manufacturing space                                     |  |                 
|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, 2003  
|Tokyo, Japan          |  | Leased    |  | Approximately 1,100 square feet of
office space                    |  | April 14, 2003  
|Lausanne, Switzerland |  | Leased    |  | Approximately 2,200 square feet of
office and laboratory space     |  | April 1, 2004   




ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.




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

None.

19



---



##### Table of Contents






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.

|               |  |      |       |      |  |      |       |     |  |  |        |  |  |  |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  |  | ------ |  |  |  | ----- | 
|               |  | 2001 |       | 2000
|               |  |      |       |     
|               |  | HIGH |       | LOW  |  | HIGH |       | LOW
|               |  |      |       |      |  |      |       |    
|First Quarter  |  |      | 77.38 |      |  |      | 38.88 |     |  |  | 113.13 |  |  |  | 42.38 | 
|Second Quarter |  |      | 49.99 |      |  |      | 17.00 |     |  |  | 77.75  |  |  |  | 39.69 | 
|Third Quarter  |  |      | 24.58 |      |  |      | 17.51 |     |  |  | 110.44 |  |  |  | 55.50 | 
|Fourth Quarter |  |      | 22.46 |      |  |      | 15.50 |     |  |  | 99.25  |  |  |  | 48.88 | 

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 28, 2002, there
were approximately 179 stockholders of record of Molecular Devices. On March
28, 2002, the last sale price reported on the Nasdaq National Market for our
common stock was $18.17 per share.

We entered into
employment arrangements with each of Joseph D. Keegan, Ph.D., Mr.
Timothy A. Harkness, Mr. John Senaldi and Ms. Patricia Sharp pursuant to
which we are obligated to issue to each officer shares of our common stock in
exchange for services rendered. As a result of this arrangement, we issued
shares of our common stock to those officers in 2000 and 2001 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
|             |  |           |       |              
|Dr.
Keegan   |  |           | 3,750 |               |  |  | 03/30/2000 | 
|            
|Mr.
Harkness |  |           | 1,250 |               |  |  | 01/09/2000 | 
|             |  |           | 1,250 |               |  |  | 04/09/2000 | 
|             |  |           | 1,250 |               |  |  | 07/09/2000 | 
|            
|Mr.
Senaldi  |  |           | 312   |               |  |  | 02/06/2000 | 
|             |  |           | 312   |               |  |  | 05/06/2000 | 
|             |  |           | 312   |               |  |  | 08/06/2000 | 
|            
|Ms.
Sharp    |  |           | 312   |               |  |  | 03/05/2001 | 
|             |  |           | 312   |               |  |  | 06/05/2001 | 
|             |  |           | 312   |               |  |  | 09/05/2001 | 
|             |  |           | 312   |               |  |  | 12/05/2001 | 

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,             
|                                                      |                                                              |                                                  |         |                                      
|                                                      |                                                              |                                                  |         | 2001                                  |        | 2000 |         | 1999   |        | 1998 |        | 1997  
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |       
|                                                      |                                                              |                                                  |         | (In thousands, except per share data)
|Consolidated Statements of Income Data:               |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Revenues                                                     |                                                  | $       | 92,231                                |        |      | $       | 96,035 |        |      | $      | 71,902 |        |   | $      | 52,234 |        |   | $      | 43,490 |       
|                                                      | Cost of revenues                                             |                                                  |         | 35,538                                |        |      |         | 35,583 |        |      |        | 26,299 |        |   |        | 20,203 |        |   |        | 16,745 |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Gross profit                                                 |                                                  |         | 56,693                                |        |      |         | 60,452 |        |      |        | 45,603 |        |   |        | 32,031 |        |   |        | 26,745 |       
|                                                      | Operating expenses:                                          |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |        |       
|                                                      |                                                              | Research and development                         |         |                                       | 15,105 |      |         |        | 16,796 |      |        |        | 14,150 |   |        |        | 11,158 |   |        |        | 8,232  | 
|                                                      |                                                              | Acquired in-process research and development (1) |         |                                       | 12,625 |      |         |        |       |      |        |        | 2,037  |   |        |        | 876    |   |        |        |       | 
|                                                      |                                                              | Merger expenses (1)                              |         |                                       |       |      |         |        | 15,181 |      |        |        |       |   |        |        |       |   |        |        |       | 
|                                                      |                                                              | Selling, general and administrative              |         |                                       | 33,381 |      |         |        | 31,906 |      |        |        | 25,630 |   |        |        | 19,386 |   |        |        | 14,028 | 
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Total operating expenses                                     |                                                  |         | 61,111                                |        |      |         | 63,883 |        |      |        | 41,817 |        |   |        | 31,420 |        |   |        | 22,260 |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Income (loss) from operations                                |                                                  |         | (4,418                                | )      |      |         | (3,431 | )      |      |        | 3,786  |        |   |        | 611    |        |   |        | 4,485  |       
|                                                      | Other income, net                                            |                                                  |         | 3,806                                 |        |      |         | 4,912  |        |      |        | 1,921  |        |   |        | 2,178  |        |   |        | 1,448  |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Income
(loss) before income taxes                            |                                                  |         | (612                                  | )      |      |         | 1,481  |        |      |        | 5,707  |        |   |        | 2,789  |        |   |        | 5,933  |       
|                                                      | Income tax provision                                         |                                                  |         | 4,625                                 |        |      |         | 6,415  |        |      |        | 2,056  |        |   |        | 956    |        |   |        | 2,017  |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Net income (loss)                                            |                                                  | $       | (5,237                                | )      |      | $       | (4,934 | )      |      | $      | 3,651  |        |   | $      | 1,833  |        |   | $      | 3,916  |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Basic net income (loss) per share                            |                                                  | $       | (0.32                                 | )      |      | $       | (0.32  | )      |      | $      | 0.27   |        |   | $      | 0.15   |        |   | $      | 0.35   |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Diluted net income (loss) per share                          |                                                  | $       | (0.32                                 | )      |      | $       | (0.32  | )      |      | $      | 0.26   |        |   | $      | 0.14   |        |   | $      | 0.33   |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Shares used in computing basic net
income (loss) per share   |                                                  |         | 16,192                                |        |      |         | 15,246 |        |      |        | 13,347 |        |   |        | 12,407 |        |   |        | 11,107 |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      | Shares used in computing diluted net
income (loss) per share |                                                  |         | 16,192                                |        |      |         | 15,246 |        |      |        | 14,149 |        |   |        | 12,965 |        |   |        | 11,906 |       
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|Pro Forma Consolidated Statements of Income Data (2): |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      |                                                              | Pro forma operating income                       |         | $                                     | 8,207  |      |         | $      | 11,750 |      |        | $      | 5,823  |   |        | $      | 1,487  |   |        | $      | 4,485  | 
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      |                                                              | Pro forma net income                             |         | $                                     | 7,388  |      |         | $      | 10,247 |      |        | $      | 4,954  |   |        | $      | 2,409  |   |        | $      | 3,916  | 
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      |                                                              | Pro forma diluted net income per share           |         | $                                     | 0.45   |      |         | $      | 0.62   |      |        | $      | 0.35   |   |        | $      | 0.19   |   |        | $      | 0.33   | 
|                                                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|Consolidated Balance Sheet Data:                      |                                                              |                                                  |         |                                       |        |      |         |        |        |      |        |        |        |   |        |        |        |   |        |       
|Cash, cash equivalents and short-term investments     |                                                              | $                                                | 67,257  |                                       |        | $    | 97,091  |        |        | $    | 36,650 |        |        | $ | 40,030 |        |        | $ | 32,298 |       
|Working capital                                       |                                                              |                                                  | 99,422  |                                       |        |      | 138,184 |        |        |      | 65,748 |        |        |   | 55,014 |        |        |   | 42,031 |       
|Total assets                                          |                                                              |                                                  | 152,361 |                                       |        |      | 180,033 |        |        |      | 86,849 |        |        |   | 72,319 |        |        |   | 50,752 |       
|Retained earnings (accumulated deficit)               |                                                              |                                                  | (40,653 | )                                     |        |      | (4,833  | )      |        |      | 101    |        |        |   | (3,550 | )      |        |   | (5,383 | )     
|Total stockholders equity                            |                                                              |                                                  | 137,485 |                                       |        |      | 163,633 |        |        |      | 74,304 |        |        |   | 60,700 |        |        |   | 44,098 |       



---

|(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 technology and acquisition 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
technology and acquisition costs 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 in-process technology
and acquisition costs in 2001, 2000, 1999 and 1998 described in footnote
(1) above, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

21



---



##### 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, 2001.

Molecular Devices Corporation is a leading supplier of high-performance
bioanalytical measurement systems that accelerate and improve drug discovery
and other life sciences research. Molecular Devices 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. Molecular
Devices solutions are based on its advanced core technologies that integrate
its expertise in engineering, molecular and cell biology and chemistry.
Molecular Devices enables its customers to improve research productivity and
effectiveness, which ultimately accelerates the complex process of discovering
and developing new drugs.

Molecular Devices acquired all of the outstanding stock of LJL BioSystems
in a tax-free, stock-for-stock transaction on August 30, 2000, as a result of
which LJL BioSystems became a wholly owned subsidiary of Molecular Devices. 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.

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 2001. 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 less than 5% of total revenues for all periods prior to
2001, and 6% in 2001. In 2001, sales to customers outside the United States
accounted for 36% 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 expect to
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.

We have not experienced any favorable or unfavorable trends or
uncertainties related to the Euro conversion. Costs incurred for system
modifications have been, and are expected to be immaterial to the consolidated
results of operations.

In 2001, we acquired Nihon Molecular Devices, a sales and service
operation in Japan, as well as Cytion S.A., a research and development facility
in Switzerland. Neither acquisition created a new operating segment of
business.

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 other 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.

22



---



##### 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 product shipment and transfer
of title either to a customer or to a distributor and provide for estimated
warranty expense at the time of sale. There are no significant customer
acceptance requirements or post shipment obligations on our part.
Shipping costs are charged to cost 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
projected by management, additional inventory write downs may be required.

Impairment of Long-Lived Assets

We evaluate 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. 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, we would measure fair value based on discounted expected
cash flows to be generated by such assets. There were no long-lived assets
that were considered to be impaired during any period presented.

Equity Investments

We invest in equity
instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets
and are accounted for under the cost method when ownership is less
than 20 percent and we do not have the ability to exercise
significant influence over operations. When our ownership exceeds 20
percent but is less than 50 percent, 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. 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, 2001, we had deferred tax assets of $9.3 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.

