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                       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, 1999, 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: 0-27446
                            ------------------------

                              LJL BIOSYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

                  DELAWARE                             77-0360183
      (State or other jurisdiction of         (IRS Employer Identification
       incorporation or organization)                    Number)

                                405 TASMAN DRIVE
                              SUNNYVALE, CA 94089
                    (Address of principal executive offices)

              Registrant's telephone number, including area code:
                                 (408) 541-8787
          Securities registered pursuant to Section 12(b) of the Act:

            Title of each class              Name of each exchange on which
  ----------------------------------------             registered
                                            ---------------------------------
                    None                                  None

          Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, par value $0.001 per share
                                (Title of Class)
                           --------------------------

    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 voting stock held by non-affiliates of the
Registrant was approximately $66,910,410 as of January 31, 2000, based upon the
closing sales price on The Nasdaq National Market reported for such date. Shares
of common stock held by each officer and director and by each person who owns
10% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

    The number of outstanding shares of the Registrant's common stock, par value
$0.001 per share, as of January 31, 2000 was 12,804,855 shares.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days after the
end of the fiscal year covered by this report, are incorporated by reference in
Part III hereof.

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                              LJL BIOSYSTEMS, INC.
                           ANNUAL REPORT ON FORM 10-K
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NO.                                                                   PAGE
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<C>       <S>                                                            <C>
Part I

  1.      Business....................................................       3

  2.      Properties..................................................      15

  3.      Legal Proceedings...........................................      15

  4.      Submission of Matters to a Vote of Security Holders.........      15

Part II

  5.      Market for Registrant's Common Equity and Related
           Stockholder Matters........................................      16

  6.      Selected Consolidated Financial Data........................      17

  7.      Management's Discussion and Analysis of Financial Condition
           and Results of Operations..................................      18

  7A.     Quantitative and Qualitative Disclosures about Market
           Risk.......................................................      35

  8.      Consolidated Financial Statements and Supplementary Data....      36

  9.      Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure...................................      54

Part III

  10.     Directors and Executive Officers of the Registrant..........      54

  11.     Executive Compensation......................................      54

  12.     Security Ownership of Certain Beneficial Owners and
           Management.................................................      54

  13.     Certain Relationships and Related Transactions..............      54

Part IV

  14.     Exhibits, Financial Statement Schedules and Reports on Form
           8-K........................................................      55
</TABLE>

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                                     PART I

ITEM 1.  BUSINESS

    We design, produce and sell primarily to pharmaceutical and biotechnology
firms, infrastructure products and, to a lesser extent, services that accelerate
and enhance the process of discovering new drugs. Our proprietary integrated
technology platform is comprised of instrumentation and consumables (microplates
and fluorescence-based assay technologies) designed to provide flexible
solutions to the current and evolving high throughput requirements of drug
discovery laboratories. We intend to establish our products, marketed as
CRITERION-TM-, as the "gold standard" for addressing many of the key bottlenecks
in drug discovery. Further, we believe that, in the future, as more details of
the human genome become available, pharmaceutical and biotechnology firms will
begin utilizing high throughput screening in genomics during their search for
new drugs. In this regard, recently, we have demonstrated that certain products
from our CRITERION product line can be used to genotype or characterize single
nucleotide polymorphisms, or SNPs, and we have begun to commercialize these
products for genotyping applications.

DRUG DISCOVERY

    The drug discovery process involves the synthesis and testing, or screening,
of compounds against a target. A compound is a molecule that might influence a
disease by its effect on a target. Targets are biological molecules, such as
enzymes, receptors, other proteins and nucleic acids that are believed to play a
role in the onset or progression of a disease. The stages of the drug discovery
process include:

    - target identification,

    - target validation (including genotyping of SNPs),

    - assay development,

    - primary screening,

    - secondary and tertiary screening,

    - lead compound optimization and

    - clinical candidate selection.

DRUG DISCOVERY--SCREENING

    Targets are identified based on their potential role in altering the
progression or prevention of a disease. Until recently, scientists using
conventional methods had identified only a few hundred targets, many of which
had not been comprehensively screened. Recent developments in molecular biology
and genomics have led to a dramatic increase in the number of targets available
for drug discovery.

    After a target is validated, the researcher selects a library of compounds
to screen against this target. Compounds have historically been obtained from
natural sources or synthesized one at a time. Traditionally, pharmaceutical
companies, using conventional synthesis techniques, have compiled their compound
libraries over decades. However, recent technology advancements in parallel
synthesis combinatorial chemistry and other chemical synthesis techniques, as
well as licensing arrangements, have enabled industrial and academic groups to
greatly increase the supply and diversity of compounds available for screening
against targets. As a result, many researchers now have access to libraries of
hundreds of thousands of compounds.

    Prior to high throughput screening of compounds against a target, a
biological test or assay must be developed. An assay is a combination of
reagents, which measures the effect of a compound on the activity of a target.
Assay development involves screening the assays to optimize performance against
the selected target and are broadly classified as either biochemical or
cellular. Following target and compound library selection and synthesis and
assay development, the compounds must be screened to determine their effect on
the target, if any. In the primary screening campaign, a compound that has an
effect on the target is defined as a hit. A greater number of compounds screened
against a given target result in a higher

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statistical probability that a hit will be identified, assuming that the library
is sufficiently diverse. Scientists use both cellular and biochemical assays in
their drug discovery efforts. Both types of assays use a variety of detection
methods, including:

    - absorbence,

    - radioisotopic,

    - luminescence and

    - a variety of fluorometric technologies, such as fluorescence intensity,
      fluorescence polarization and time-resolved fluorescence.