The elimination of the amortization of goodwill pursuant to the adoption
of FAS 141 and 142 will have a favorable impact on our effective tax rate in
2002. Other factors may have favorable or unfavorable effects upon our
effective tax rate in 2002 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



---



##### Table of Contents



RESULTS OF OPERATIONS

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

|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|-------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | -
|                                             |  | YEARS ENDED DECEMBER 31,
|                                             |  |                         
|                                             |  | 2001                     |       | 2000 |  | 1999
|                                             |  |                          |       |      |  |     
|Revenues                                     |  |                          | 100.0 | %    |  |      | 100.0 | %  |  |  | 100.0 | %
|Cost of revenues                             |  |                          | 38.5  |      |  |      | 37.1  |    |  |  | 36.6  |  
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Gross profit                                 |  |                          | 61.5  |      |  |      | 62.9  |    |  |  | 63.4  |  
|Research and development                     |  |                          | 16.4  |      |  |      | 17.5  |    |  |  | 19.7  |  
|Acquired in-process research and development |  |                          | 12.6  |      |  |      |      |    |  |  | 2.8   |  
|Merger expenses                              |  |                          |      |      |  |      | 15.8  |    |  |  |      |  
|Selling, general and administrative          |  |                          | 36.2  |      |  |      | 33.2  |    |  |  | 35.6  |  
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Income (loss) from operations                |  |                          | (4.8  | )    |  |      | (3.6  | )  |  |  | 5.3   |  
|Other income, net                            |  |                          | 4.1   |      |  |      | 5.2   |    |  |  | 2.7   |  
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Income (loss) before income taxes            |  |                          | (0.7  | )    |  |      | 1.6   |    |  |  | 8.0   |  
|Income tax provision                         |  |                          | 5.0   |      |  |      | 6.7   |    |  |  | 2.9   |  
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Net income (loss)                            |  |                          | (5.7  | )%   |  |      | (5.1  | )% |  |  | 5.1   | %
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Pro
forma operating income(1)                |  |                          | 8.9   | %    |  |      | 12.2  | %  |  |  | 8.1   | %
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  
|Pro forma net income(1)                      |  |                          | 8.0   | %    |  |      | 10.7  | %  |  |  | 6.9   | %
|                                             |  |                          |       |      |  |      |       |    |  |  |       |  



---

|(1) |  | Excludes the impact of the write-off of acquired in-process research and
development in 2001 and 1999 and merger expenses recorded in 2000, net of
tax.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

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 affecting purchasing decisions on our
higher priced instrument systems drove 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. In contrast, in
2000 we saw strong contributions from both our Life Sciences Research and Drug
Discovery product families.

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%. 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 SA. We do not believe the
decreased spending has materially impacted any development projects.

In July 2001, we
acquired Cytion S.A. 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 an aggressive share
repurchase plan under which we repurchased more than 1.5 million shares of our
common stock and our acquisition of Cytion SA.

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.

24



---



##### Table of Contents



YEARS ENDED DECEMBER 31, 2000 AND 1999

Revenues for 2000 increased by 34% to $96.0 million from $71.9 million in
1999. In 2000 and 1999, we saw strong contributions from both our Life Sciences
Research and Drug Discovery product families. Life Sciences Research revenues
increased in 2000 primarily due to the worldwide strength of the SPECTRAmax
PLUS384 and SPECTRAmax Gemini XS, both introduced in the first quarter of 2000,
and increased Threshold revenues worldwide. Drug Discovery growth was driven
primarily by the continued worldwide demand for our
FLIPR384 as well as
increased sales of LJL BioSystems Analyst AD and Analyst HT.

In 2000, gross margin decreased slightly to 62.9% from 63.4% in 1999 due
to increased manufacturing costs.

Research and development expenses for 2000 increased to $16.8 million from
$14.2 million in 1999, or an increase of 19%. The increased spending for the 2000
period is primarily the result of additional personnel over 1999, as well as
increased expenditures on development activities required to support both the
introduction and ongoing development of new Life Sciences Research and Drug
Discovery products, including new reagent kits optimized for use on our
detection systems.

We recorded a charge of $15.2 million during the third quarter of 2000
related to the merger with LJL BioSystems, including transition costs,
investment banking, legal and other advisory services. We recorded a charge of
$2.0 million during the second quarter of 1999 due to the write-off of acquired
in-process research and development related to our acquisition of Skatron. The
acquired in-process research and development had no alternative future use at
the date of acquisition.

Selling, general and administrative expenses for 2000 increased to $31.9
million from $25.6 million in 1999, or an increase of 24%. This
increase was 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. Selling, general and
administrative expenses as a percentage of revenues were 33.2% in 2000 and
35.6% in 1999. The decrease from 1999 to 2000 reflected improved operating
leverage as our revenue base grew.

Other income (net) increased by 156% in 2000 to $4.9 million from $1.9
million in 1999 due to an increased average cash balance primarily as a result
of the capital raised through our secondary offering in May 2000 and the
capital raised by LJL BioSystems private placement.

We recorded income tax provisions of $6.4 million in 2000 and $2.1 million
in 1999. These provisions reflected a 38.5% effective tax rate in 2000 and an
effective tax rate of 36.0% in 1999. The effective tax rate for 2000 is
calculated on profit before tax excluding the merger expenses related to the
LJL BioSystems merger in 2000, which are not deductible for income tax
purposes. The lower rate in 1999 is primarily due to the realization of net
operating loss carryforwards of LJL BioSystems in that year.

LIQUIDITY AND CAPITAL RESOURCES

We had cash, cash equivalents and short-term investments of $67.3 million
at December 31, 2001 compared to $97.1 million at December 31, 2000. In 2001,
operating activities provided $13.8 million in cash. However, due to $15.2
million of merger costs in the third quarter of 2000, $7.1 million was used in
operating activities during the year. In 1999, $4.4 million was used in operating
activities due to increases in accounts receivable, inventory and deferred tax
assets.

Net cash provided by investing activities was $29.8 million in 2001, due
to the net sales and maturities of $44.4 million of short-term investments,
offset by $10.4 million spent on acquisitions (net of cash acquired) and $3.8
million of capital expenditures. Net cash used in investing activities was
$69.7 million and $5.8 million in 2000 and 1999, respectively. In 2000,
investing activities cash use was primarily due to $50.7 million of net
short-term investment purchases, $11.5 million invested in other assets
(primarily a $10.0 million investment in Argonex, Inc. and a $1.1 million
strategic equity investment Essen Instruments, a privately held company) and
$7.4 million of capital expenditures, primarily related to our facilities
expansion in Sunnyvale, California. In 1999, $7.1 million of cash was used to
purchase Skatron Instruments AS.

Net cash used in financing activities was $27.3 million in 2001, due to
$30.7 million spent to repurchase shares of our common stock, offset by $4.0
million of proceeds from the issuance of common stock for options exercised and
employee stock purchases. Net cash provided by financing activities was $87.0
million in 2000 and $8.0 million in 1999. The 2000 proceeds were primarily
generated by Molecular Devices public offering in the second quarter of 2000,
the LJL BioSystems private placement in the first quarter of 2000, as well as
cash proceeds from stock option exercises during the year. The 1999 proceeds
relate primarily to the private placement by LJL BioSystems in 1999, as well as
stock option exercises in that year.

In 2001, we repurchased 1.5 million shares of common stock for $30.7
million, with nearly all of the repurchases occurring during the third quarter.
The repurchased shares represent 9.7% and 9.2% of the shares that were outstanding as
of December 31, 2001 and 2000, respectively.

25



---



##### Table of Contents



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 ability to generate our
anticipated cash flow from operations is subject to the risks and uncertainties
discussed under Item I. BusinessBusiness Risks above, including in
particular variations in the amount of time it takes for us to sell our
products and collect accounts receivable and the timing of customer orders,
competition, risks associated with the pharmaceutical and biotechnology
industries, supplier or manufacturing problems or delays and risks associated
with past and potential future acquisitions.

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



| |  |  | the progress of our research and development;                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | the number and scope of our research programs;                                                                 
|
| |  |  | market acceptance and demand for our products;                                                                 
|
| |  |  | the costs that may be involved in enforcing our patent claims and other intellectual property rights;          
|
| |  |  | potential acquisition and technology licensing opportunities;                                                  
|
| |  |  | manufacturing capacity requirements; and                                                                       
|
| |  |  | the costs of expanding our sales, marketing and distribution capabilities both in the United States and abroad.

We have generated sufficient cash flow to fund our capital requirements
primarily through operating activities in 2001, and financing activities in
2000 and 1999. However, we cannot assure you that we will not require
additional financing in the future to support our existing operations or
potential acquisition and technology licensing opportunities that may arise.
Therefore, we may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital.

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 one vendor ending in 2002. As of
December 31, 2001, the following is a summary of our contractual obligations:

|                                   |  |                        |  |                  |  |              |   |              |  |               |   |  |  |  |   |  |  |  |  | 
|---------------------------------- |  | ---------------------- |  | ---------------- |  | ------------ | - | ------------ |  | ------------- | - |  |  |  | - |  |  |  |  | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  | Total                  |  | Less than 1 year |  | 1-3 years    |   | 4 - 5 years  |  | After 5 years
|                                   |  |                        |  |                  |  |              |   |              |  |              
|Operating Leases                   |  | $23.1 million          |  | $4.7 million     |  | $7.3 million |   | $3.6 million |  | $7.5 million 
|Unconditional Purchase Obligations |  | 1.1 million            |  | 1.1 million      |  |              |  |              |  |               |  |  |  |  |  | 
|Total Contractual Cash Obligations |  | $24.2 million          |  | $5.8 million     |  | $7.3 million |   | $3.6 million |  | $7.5 million 

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.

In connection with
our acquisition of Cytion S.A. in July 2001, we are
potentially obligated to pay as much as $12.2 million to the selling stockholders
of Cytion S.A. in the event that certain milestones are met, at various times
through June 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 Business Combinations (FAS 141) and
Statement of Financial Accounting Standards No. 142 Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life). The amortization provisions of FAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001.

We will apply the new rules on accounting for goodwill and other
intangible assets on January 1, 2002. The adoption of
FAS 141 and 142 is not expected to have a significant impact on
our financial position at transition. We expect that the cessation of
goodwill amortization (net of related taxes) will
increase reported net income by approximately $320,000 (or $0.02 per share) in 2002. We performed an impairment test of
goodwill as of January 1, 2002 and will not record an impairment
charge at transition. We will continue to monitor the fair value of
our goodwill through the annual impairment tests.

26



---



##### Table of Contents



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. We are required to adopt FAS 144 no later than its first
fiscal year beginning after December 15, 2001. We do not expect the adoption of
FAS 144 for long-lived assets held for use to have a material impact on our
financial statements because the impairment assessment under FAS 144 is largely
unchanged from FAS 121.




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 $6.9 million of commercial paper and $4.0
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 exchange rates primarily in the United
Kingdom, 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 intend to 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 34 through
54.

Financial Statements:



| |  |  | Report of Ernst & Young LLP, Independent Auditors                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | Report of PricewaterhouseCoopers LLP, Independent Auditors                                               
|
| |  |  | Consolidated Balance Sheets at December 31, 2001 and 2000                                                
|
| |  |  | Consolidated Statements of Operations for each of the three years in the period ended December 31, 2001  
|
| |  |  | Consolidated Statements of Stockholders Equity for the three years in the period ended December 31, 2001
|
| |  |  | Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001  
|
| |  |  | Notes to Consolidated Financial Statements                                                               

27



---



##### Table of Contents



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.

28



---



##### 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 23, 2002
(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.

29



---



##### Table of Contents






PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

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

2. Financial Statement Schedules  See Index to Consolidated Financial
Statements as Item 8 on page 28 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
|2.3(2)    |  | Escrow Agreement, dated as of May 17, 1999, among Molecular Devices Corporation, a Delaware
corporation, Helge Skare, Wiel Skare and Greater Bay Trust Company, as Escrow Agent                                                                                                                                             
|2.4(6)    |  | 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.                                                                                                                          
|3.1(1)    |  | Amended and Restated Certificate of Incorporation of Registrant                                                                                                                                                                                                                                                             
|3.2(1)    |  | Bylaws of the Registrant                                                                                                                                                                                                                                                                                                    
|3.3       |  | 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*     |  | 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 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(5)* |  | 1995 Non-Employee Directors Stock Option Plan, as amended                                                                                                                                                                                                                                                                  
|10.25(5)* |  | 1995 Stock Option Plan, as amended                                                                                                                                                                                                                                                                                          
|10.26(7)* |  | Employee Offer Letter for Patricia Sharp                                                                                                                                                                                                                                                                                    
|10.27(8)* |  | LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements                                                                                                                                                                                                                                                           
|10.28(8)* |  | LJL BioSystems 1997 Stock Plan and Forms of Agreements                                                                                                                                                                                                                                                                      
|10.29(8)* |  | LJL BioSystems 1998 Directors Stock Option Plan and Forms of Agreements                                                                                                                                                                                                                                                    
|10.31(9)  |  | Lease between the Company and Coptech West                                                                                                                                                                                                                                                                                  
|10.32(10) |  | Sublease Agreement dated September 9, 1999 by and between Medtronic, Inc. and the Registrant                                                                                                                                                                                                                                

30



---



##### Table of Contents



|          |  |                                                                                                  
|--------- |  | -------------------------------------------------------------------------------------------------
|EXHIBIT   |  |                                                                                                  
|NUMBER    |  | DESCRIPTION OF DOCUMENT                                                                          
|          |  |                                                                                                  
|10.33(10) |  | Lease Agreement dated May 26, 2000 by and between Aetna Life Insurance Company and the Registrant
|10.34(11) |  | Change in Control Severance Benefit Plan                                                         
|10.35(13) |  | Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A. 
|10.36*    |  | Key Employee Agreement for Stephen Oldfield                                                      
|10.37*    |  | Key Employee Agreement for Tom OLenic                                                           
|21.1      |  | Subsidiaries of the Registrant                                                                   
|23.1      |  | Consent of Ernst & Young LLP, Independent Auditors                                               
|23.2      |  | Consent of PricewaterhouseCoopers LLP, Independent Auditors                                      



---

|(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
Current Report on Form 8-K filed May 26, 1999.                                                                   
|    
|    
|    
|    
|(5)  |  | Incorporated by reference to the similarly described exhibit in our
Registration Statement on Form S-8 (File No. 333-86159), as amended.                                             
|    
|    
|    
|    
|(6)  |  | Incorporated by reference to the similarly described exhibit in our
Current Report on Form 8-K filed June 12, 2000.                                                                  
|    
|    
|    
|    
|(7)  |  | 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.                              
|    
|    
|    
|    
|(8)  |  | 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.
|    
|    
|    
|    
|(9)  |  | Incorporated by reference to the similarly described exhibit filed with
LJL BioSystems Form 10-Q for the quarter ended March 31, 1998.                                              
|    
|    
|    
|    
|(10) |  | 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.                                     
|    
|    
|    
|    
|(11) |  | 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.                                       
|    
|    
|    
|    
|(12) |  | 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.                                     
|    
|    
|    
|    
|(13) |  | Incorporated by reference to the similarly described exhibit in our
Current Report on Form 8-K filed October 30, 2001.                                                               
|    
|    
|    
|    
|*    |  | Management contract or compensatory plan or arrangement.                                                                                                                             

(b)  Reports on Form 8-K

A report on Form 8-K was filed on October 30, 2001.

(c)  Exhibits

See Item 14(a) above.

31



---



##### Table of Contents



(d)  Financial Statement Schedule

See Item 14(a) above.

32



---



##### Table of Contents






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 29, 2002.

| |                               |                                                                         
| | ----------------------------- | ------------------------------------------------------------------------
| | 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 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ Timothy A. Harkness
        Timothy A. Harkness        |  | Vice President, Finance and Chief Financial Officer
          (Principal Financial and Accounting Officer) |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ Moshe H. Alafi
        Moshe H. Alafi                  |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ David L. Anderson
        David L. Anderson            |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ A. Blaine Bowman
        A. Blaine Bowman              |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ Paul Goddard
        Paul Goddard, Ph.D.               |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ Andre F. Marion
        Andre F. Marion                |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ Harden M. McConnell
        Harden M. McConnell, Ph.D. |  | Director                                                                                                   |  | March 29, 2002
|                                                           |  |                                                                                                            |  |               
|/s/ J. Allan Waitz
        J. Allan Waitz, Ph.D.           |  | Director                                                                                                   |  | March 29, 2002

33



---



##### 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, 2001 and 2000 and
the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2001.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the responsibility
of the companys management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. In August 2000,
the Company merged with LJL BioSystems, Inc. in a transaction which was
accounted for as a pooling of interests. We did not audit the consolidated
financial statements of LJL BioSystems, Inc., for the years prior to fiscal
2000, which statements reflect total revenues of $9.9 million and net loss
available to common stockholders of $8.1 million for the year ended December
31, 1999. Those statements were audited by other auditors whose report dated
January 25, 2000, except as to Note 11, which is as of February 2, 2000,
expressed an unqualified opinion on those statements, has been furnished to us,
and our opinion, insofar as it relates to data included for LJL BioSystems,
Inc., is based solely on the report of the other auditors.

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 and the report of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, 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, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, 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.



| | /s/ Ernst & Young LLP
| | ---------------------

Palo Alto, California
January 15, 2002, exceptfor Note 11, as to which the date is March 1, 2002

34



---



##### Table of Contents



REPORT OF PRICEWATERHOUSECOOPERS, INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of LJL BioSystems, Inc.

In our opinion, the consolidated statement of operations, of stockholders' equity and of cash flows for the year ended
December 31, 1999 of LJL BioSystems, Inc., and its subsidiary (not presented separately herein) present fairly,
in all material respects, the results of operations and cash flows of LJL BioSystems, Inc. and its subsidiary for the year ended
December 31, 1999 in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule for the
year ended December 31, 1999 presents fairly, in all material respects, the information set forth therein when read in conjunction
with the consolidated financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which requires 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, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. We have not audited the consolidated financial
statements and financial statement schedules of LJL BioSystems, Inc. for any period subsequent
to December 31, 1999.

/s/ PricewaterhouseCoopers LLP

San Jose, California
January 25, 2000, except as to Note 11,
which is as of February 2, 2000

35



---



##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

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

|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |         |         | 
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | ---- | ------- | ------- | ------- | 
|                                          |                                                                                                                                                                                                                                   |                            |         | December 31,
|                                          |                                                                                                                                                                                                                                   |                            |         |             
|                                          |                                                                                                                                                                                                                                   |                            |         | 2001         |         | 2000
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |     
|ASSETS                                   
|Current assets:                           |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          | Cash and cash equivalents                                                                                                                                                                                                         |                            | $       | 56,372       |         |      | $       | 41,832  |        
|                                          | Short-term investments                                                                                                                                                                                                            |                            |         | 10,885       |         |      |         | 55,259  |        
|                                          | Accounts
          receivables, net of allowance for doubtful 
          accounts of $1,148 and $561 at 
          December 31, 2001 and 2000, respectively                                                                       |                            |         | 23,612       |         |      |         | 27,561  |        
|                                          | Inventories                                                                                                                                                                                                                       |                            |         | 17,181       |         |      |         | 13,056  |        
|                                          | Deferred tax assets                                                                                                                                                                                                               |                            |         | 4,015        |         |      |         | 10,816  |        
|                                          | Other current assets                                                                                                                                                                                                              |                            |         | 2,233        |         |      |         | 5,791   |        
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          |                                                                                                                                                                                                                                   | Total current assets       |         |              | 114,298 |      |         |         | 154,315 | 
|Equipment and leasehold improvements, net |                                                                                                                                                                                                                                   |                            | 10,323  |              |         |      | 9,015   |        
|Other assets                              |                                                                                                                                                                                                                                   |                            | 27,740  |              |         |      | 16,703  |        
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          |                                                                                                                                                                                                                                   | $                          | 152,361 |              |         | $    | 180,033 |        
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY     
|Current liabilities:                      |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          | Accounts payable                                                                                                                                                                                                                  |                            | $       | 2,470        |         |      | $       | 4,902   |        
|                                          | Accrued compensation                                                                                                                                                                                                              |                            |         | 3,264        |         |      |         | 4,139   |        
|                                          | Other accrued liabilities                                                                                                                                                                                                         |                            |         | 5,571        |         |      |         | 4,285   |        
|                                          | Deferred revenue                                                                                                                                                                                                                  |                            |         | 3,571        |         |      |         | 2,488   |        
|                                          | Current portion of long-term debt                                                                                                                                                                                                 |                            |         |             |         |      |         | 317     |        
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          |                                                                                                                                                                                                                                   | Total current liabilities  |         |              | 14,876  |      |         |         | 16,131  | 
|Long-term debt, net of current portion    |                                                                                                                                                                                                                                   |                            |        |              |         |      | 269     |        
|Commitments                               |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|Stockholders equity:                     |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          | Preferred
          stock, no par value, issuable in series; 
          3,000,000 shares authorized, no shares issued and 
          outstanding at December 31, 2001 and 2000, respectively                                      |                            |         |             |         |      |         |        |        
|                                          | Common
          stock, $.001 par value; 60,000,000 shares authorized; 
          15,487,438 and 16,331,167 shares issued and 15,481,844 and 
          16,331,167 shares outstanding at December 31, 2001 and 2000, respectively |                            |         | 15           |         |      |         | 17      |        
|                                          | Additional paid-in capital                                                                                                                                                                                                        |                            |         | 181,233      |         |      |         | 169,820 |        
|                                          | Deferred compensation                                                                                                                                                                                                             |                            |         | (332         | )       |      |         | (443    | )      
|                                          | Treasury stock, at cost; 10,000 shares                                                                                                                                                                                            |                            |         | (160         | )       |      |         |        |        
|                                          | Accumulated deficit                                                                                                                                                                                                               |                            |         | (40,653      | )       |      |         | (4,833  | )      
|                                          | Accumulated other comprehensive loss                                                                                                                                                                                              |                            |         | (2,618       | )       |      |         | (928    | )      
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          |                                                                                                                                                                                                                                   | Total stockholders equity |         |              | 137,485 |      |         |         | 163,633 | 
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        
|                                          |                                                                                                                                                                                                                                   | $                          | 152,361 |              |         | $    | 180,033 |        
|                                          |                                                                                                                                                                                                                                   |                            |         |              |         |      |         |        

See accompanying notes.

36



---



##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

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

|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|-------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                                             |  | Years Ended December 31,
|                                             |  |                         
|                                             |  | 2001                     |        | 2000 |  | 1999
|                                             |  |                          |        |      |  |     
|Revenues                                     |  | $                        | 92,231 |      |  | $    | 96,035 |   |  | $ | 71,902 | 
|Cost of Revenues                             |  |                          | 35,538 |      |  |      | 35,583 |   |  |   | 26,299 | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Gross Profit                                 |  |                          | 56,693 |      |  |      | 60,452 |   |  |   | 45,603 | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Operating Expenses:                          |  |                          |        |      |  |      |        |   |  |   |        | 
|Research and development                     |  |                          | 15,105 |      |  |      | 16,796 |   |  |   | 14,150 | 
|Acquired in-process research and development |  |                          | 12,625 |      |  |      |       |   |  |   | 2,037  | 
|Merger expenses                              |  |                          |       |      |  |      | 15,181 |   |  |   |       | 
|Selling, general and administrative          |  |                          | 33,381 |      |  |      | 31,906 |   |  |   | 25,630 | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Total operating expenses                     |  |                          | 61,111 |      |  |      | 63,883 |   |  |   | 41,817 | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Income (loss) from operations                |  |                          | (4,418 | )    |  |      | (3,431 | ) |  |   | 3,786  | 
|Other income, net                            |  |                          | 3,806  |      |  |      | 4,912  |   |  |   | 1,921  | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Income (loss) before income taxes            |  |                          | (612   | )    |  |      | 1,481  |   |  |   | 5,707  | 
|Income tax provision                         |  |                          | 4,625  |      |  |      | 6,415  |   |  |   | 2,056  | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Net Income (loss)                            |  | $                        | (5,237 | )    |  | $    | (4,934 | ) |  | $ | 3,651  | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Basic net income (loss) per share            |  | $                        | (0.32  | )    |  | $    | (0.32  | ) |  | $ | 0.27   | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 
|Diluted net income (loss) per share          |  | $                        | (0.32  | )    |  | $    | (0.32  | ) |  | $ | 0.26   | 
|                                             |  |                          |        |      |  |      |        |   |  |   |        | 

See accompanying notes.

37



---



##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

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

|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------- |  | ------------ | ---------- | ------------------ |  | -------- | -- | -------------- |  | ------------ | ------- | ------------- |  | ------------------- | ------ | ----------------- |  | ----------------- | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                                      |  | Common Stock |            |                    |  |          |    |                |  |              |         |               |  |                     |        | Retained Earnings |  | Accumulated Other |         |   |  |  
|                                                                      |  |              |            | Additional Paid-In |  | Deferred |    | Treasury Stock |  | (Accumulated |         | Comprehensive |  | Total Stockholders'
|                                                                      |  | Shares       |            | Amount             |  | Capital  |    | Compensation   |  | (at cost)    |         | Deficit)      |  | Income (Loss)       |        | Equity           
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                  
|Balance at December 31, 1998                                          |  |              | 12,633,421 |                    |  | $        | 13 |                |  | $            | 65,657  |               |  | $                   | (1,200 | )                 |  | $                 |        |   |  | $ | (3,550  | ) |  | $ | (220   | ) |  | $ | 60,700  |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                  |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net income                                                            |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   | 3,651   |   |  |   |       |   |  |   | 3,651   |  
|Currency translation                                                  |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   | (273   | ) |  |   | (273    | )
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                            |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   | 3,378   |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Issuance of shares of common stock
in public offering, net            |  |              | 600,000    |                    |  |          | 1  |                |  |              | 6,729   |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 6,730   |  
|Issuance of shares of common stock
for options exercised              |  |              | 202,397    |                    |  |          |   |                |  |              | 1,205   |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 1,205   |  
|Issuance of shares of common stock
under Employee Stock Purchase Plan |  |              | 31,755     |                    |  |          |   |                |  |              | 529     |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 529     |  
|Stock compensation expense                                            |  |              |            |                    |  |          |   |                |  |              | 335     |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 335     |  
|Tax benefits from employee stock
transactions                         |  |              |            |                    |  |          |   |                |  |              | 816     |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 816     |  
|Amortization
of deferred stock compensation                           |  |              | 21,248     |                    |  |          |   |                |  |              |        |               |  |                     | 611    |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 611     |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 1999                                          |  |              | 13,488,821 |                    |  |          | 14 |                |  |              | 75,271  |               |  |                     | (589   | )                 |  |                   |        |   |  |   | 101     |   |  |   | (493   | ) |  |   | 74,304  |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                  |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                              |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   | (4,934  | ) |  |   |       |   |  |   | (4,934  | )
|Currency translation                                                  |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   | (435   | ) |  |   | (435    | )
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                            |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   | (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 Compensation                                                 |  |              |            |                    |  |          |   |                |  |              | 223     |               |  |                     | (223   | )                 |  |                   |        |   |  |   |        |   |  |   |       |   |  |   |        |  
|Amortization of deferred stock
compensation                           |  |              | 8,436      |                    |  |          |   |                |  |              |        |               |  |                     | 369    |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 369     |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2000                                          |  |              | 16,331,167 |                    |  |          | 17 |                |  |              | 169,820 |               |  |                     | (443   | )                 |  |                   |        |   |  |   | (4,833  | ) |  |   | (928   | ) |  |   | 163,633 |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Comprehensive income                                                  |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss                                                              |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   | (5,237  | ) |  |   |       |   |  |   | (5,237  | )
|Currency translation                                                  |  |              |            |                    |  |          |   |                |  |              |        |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   | (1,690 | ) |  |   | (1,690  | )
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                            |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   | (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              |  |              | 208,954    |                    |  |          |   |                |  |              | 3,384   |               |  |                     |       |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 3,384   |  
|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                                            |  |              |           |                    |  |          | (2 | )              |  |              |        |               |  |                     |       |                   |  |                   | 30,585  |   |  |   | (30,583 | ) |  |   |       |   |  |   |        |  
|Amortization of deferred stock
compensation                           |  |              | 1,250      |                    |  |          |   |                |  |              |        |               |  |                     | 111    |                   |  |                   |        |   |  |   |        |   |  |   |       |   |  |   | 111     |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2001                                          |  |              | 15,481,844 |                    |  | $        | 15 |                |  | $            | 181,233 |               |  | $                   | (332   | )                 |  | $                 | (160    | ) |  | $ | (40,653 | ) |  | $ | (2,618 | ) |  | $ | 137,485 |  
|                                                                      |  |              |            |                    |  |          |    |                |  |              |         |               |  |                     |        |                   |  |                   |         |   |  |   |         |   |  |   |        |   |  |   |         |  

See accompanying notes.

38



---



##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                                                                                            |  | Years Ended December 31,
|                                                                                                            |  |                         
|                                                                                                            |  | 2001                     |         | 2000 |  | 1999
|                                                                                                            |  |                          |         |      |  |     
|Cash flows from operating activities:                                                                       |  |                          |         |      |  |      |          |   |  |   |        |  
|Net income (loss)                                                                                           |  | $                        | (5,237  | )    |  | $    | (4,934   | ) |  | $ | 3,651  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                    |  |                          |         |      |  |      |          |   |  |   |        |  
|Depreciation and amortization                                                                               |  |                          | 3,710   |      |  |      | 2,077    |   |  |   | 1,330  |  
|Charge for acquired in-process research and development                                                     |  |                          | 12,625  |      |  |      |         |   |  |   | 2,037  |  
|Amortization of deferred compensation                                                                       |  |                          | 111     |      |  |      | 369      |   |  |   | 611    |  
|Stock compensation expense                                                                                  |  |                          |        |      |  |      | 798      |   |  |   | 335    |  
|Amortization of goodwill and patents                                                                        |  |                          | 624     |      |  |      | 314      |   |  |   | 196    |  
|Income tax benefit realized as a result of employee
exercises of stock options                              |  |                          |        |      |  |      | 6,266    |   |  |   | 816    |  
|(Increase) decrease in assets:                                                                              |  |                          |         |      |  |      |          |   |  |   |        |  
|Accounts receivables                                                                                        |  |                          | 3,949   |      |  |      | (8,098   | ) |  |   | (5,361 | )
|Inventories                                                                                                 |  |                          | (5,069  | )    |  |      | (2,547   | ) |  |   | (4,768 | )
|Deferred tax assets                                                                                         |  |                          | 942     |      |  |      | (611     | ) |  |   | (4,119 | )
|Other current assets                                                                                        |  |                          | 3,639   |      |  |      | (4,911   | ) |  |   | 88     |  
|Increase (decrease) in liabilities:                                                                         |  |                          |         |      |  |      |          |   |  |   |        |  
|Accounts payable                                                                                            |  |                          | (3,015  | )    |  |      | 1,033    |   |  |   | 1,125  |  
|Accrued compensation                                                                                        |  |                          | (875    | )    |  |      | 924      |   |  |   | 497    |  
|Other accrued liabilities                                                                                   |  |                          | 1,286   |      |  |      | 1,224    |   |  |   | (839   | )
|Deferred revenue                                                                                            |  |                          | 1,083   |      |  |      | 956      |   |  |   | 30     |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Net cash provided by (used in) operating activities                                                         |  |                          | 13,773  |      |  |      | (7,140   | ) |  |   | (4,371 | )
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Cash flows from investing activities:                                                                       |  |                          |         |      |  |      |          |   |  |   |        |  
|Purchases of investments                                                                                    |  |                          | (14,818 | )    |  |      | (113,113 | ) |  |   | (7,730 | )
|Proceeds from sales and maturities of investments                                                           |  |                          | 59,192  |      |  |      | 62,421   |   |  |   | 11,488 |  
|Capital expenditures                                                                                        |  |                          | (3,784  | )    |  |      | (7,436   | ) |  |   | (1,993 | )
|Acquisitions, net of cash on hand                                                                           |  |                          | (10,367 | )    |  |      |         |   |  |   | (7,118 | )
|Other assets                                                                                                |  |                          | (472    | )    |  |      | (11,531  | ) |  |   | (472   | )
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Net cash provided by (used in) investing activities                                                         |  |                          | 29,751  |      |  |      | (69,659  | ) |  |   | (5,825 | )
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Cash flows from financing activities:                                                                       |  |                          |         |      |  |      |          |   |  |   |        |  
|Proceeds from borrowing                                                                                     |  |                          |        |      |  |      |         |   |  |   | 361    |  
|Repayment of borrowings                                                                                     |  |                          | (586    | )    |  |      | (282     | ) |  |   | (429   | )
|Issuance of long-term loans receivable to employees                                                         |  |                          |        |      |  |      |         |   |  |   | (33    | )
|Issuance of common stock                                                                                    |  |                          | 4,037   |      |  |      | 87,265   |   |  |   | 8,085  |  
|Purchase of treasury stock                                                                                  |  |                          | (30,745 | )    |  |      |         |   |  |   |       |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Net cash provided by (used in) financing activities                                                         |  |                          | (27,294 | )    |  |      | 86,983   |   |  |   | 7,984  |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Effect of exchange rate changes on cash                                                                     |  |                          | (1,690  | )    |  |      | (435     | ) |  |   | (225   | )
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                                        |  |                          | 14,540  |      |  |      | 9,749    |   |  |   | (2,437 | )
|Cash and cash equivalents at beginning of year                                                              |  |                          | 41,832  |      |  |      | 32,083   |   |  |   | 34,520 |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Cash and cash equivalents at end of year                                                                    |  | $                        | 56,372  |      |  | $    | 41,832   |   |  | $ | 32,083 |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Supplemental cash flow information:                                                                         |  |                          |         |      |  |      |          |   |  |   |        |  
|Cash paid during the year for:                                                                              |  |                          |         |      |  |      |          |   |  |   |        |  
|Interest                                                                                                    |  | $                        | 44      |      |  | $    | 88       |   |  | $ | 90     |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Income taxes                                                                                                |  | $                        | 802     |      |  | $    | 4,300    |   |  | $ | 6,070  |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Supplemental schedule of noncash investing and financing activities:                                        |  |                          |         |      |  |      |          |   |  |   |        |  
|Disposals of fully depreciated equipment and leasehold improvements                                         |  | $                        | 10      |      |  | $    | 538      |   |  | $ | 108    |  
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  
|Issuance of 400,000 shares of common stock in conjunction with the
acquisition of Cytion S.A. in July 2001. |  | $                        | 7,374   |      |  |      |         |   |  |   |      
|                                                                                                            |  |                          |         |      |  |      |          |   |  |   |        |  

See accompanying notes.

39



---



##### Table of Contents



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 markets 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.

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)

The consolidated financial statements include the accounts of Molecular
Devices, its wholly owned subsidiaries in Germany, Japan, Switzerland, the
United Kingdom and Norway, and LJL BioSystems. All significant intercompany
balances and transactions have been eliminated.

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 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, 2001 and 2000. At December 31, 2001, the difference between the
fair value and amortized cost of marketable securities was not significant.
Short-term investments consisted of $4.0 million and $10.0 million in federal
government securities and $6.9 million and $45.3 million of corporate
securities maturing within twelve months or less as of December 31, 2001 and
2000, 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, loans receivable from employees 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 2002.

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.
No single customer made up more than 10% of Molecular Devices' sales
in any year presented.

40



---



##### Table of Contents



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 the year ended
December 31, 2001 was $2.6 million

Other Assets

Other assets include intangible assets acquired in purchase business
combinations (see Note 5), strategic investments in privately held companies
that have been accounted for under the cost method, and license fees. In 2001,
the goodwill related to the acquisitions of Skatron AS in May 1999 ($4.7
million) and Nihon Molecular Devices in January 2001 ($2.1 million) was being
amortized over periods ranging from 10 to 15 years, using the straight-line
method. Additionally, goodwill ($1.4 million) and patents ($1.4 million)
relating to the acquisition of Cytion SA were recorded in July 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company is required to adopt FAS 142 effective January 1, 2002. In accordance
with FAS 142, the Company will cease amortizing the goodwill (subject to an
initial and subsequent annual reviews for impairment), but will continue
amortizing the patents over their expected life of ten years. At December 31,
2001 and December 31, 2000, gross intangible assets were $9.6 million and $4.7
million and related accumulated amortization was $993,000 and $510,000,
respectively.

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 which were considered to be impaired during any
period presented.

Equity Investments

We invest in equity
instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets
and are accounted for under the cost method when ownership is less
than 20 percent and we do not have the ability to exercise
significant influence over operations. When our ownership exceeds 20
percent but is less than 50 percent, 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. 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.

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

Molecular Devices recognizes product revenue when collectibility is
reasonably assumed at the time of product shipment and transfer of title either
to a customer or to a distributor and provides for estimated warranty expense
at the time of sale. There are no significant customer acceptance requirements
or post shipment obligations on the part of Molecular Devices.
Shipping costs are charged to cost 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.

41



---



##### Table of Contents



Advertising Costs

Molecular Devices expenses the cost of advertising as incurred. Molecular
Devices incurred advertising costs of approximately $1.2 million, $1.4 million
and $1.3 million for 2001, 2000 and 1999, respectively.

Recent Technical Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 Business Combinations (FAS 141) and
Statement of Financial Accounting Standards No. 142 Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Under FAS 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life). The amortization provisions of FAS 142 apply
to goodwill and intangible assets acquired after June 30, 2001.
We will apply the new rules on accounting for goodwill and other
intangible assets on January 1, 2002. The adoption of
FAS 141 and 142 is not expected to have a significant impact on
our financial position at transition. We expect that the cessation of
goodwill amortization (net of related taxes) will
increase reported net income by approximately $320,000 (or
$0.02 per share) in 2002. We performed an impairment test of goodwill
as of January 1, 2002 and will not record an impairment charge
at transition. We will continue to monitor the fair value of our
goodwill through the annual impairment tests.

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 is required to adopt FAS 144 in 2002.
Management does not expect the adoption of FAS 144 for long-lived assets held
for use to have a material impact on the Companys financial statements because
the impairment assessment under FAS 144 is largely unchanged from FAS 121.

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 per share is as follows (in thousands,
except per share amounts):

|                                                                                                                |  |                          |        |      |  |      |        |   |  |   |        | 
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                                                                                                                |  | Years Ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  | 2001                     |        | 2000 |  | 1999
|                                                                                                                |  |                          |        |      |  |     
|DILUTED                                                                                                         |  |                          |        |      |  |      |        |   |  |   |        | 
|Weighted average common shares outstanding for
the period                                                       |  |                          | 16,192 |      |  |      | 15,246 |   |  |   | 13,347 | 
|Common
          equivalent shares assuming exercise of
          stock options under the treasury stock method |  |                          |       |      |  |      |       |   |  |   | 802    | 
|                                                                                                                |  |                          |        |      |  |      |        |   |  |   |        | 
|Shares used in per share calculation                                                                            |  |                          | 16,192 |      |  |      | 15,246 |   |  |   | 14,149 | 
|                                                                                                                |  |                          |        |      |  |      |        |   |  |   |        | 
|Net Income (loss)                                                                                               |  | $                        | (5,237 | )    |  | $    | (4,934 | ) |  | $ | 3,651  | 
|                                                                                                                |  |                          |        |      |  |      |        |   |  |   |        | 
|Net income (loss) per share                                                                                     |  | $                        | (0.32  | )    |  | $    | (0.32  | ) |  | $ | 0.26   | 
|                                                                                                                |  |                          |        |      |  |      |        |   |  |   |        | 

42



---



##### Table of Contents



Options to purchase 103,000 shares of common stock at a weighted average
per share exercise price of $31.60 were outstanding during 1999, 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.

Stock Based Compensation

As permitted by SFAS No. 123 (FAS 123), Accounting for Stock-Based
Compensation, Molecular Devices applies APB Opinion 25 and related
Interpretations in accounting for its Stock Option Plans and, accordingly,
recognizes no compensation expense for stock option grants with an exercise
price equal to the fair market value of the shares at the date of grant. Note 7
to the Consolidated Financial Statements contains a summary of the pro forma
effects on reported net income and earnings per share for each of the three
years in the period ended December 31, 2001, if Molecular Devices had elected
to recognize compensation cost based on the fair value of the options granted
as prescribed by FAS 123.

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 December 31, 2001, 2000 and 1999, Molecular Devices recognized
as expense and provided approximately $406,000, $270,000 and $158,000,
respectively, under the Plan.

LJL BioSystems maintained the tax deferred LJL BioSystems, Inc. 401(k)
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 plan
was discontinued and employee account balances were merged into the Plan.

Comprehensive Income

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

43



---



##### Table of Contents



NOTE 2. BALANCE SHEET AMOUNTS

|                                                |  |                |        |      |  |   |        |  
|----------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                                |  | December 31,  
|                                                |  |               
|                                                |  | 2001           |        | 2000
|                                                |  |                |        |     
|                                                |  | (In thousands)
|Inventories:                                    |  |                |        |      |  |   |        |  
|Raw materials                                   |  | $              | 6,999  |      |  | $ | 4,909  |  
|Work-in-process                                 |  |                | 1,347  |      |  |   | 2,227  |  
|Finished goods and demonstration equipment      |  |                | 8,835  |      |  |   | 5,920  |  
|                                                |  |                |        |      |  |   |        |  
|                                                |  | $              | 17,181 |      |  | $ | 13,056 |  
|                                                |  |                |        |      |  |   |        |  
|Equipment and leasehold improvements:           |  |                |        |      |  |   |        |  
|Machinery and equipment                         |  | $              | 14,295 |      |  | $ | 10,492 |  
|Furniture and fixtures                          |  |                | 1,981  |      |  |   | 1,552  |  
|Leasehold improvements                          |  |                | 5,694  |      |  |   | 5,973  |  
|                                                |  |                |        |      |  |   |        |  
|                                                |  |                | 21,970 |      |  |   | 18,017 |  
|Less accumulated depreciation and amortization  |  |                | 11,647 |      |  |   | 9,002  |  
|                                                |  |                |        |      |  |   |        |  
|Net equipment and leasehold improvements        |  | $              | 10,323 |      |  | $ | 9,015  |  
|                                                |  |                |        |      |  |   |        |  
|Other current assets:                           |  |                |        |      |  |   |        |  
|Prepaid insurance                               |  | $              | 948    |      |  | $ | 49     |  
|Interest receivable                             |  |                | 171    |      |  |   | 1,247  |  
|Taxes receivable                                |  |                |       |      |  |   | 3,999  |  
|Other                                           |  |                | 1,114  |      |  |   | 496    |  
|                                                |  |                |        |      |  |   |        |  
|                                                |  | $              | 2,233  |      |  | $ | 5,791  |  
|                                                |  |                |        |      |  |   |        |  
|Other assets:                                   |  |                |        |      |  |   |        |  
|Equity investments in privately held companies  |  | $              | 12,353 |      |  | $ | 11,108 |  
|Goodwill, net                                   |  |                | 7,171  |      |  |   | 4,207  |  
|Long term deferred tax asset                    |  |                | 5,310  |      |  |   |       |  
|Patents, net                                    |  |                | 1,311  |      |  |   |       |  
|Other                                           |  |                | 1,595  |      |  |   | 1,388  |  
|                                                |  |                |        |      |  |   |        |  
|                                                |  | $              | 27,740 |      |  | $ | 16,703 |  
|                                                |  |                |        |      |  |   |        |  
|Other accrued liabilities:                      |  |                |        |      |  |   |        |  
|Accrued income tax                              |  | $              | 1,793  |      |  | $ | 503    |  
|Warranty accrual                                |  |                | 1,183  |      |  |   | 1,429  |  
|Sales tax payable                               |  |                | 466    |      |  |   | (196   | )
|Accrued merger and acquisition related expenses |  |                | 341    |      |  |   | 968    |  
|Other                                           |  |                | 1,788  |      |  |   | 1,581  |  
|                                                |  |                |        |      |  |   |        |  
|                                                |  | $              | 5,571  |      |  | $ | 4,285  |  
|                                                |  |                |        |      |  |   |        |  

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
bear 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 and
as of December 31, 2001, had no further debt obligation.

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 2002, 2003, 2004,
2005, 2006 and thereafter, are approximately $4,734,000, $3,832,000,
$3,443,000, $3,552,000 and $7,495,000, respectively.

Net rental expense under operating leases related to facilities was approximately $2,779,000, $2,486,000 and
$1,206,000, respectively, for each of the three years ended December 31, 2001,
2000 and 1999.

44



---



##### Table of Contents



Molecular Devices has a contractual commitment for the purchase of certain
resale products and manufacturing components with one vendor, ending in 2002.
The minimum purchase commitment is based on a set percentage of our forecasted
production, and for 2002, at current prices, is approximately $1.1 million.
These purchase commitments are not expected to result in a loss.

NOTE 5. ACQUISITIONS AND INVESTMENTS

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. 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 and, during 2001, was amortized over ten years.

Cytion S.A.

Molecular Devices
believes that there are substantial market
opportunities for high throughput, information-rich ion channel testing
technology. In pursuit of its objective to become one of the leading providers
of innovative solutions on ion channel research, 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. Cytion is
a Swiss developer of automated patch clamping systems. The excess of the
purchase price over the identified net assets of Cytion has been allocated to
goodwill, acquired in-process research and development and patents, and is
being accounted for in accordance with SFAS No. 142, which is effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001. The following is the preliminary allocation of the
non-contingent purchase price (in thousands):

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

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

|                                               |                      |   |               |       | 
|---------------------------------------------- | -------------------- | - | ------------- | ----- | 
|                                               |                      |   | July 19, 2001
|                                               |                      |   |              
|Cash and cash equivalents                      |                      | $ | 1,183         |      
|Inventory                                      |                      |   | 119           |      
|Other current assets                           |                      |   | 81            |      
|                                               |                      |   |               |      
|                                               | Total current assets |   |               | 1,383 | 
|Fixed Assets, net                              |                      |   | 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, with the assistance of an independent third-party appraiser, by
estimating the costs to develop the in-process technology into commercially
feasible products and estimating the present value of the net cash flows
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.

In connection with our acquisition of Cytion, we are potentially
obligated to pay as much as $12.2 million to the selling stockholders of Cytion
in the event that certain milestones are met, at various times through June
2003.

45



---



##### Table of Contents



Pro Forma Results

Unaudited pro forma consolidated results for the years ended December 31,
2001 and 2000 for Molecular Devices as if the NMD and Cytion acquisitions had
been consummated January 1, 2000, excluding the charges for acquired in-process
research and development, as well as the merger expenses related to the LJL
BioSystems pooling in 2000, are as follows (in thousands, except per share
amount):

|                             |  |                          |        |      |  |   |        | 
|---------------------------- |  | ------------------------ | ------ | ---- |  | - | ------ | 
|                             |  | Years ended December
31,
|                             |  | 2001                     |        | 2000
|                             |  |                          |        |     
|Revenue                      |  | $                        | 92,231 |      |  | $ | 98,883 | 
|Net income                   |  | $                        | 6,838  |      |  | $ | 6,402  | 
|Diluted net income per share |  | $                        | 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 acquisition been
consummated January 1, 2000, or of results which may occur in the future. In
accordance with SEC Regulations, nonrecurring charges, such as the charge for
acquired in-process technology resulting from the acquisition, are not
reflected in the pro forma financial summary.

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 $15,181,000 in
merger related expenses, including transition costs, investment banking, legal
and other advisory services, which were charged to operations as incurred.

The following table summarizes the separate and combined results of
operations of Molecular Devices and LJL BioSystems:

|                             |  |                |        |            |  |             |        |          |  |   |       |     |  |   |        |  
|---------------------------- |  | -------------- | ------ | ---------- |  | ----------- | ------ | -------- |  | - | ----- | --- |  | - | ------ | -
|                             |  | Molecular      |        | LJL        |  | Pooling     |        |          |  |  
|                             |  | Devices        |        | BioSystems |  | Adjustments |        | Combined
|                             |  |                |        |            |  |             |        |         
|                             |  | (in thousands)
|Year
ended December 31, 2000 |  |                |        |            |  |             |        |          |  |   |       |     |  |   |        |  
|Revenues                     |  | $              | 85,926 |            |  | $           | 10,109 | (2)      |  | $ |      |     |  | $ | 96,035 |  
|Net income (loss)            |  |                | (1,900 | )(1)       |  |             | (4,977 | )(2)     |  |   | 1,943 | (3) |  |   | (4,934 | )

|                             |  |                |        |            |  |             |        |          |  |   |       |     |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---------- |  | ----------- | ------ | -------- |  | - | ----- | --- |  | - | ------ | 
|                             |  | Molecular      |        | LJL        |  | Pooling     |        |          |  |  
|                             |  | Devices        |        | BioSystems |  | Adjustments |        | Combined
|                             |  |                |        |            |  |             |        |         
|                             |  | (in thousands)
|Year ended December 31, 1999 |  |                |        |            |  |             |        |          |  |   |       |     |  |   |        | 
|Revenues                     |  | $              | 61,985 |            |  | $           | 9,917  |          |  | $ |      |     |  | $ | 71,902 | 
|Net income (loss)            |  |                | 8,505  | (1)        |  |             | (8,138 | )        |  |   | 3,284 | (3) |  |   | 3,651  | 



---

|(1) |  | Includes merger and acquisition related expenses.                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | LJL results for 2000 are through the date of consummation of the
transaction.                                                                                                                                 
|   
|   
|   
|   
|(3) |  | Represents the tax benefit derived from LJL BioSystems net loss
position. This adjustment is based on the evaluation of a variety of
factors including the combined companies statutory and state tax rates.

Argonex, Inc.

In December 2000, Molecular Devices acquired a minority equity interest in
Argonex, Inc., the parent company of Upstate Biotechnology, Inc. and Argonex
Discovery, Ltd., 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 will be the exclusive distributor of all kits co-developed by
Argonex and Molecular Devices, which will be optimized to perform on Molecular
Devices drug discovery instrumentation platforms. Upstate Biotechnology is a
leading

46



---



##### Table of Contents



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 Argonex using the cost method
because Molecular Devices does not have the ability to exercise significant
influence over Argonex operating and financial policies

Skatron Instruments AS

On May 17, 1999, Molecular Devices acquired all of the outstanding stock
of Skatron Instruments AS, a Norwegian company (Skatron), and certain assets
from Skatron Instruments Inc., a Virginia corporation and wholly-owned
subsidiary of Skatron, for a cash payment at closing of $7,118,000 (including
$300,000 of acquisition related expenses). Skatron was principally involved in
the design, development, manufacture and sale and service of a complete line of
microwell plate washers. The acquisition was accounted for as a purchase and
the total purchase price was allocated based on an independent appraisal as
follows (in thousands):

|                                                                                                    |                      |   |       |       | 
|--------------------------------------------------------------------------------------------------- | -------------------- | - | ----- | ----- | 
|Acquired developed technology and goodwill                                                          |                      | $ | 4,717 |      
|Acquired in-process research and development                                                        |                      |   | 2,037 |      
|Net book
          value of acquired assets and liabilities which 
          approximate fair value |                      |   | 364   |      
|                                                                                                    |                      |   |       |      
|                                                                                                    | Total purchase price |   | $     | 7,118 | 
|                                                                                                    |                      |   |       |      

The purchase price allocation resulted in a $2,037,000 charge related to
the value of acquired in-process research and development in the second quarter
of 1999. The value of acquired in-process research and development represents
the appraised value of technology in the development stage that had not yet
reached economic and technological feasibility. In reaching this determination,
Molecular Devices used a present value net income approach and considered,
among other factors, the stage of development of each product, the time and
resources needed to complete each product, and expected income and associated
risks. The results of Skatron are included in the consolidated
statements of operations from May 18, 1999.

NOTE 6. STOCKHOLDERS EQUITY

TREASURY STOCK

In the third and fourth quarters of 2001, Molecular Devices completed the
repurchase of 1,510,000 shares of common stock. The repurchase occurred at
various times throughout the period 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, 2001, 10,000 shares
remained on Molecular Devices balance sheet as treasury stock, at cost.

WARRANTS

In connection with its Series A preferred stock private placement in June
1997, LJL BioSystems issued to a placement agent two warrants to purchase a
total of 65,653 shares of its Series A preferred stock (19,695 Molecular
Devices equivalent shares) at an exercise price of $7.00 per share ($23.33
Molecular Devices equivalent per share price). In March 2001 the warrant was
exercised on a net basis, resulting in the issuance of 12,759 shares of
Molecular Devices common stock.

NOTE 7. EQUITY INCENTIVE PLANS

Under Molecular Devices 1995 Stock Option Plan (1995 Plan), a total of
2,750,000 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

47



---



##### Table of Contents



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 under the plan to the number
of shares subject to outstanding options under the plans. In 2001, the
aggregate number of shares authorized under the LJL BioSystems plans was
decreased by 610,391 shares.

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, 1998 |  |               | 491,395   |             |  |                | 1,567,529 |          |  | $ | 11.77 | 
|Authorized                |  |               | 1,280,000 |             |  |                |          |          |  |   |       | 
|Granted                   |  |               | (757,291  | )           |  |                | 757,291   |          |  |   | 23.96 | 
|Exercised                 |  |               |          |             |  |                | (202,397  | )        |  |   | 5.96  | 
|Cancelled                 |  |               | 120,641   |             |  |                | (120,641  | )        |  |   | 16.22 | 
|                          |  |               |           |             |  |                |           |          |  |   |       | 
|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 | 
|Expired                   |  |               | (610,391  | )           |  |                |           |          |  |   |       | 
|                          |  |               |           |             |  |                |           |          |  |   |       | 
|Balance December 31, 2001 |  |               | 854,571   |             |  |                | 2,225,357 |          |  |   | 30.32 | 
|                          |  |               |           |             |  |                |           |          |  |   |       | 

48



---



##### Table of Contents



As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation, Molecular Devices applies APB
Opinion 25 and related Interpretations in accounting for its stock option plans
and, accordingly, recognizes no compensation expense for stock option grants
with an exercise price equal to the fair market value of the shares at the date
of grant. If 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 and earnings 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,
|                                              |  | 2001                     |         | 2000 |  | 1999
|                                              |  |                          |         |      |  |     
|Net income (loss) as reported                 |  | $                        | (5,237  | )    |  | $    | (4,934 | ) |  | $ | 3,651 | 
|Pro forma                                     |  |                          | (11,789 | )    |  |      | (9,365 | ) |  |   | 1,648 | 
|Basic net income (loss) per share as reported |  |                          | (0.32   | )    |  |      | (0.32  | ) |  |   | 0.27  | 
|Pro forma                                     |  |                          | (0.73   | )    |  |      | (0.61  | ) |  |   | 0.12  | 
|Diluted net income (loss) per share reported  |  |                          | (0.32   | )    |  |      | (0.32  | ) |  |   | 0.26  | 
|Pro forma                                     |  |                          | (0.73   | )    |  |      | (0.61  | ) |  |   | 0.12  | 

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:

|                                |  |           |     |           |  |           |             |   |  |  |             |  
|------------------------------- |  | --------- | --- | --------- |  | --------- | ----------- | - |  |  | ----------- | -
|                                |  | 2001      |     | 2000      |  | 1999     
|                                |  |           |     |           |  |          
|Expected dividend yield         |  |           | 0   | %         |  |           | 0           | % |  |  | 0           | %
|Expected stock price volatility |  |           | 94  | %         |  |           | 84-100      | % |  |  | 66-90       | %
|Risk-free interest rate         |  |           | 4.6 | %         |  |           | 5.48 - 5.85 | % |  |  | 4.60 - 6.40 | %
|Expected life of options        |  | 3.5 years |     | 3-5 years |  | 3-5 years

The weighted average fair value of options granted during the year ended
December 31, 2001, 2000 and 1999 was $18.05, $38.37 and $15.14, respectively.

The following table is a summary of Molecular Devices outstanding and
exercisable options at December 31, 2001:

|                           |  |                     |           |                        |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|-------------------------- |  | ------------------- | --------- | ---------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                           |  | Options outstanding |           | Options exercisable   
|                           |  |                     |           |                       
|                           |  |                     |           |                        |  | Weighted-average |      |             |  |                  |       |  |  |  |         |  |  |  
|Range of                   |  | Number              |           | remaining              |  | Weighted-average |      | Number      |  | Weighted-average
|exercise prices            |  | outstanding         |           | contractual life (Yr.) |  | exercise price   |      | exercisable |  | exercise price  
|                           |  |                     |           |                        |  |                  |      |             |  |                 
|$0.33
          to $3.33   |  |                     | 29,146    |                        |  |                  | 4.92 |             |  | $                | 3.02  |  |  |  | 26,594  |  |  | $ | 3.01  | 
|$5.25
          to $8.54   |  |                     | 107,054   |                        |  |                  | 4.73 |             |  |                  | 6.45  |  |  |  | 94,634  |  |  |   | 6.18  | 
|$10.62
          to $14.50 |  |                     | 198,113   |                        |  |                  | 6.68 |             |  |                  | 13.88 |  |  |  | 162,278 |  |  |   | 14.13 | 
|$15.00
          to $19.50 |  |                     | 253,453   |                        |  |                  | 6.95 |             |  |                  | 17.97 |  |  |  | 104,516 |  |  |   | 18.04 | 
|$21.00
          to $23.54 |  |                     | 699,083   |                        |  |                  | 9.42 |             |  |                  | 22.82 |  |  |  | 4,222   |  |  |   | 22.96 | 
|$26.63
          to $29.19 |  |                     | 285,979   |                        |  |                  | 7.38 |             |  |                  | 26.79 |  |  |  | 133,379 |  |  |   | 26.79 | 
|$35.25
          to $39.69 |  |                     | 123,175   |                        |  |                  | 8.25 |             |  |                  | 38.54 |  |  |  | 35,987  |  |  |   | 38.08 | 
|$48.00
          to $53.33 |  |                     | 334,068   |                        |  |                  | 8.10 |             |  |                  | 48.10 |  |  |  | 89,719  |  |  |   | 48.17 | 
|$74.94
          to $78.75 |  |                     | 194,086   |                        |  |                  | 8.93 |             |  |                  | 76.48 |  |  |  | 32,547  |  |  |   | 77.09 | 
|$93.33                     |  |                     | 1,200     |                        |  |                  | 8.20 |             |  |                  | 93.33 |  |  |  | 420     |  |  |   | 93.33 | 
|                           |  |                     |           |                        |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|                           |  |                     | 2,225,357 |                        |  |                  | 8.04 |             |  |                  | 30.32 |  |  |  | 684,296 |  |  |   | 24.48 | 
|                           |  |                     |           |                        |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 

There were 684,296, 450,161 and 554,812 options exercisable under the
various plans at December 31, 2001, 2000 and 1999, respectively.

49



---



##### Table of Contents



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), 200,000 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 purchase date. As of December 31, 2001, 44,291 shares remained available for
purchase.

NOTE 8. INCOME TAXES

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

|          |         |   |                          |       |      |   |       |       |   |   |        |        |  
|--------- | ------- | - | ------------------------ | ----- | ---- | - | ----- | ----- | - | - | ------ | ------ | -
|          |         |   | Years ended December 31,
|          |         |   |                         
|          |         |   | 2001                     |       | 2000 |   | 1999 
|          |         |   |                          |       |      |   |      
|          |         |   | (in thousands)          
|Current:  |         |   |                          |       |      |   |       |       |   |   |        |       
|          | Federal |   | $                        | 2,042 |      |   | $     | 5,498 |   |   | $      | 4,920  |  
|          | State   |   |                          | 300   |      |   |       | 1,012 |   |   |        | 861    |  
|          | Foreign |   |                          | 1,340 |      |   |       | 516   |   |   |        | 394    |  
|          |         |   |                          |       |      |   |       |       |   |   |        |       
|          |         | $ | 3,682                    |       |      | $ | 7,026 |       |   | $ | 6,175  |       
|Deferred: |         |   |                          |       |      |   |       |       |   |   |        |       
|          | Federal |   |                          | 1,572 |      |   |       | (488  | ) |   |        | (3,371 | )
|          | State   |   |                          | (577  | )    |   |       | (123  | ) |   |        | (748   | )
|          | Foreign |   |                          | (52   | )    |   |       |      |   |   |        |       |  
|          |         |   |                          |       |      |   |       |       |   |   |        |       
|          |         |   | 943                      |       |      |   | (611  | )     |   |   | (4,119 | )     
|          |         |   |                          |       |      |   |       |       |   |   |        |       
|          |         | $ | 4,625                    |       |      | $ | 6,415 |       |   | $ | 2,056  |       
|          |         |   |                          |       |      |   |       |       |   |   |        |       

50



---



##### Table of Contents



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

|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                   |  | Years ended December 31,
|                                                   |  |                         
|                                                   |  | 2001                     |       | 2000 |  | 1999
|                                                   |  |                          |       |      |  |     
|                                                   |  | (in thousands)          
|Income before provisions for income taxes          |  | $                        | (612  | )    |  | $    | 1,481 |   |  | $ | 5,707 |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|Income tax at statutory federal rate (35%)         |  |                          | (214  | )    |  |      | 519   |   |  |   | 1,997 |  
|Non-deductible merger expenses                     |  |                          |      |      |  |      | 5,313 |   |  |   |      |  
|Non-deductible in-process research and development |  |                          | 4,417 |      |  |      |      |   |  |   |      |  
|State income tax, net of federal benefit           |  |                          | 383   |      |  |      | 580   |   |  |   | 73    |  
|Net operating loss carryforwards                   |  |                          |      |      |  |      |      |   |  |   | (90   | )
|Foreign sales corporation                          |  |                          | (251  | )    |  |      | (248  | ) |  |   | (243  | )
|Research and development credits                   |  |                          | (381  | )    |  |      |      |   |  |   | (150  | )
|Foreign losses not currently benefited             |  |                          | 530   |      |  |      | 182   |   |  |   | 469   |  
|Other                                              |  |                          | 141   |      |  |      | 69    |   |  |   |      |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  
|                                                   |  | $                        | 4,625 |      |  | $    | 6,415 |   |  | $ | 2,056 |  
|                                                   |  |                          |       |      |  |      |       |   |  |   |       |  

Foreign pretax income was $1,255,000, $308,000 and $900,000 in 2001, 2000
and 1999, 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.

|                     |                               |                           |   |                |       |      |   |        |        | 
|-------------------- | ----------------------------- | ------------------------- | - | -------------- | ----- | ---- | - | ------ | ------ | 
|                     |                               |                           |   | December 31,  
|                     |                               |                           |   |               
|                     |                               |                           |   | 2001           |       | 2000
|                     |                               |                           |   |                |       |     
|                     |                               |                           |   | (in thousands)
|Deferred tax assets: |                               |                           |   |                |       |      |   |       
|                     | Deferred revenue              |                           | $ | 1,250          |       |      | $ |       |       
|                     | Non-deductible reserves       |                           |   | 1,477          |       |      |   | 1,299  |       
|                     | Warranty and accrued expenses |                           |   | 1,448          |       |      |   | 563    |       
|                     | Net operating losses          |                           |   | 5,954          |       |      |   | 9,177  |       
|                     | Foreign loss carryforwards    |                           |   | 1,307          |       |      |   | 1,298  |       
|                     | Credits                       |                           |   | 1,277          |       |      |   |       |       
|                     | Other                         |                           |   | 1,224          |       |      |   | 925    |       
|                     | Valuation allowance           |                           |   | (4,612         | )     |      |   | (2,446 | )     
|                     |                               |                           |   |                |       |      |   |       
|                     |                               | Total deferred tax assets |   | $              | 9,325 |      |   | $      | 10,816 | 
|                     |                               |                           |   |                |       |      |   |       

The net valuation allowance increased by $2,166,000 and $1,577,000 during
2001 and 2000, respectively. $3,195,000 of the valuation allowance relates to
stock option deductions that will be credited to equity when realized.

As of December 31, 2001, Molecular Devices had net operating loss
carryforwards for federal income tax purposes of approximately $7,882,000,
which expire in the years 2010 through 2020 and federal research and
development tax credits of approximately $1,906,000, which expire in the years
2012 through 2021.

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 9. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

Molecular Devices operates in a single industry segment, and the chief
operating decision maker views its operations as such: the design, development,
manufacture, sale and service of bioanalytical measurement systems for drug
discovery and life sciences research applications.

51



---



##### Table of Contents



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):

|                                        |  |               |         |               |  |                                      |        |       |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ------------- | ------- | ------------- |  | ------------------------------------ | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                                        |  | United States |         | International |  | Adjustments and
        eliminations |        | Total
|                                        |  |               |         |               |  |                                      |        |      
|Year
          Ended                    |  |               |         |               |  |                                      |        |       |  |   |         |   |  |   |         |  
|December 31,
          2001             |  |               |         |               |  |                                      |        |       |  |   |         |   |  |   |         |  
|Revenues                                |  | $             | 82,934  |               |  | $                                    | 29,490 |       |  | $ | (20,193 | ) |  | $ | 92,231  |  
|Income
          (loss) from operations |  |               | (6,350  | )(1)          |  |                                      | 1,925  |       |  |   | 8       |   |  |   | (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 |  
|Year
          Ended                    |  |               |         |               |  |                                      |        |       |  |   |         |   |  |   |         |  
|December 31,
          1999             |  |               |         |               |  |                                      |        |       |  |   |         |   |  |   |         |  
|Revenues                                |  |               | 67,585  |               |  |                                      | 14,984 |       |  |   | (10,667 | ) |  |   | 71,902  |  
|Income
          from operations        |  |               | 2,890   | (1)           |  |                                      | 1,209  |       |  |   | (312    | ) |  |   | 3,786   |  
|Identifiable
          assets           |  |               | 85,641  |               |  |                                      | 9,117  |       |  |   | (7,909  | ) |  |   | 86,849  |  



---

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

Molecular Devices divides their business into two product families. The
Drug Discovery family includes the FLIPR, CLIPR, Cytosensor, and LJL BioSystems
product lines, and related consumables. The Life Sciences Research family
includes the Maxline, Threshold and Skatron product lines. Consolidated revenue
from Molecular Devices product families was as follows (in thousands):

|                       |  |                          |        |      |  |      |        |  |  |   |        | 
|---------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                       |  | Years ended December 31,
|                       |  |                         
|                       |  | 2001                     |        | 2000 |  | 1999
|                       |  |                          |        |      |  |     
|Drug Discovery         |  | $                        | 43,859 |      |  | $    | 49,168 |  |  | $ | 33,177 | 
|Life Sciences Research |  | $                        | 48,372 |      |  | $    | 46,867 |  |  |   | 38,725 | 
|                       |  |                          |        |      |  |      |        |  |  |   |        | 
|Total revenues         |  | $                        | 92,231 |      |  | $    | 96,035 |  |  | $ | 71,902 | 
|                       |  |                          |        |      |  |      |        |  |  |   |        | 

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

|               |  |                          |        |      |  |      |        |  |  |   |        | 
|-------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|               |  | Years ended December 31,
|               |  |                         
|               |  | 2001                     |        | 2000 |  | 1999
|               |  |                          |        |      |  |     
|North America  |  | $                        | 61,649 |      |  | $    | 63,477 |  |  | $ | 46,976 | 
|Europe         |  |                          | 20,136 |      |  |      | 25,381 |  |  |   | 19,338 | 
|Rest of World  |  |                          | 10,446 |      |  |      | 7,177  |  |  |   | 5,588  | 
|               |  |                          |        |      |  |      |        |  |  |   |        | 
|Total revenues |  | $                        | 92,231 |      |  | $    | 96,035 |  |  | $ | 71,902 | 
|               |  |                          |        |      |  |      |        |  |  |   |        | 

52



---



##### Table of Contents



NOTE 10. COMPARATIVE QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows:

|                                    |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |        | 
|----------------------------------- |  | ---------------------------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------- | ---- |  | - | ------ | 
|                                    |  | First                                    |        | Second |  | Third |        | Fourth
|                                    |  |                                          |        |        |  |       |        |       
|                                    |  | (In thousands, except per share amounts)
|Fiscal
          2001               |  |                                          |        |        |  |       |        |        |  |   |         |      |  |   |        | 
|Revenues                            |  | $                                        | 20,732 |        |  | $     | 23,981 |        |  | $ | 22,140  |      |  | $ | 25,378 | 
|Gross margin                        |  |                                          | 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 margin                        |  |                                          | 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 11. SUBSEQUENT EVENT

In February and March of 2002, Molecular Devices repurchased 220,000 shares of
its common stock in exchange for approximately $4.5 million.

53



---



##### Table of Contents



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, 1999: |  | $                    | 369 |            |  | $          | 83  |      |  | $                 |    |   |  | $ | 452   | 
|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 | 

54



---



##### Table of Contents






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
|2.3(2)    |  | Escrow Agreement, dated as of May 17, 1999, among Molecular Devices Corporation, a Delaware
corporation, Helge Skare, Wiel Skare and Greater Bay Trust Company, as Escrow Agent                                                                                                                                             
|2.4(6)    |  | 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.                                                                                                                          
|3.1(1)    |  | Amended and Restated Certificate of Incorporation of Registrant                                                                                                                                                                                                                                                             
|3.2(1)    |  | Bylaws of the Registrant                                                                                                                                                                                                                                                                                                    
|3.3       |  | 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*     |  | 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 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(5)* |  | 1995 Non-Employee Directors Stock Option Plan, as amended                                                                                                                                                                                                                                                                  
|10.25(5)* |  | 1995 Stock Option Plan, as amended                                                                                                                                                                                                                                                                                          
|10.26(7)* |  | Employee Offer Letter for Patricia Sharp                                                                                                                                                                                                                                                                                    
|10.27(8)* |  | LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements                                                                                                                                                                                                                                                           
|10.28(8)* |  | LJL BioSystems 1997 Stock Plan and Forms of Agreements                                                                                                                                                                                                                                                                      
|10.29(8)* |  | LJL BioSystems 1998 Directors Stock Option Plan and Forms of Agreements                                                                                                                                                                                                                                                    
|10.31(9)  |  | Lease between the Company and Coptech West                                                                                                                                                                                                                                                                                  
|10.32(10) |  | Sublease Agreement dated September 9, 1999 by and between Medtronic, Inc. and the Registrant                                                                                                                                                                                                                                
|10.33(10) |  | Lease Agreement dated May 26, 2000 by and between Aetna Life Insurance Company and the Registrant                                                                                                                                                                                                                           
|10.34(11) |  | Change in Control Severance Benefit Plan                                                                                                                                                                                                                                                                                    
|10.35(13) |  | Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A.                                                                                                                                                                                                                            
|10.36*    |  | Key Employee Agreement for Stephen Oldfield                                                                                                                                                                                                                                                                                 
|10.37*    |  | Key Employee Agreement for Tom OLenic                                                                                                                                                                                                                                                                                      
|21.1      |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                              
|23.1      |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                          

55



---



##### Table of Contents



|        |  |                                                            
|------- |  | -----------------------------------------------------------
|EXHIBIT |  |                                                            
|NUMBER  |  | DESCRIPTION OF DOCUMENT                                    
|        |  |                                                            
|23.2    |  | Consent of PricewaterhouseCoopers LLP, Independent Auditors



---

|(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
Current Report on Form 8-K filed May 26, 1999.                                                                   
|    
|    
|    
|    
|(5)  |  | Incorporated by reference to the similarly described exhibit in our
Registration Statement on Form S-8 (File No. 333-86159), as amended.                                             
|    
|    
|    
|    
|(6)  |  | Incorporated by reference to the similarly described exhibit in our
Current Report on Form 8-K filed June 12, 2000.                                                                  
|    
|    
|    
|    
|(7)  |  | 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.                              
|    
|    
|    
|    
|(8)  |  | 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.
|    
|    
|    
|    
|(9)  |  | Incorporated by reference to the similarly described exhibit filed with
LJL BioSystems Form 10-Q for the quarter ended March 31, 1998.                                              
|    
|    
|    
|    
|(10) |  | 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.                                     
|    
|    
|    
|    
|(11) |  | 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.                                       
|    
|    
|    
|    
|(12) |  | 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.                                     
|    
|    
|    
|    
|(13) |  | Incorporated by reference to the similarly described exhibit in our
Current Report on Form 8-K filed October 30, 2001.                                                               
|    
|    
|    
|    
|*    |  | Management contract or compensatory plan or arrangement.                                                                                                                             

56