    Biochemical assays are usually performed with purified molecular targets and
generally have certain advantages, such as speed, convenience, simplicity and
specificity. Cellular assays are performed with living cells, which may
sacrifice speed and simplicity, but may deliver more biologically relevant
information. Once a compound is identified as a hit, and the data is validated
in a follow up screen, several secondary and tertiary screens are performed to
evaluate its potency and specificity for the intended target. This cycle of
repeated screening continues until a small number of lead compounds is selected.
Further screening, notably against pharmacokinetic and toxicological parameters,
optimizes these lead compounds. Optimized lead compounds with the greatest
therapeutic potential and window of selectivity may be selected as candidates
for clinical evaluation.

    Due to the recent dramatic increase in the number of available compounds and
targets, a bottleneck has developed at the screening stage of the drug discovery
process. Historically, screening has been a manual, time-consuming process.
Screening significantly larger numbers of compounds against an increasing number
of targets requires a system that can operate with a high degree of automation
and analytical flexibility.

    To address these bottlenecks, we have developed instrumentation and assays
to provide integrated high throughput solutions. We believe that our technology
platform addresses the major throughput limitations associated with current high
throughput systems and will allow our customers to accelerate the identification
and optimization of lead compounds for development into new medicines.

DRUG DISCOVERY--GENOTYPING

THE GENOMICS SCIENCES MARKET

    We are participating in the new field of high throughput genomics. By using
the knowledge of DNA (deoxyribonucleic acid) variations, genomics provides the
potential of discovering better, safer and more efficacious drugs. These
variations in DNA are believed to be the origin of many differences between
individuals, including disease predispositions and dissimilarity in drug
responses. A category of common variations in DNA are known as single nucleotide
polymorphisms, or SNPs. SNPs represent the smallest possible genetic change, and
occur where the DNA molecules of different individuals vary at a single
location. In the future, we believe that SNP analysis may play an essential role
in the development of drugs, diagnostics and other life science applications.

    The process of determining the SNPs present in an individual is one method
of genotyping. It is generally estimated that there are millions of SNPs
inherited from each parent. Some SNPs may be genetic markers of inherited
diseases or responsible for individual differences in drug responsiveness.
Determining which patients have such markers is called patient stratification.
While most SNPs are believed to be of no medical consequence, thousands of SNPs
are expected to be medically relevant and correlate to disease susceptibility or
responsiveness to therapy. Establishing such a correlation is called an
association study. To capture this information, up to tens of thousands of SNPs
may have to be measured in each individual.

    After a SNP is discovered, its potential relevance for human health must be
validated by determining how common the variation is in different segments of
the population. To identify the small subset of SNPs that occur with the
greatest frequency in human disease or are responsible for variations in drug

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responsiveness, hundreds of millions of SNP measurements must be made and
correlated with health and other physical and mental features of interest. SNPs
with a validated medical relevance may be useful in drug development and human
medical diagnostics. Identification of these SNPs will require a highly
accurate, cost-efficient, high throughput DNA analysis technology.

CURRENT SCREENING SYSTEMS

    Many screening systems operate with varying degrees of automation. Full
automation--from sample dispensing to data collection--enables round-the-clock
operation, thereby increasing the screening rate. Fully automated high
throughput systems consist of assay analyzers, liquid handling systems,
robotics, a computerized system for data management, reagents and assay kits and
microplates. A microplate is a plastic plate that generally contains 96 wells,
384 wells or 1,536 wells, each well holding a mixture of a target, a compound
and reagents. In the automated high throughput process, a robot moves a
microplate among preparatory stations and then delivers the microplate to the
analyzer. In the case of fluorescence-based assays, after the microplate is
placed into the analyzer, the instrument directs a light source onto a well. The
intensity of the light emitted from the well in response to this light source is
then measured by the analyzer, showing the degree of the effect, if any, of the
compound on the target. In this manner, the analyzer detects and measures
possible bioactivity of a compound against a target.

    Most screening systems utilize general-purpose assay analyzers, which were
not originally designed for high throughput use. We believe that most screening
systems in use today have the following limitations:

    LACK OF ANALYTICAL FLEXIBILITY.  Many general-purpose analyzers do not
    provide sufficient analytical flexibility because they operate in only one
    or a few types of assay detection modes. In order to perform assays using
    different detection modes, researchers generally must physically move such
    analyzers and reconfigure the high throughput line. Alternatively,
    researchers may set up the high throughput line with multiple
    general-purpose analyzers, which often results in critical space
    constraints.

    INADEQUATE SENSITIVITY.  As researchers continue to use smaller assay
    volumes to reduce reagents costs and increase throughput, many
    general-purpose analyzers are inadequate because they are not sensitive
    enough to read results based on these smaller volumes. Inadequate
    sensitivity may result in:

       - missed hits,

       - limited research capabilities,

       - increased costs of compounds, assays and reagents and

       - lower throughput.

    POOR HIGH THROUGHPUT SYSTEM INTEGRATION.  Most analyzers have not been
    designed specifically for a high throughput environment. They are difficult
    and expensive to integrate into a high throughput automated line. Even after
    the analyzer is integrated into the high throughput line, there are often
    many problems, including:

       - increased probability of system failures,

       - loss of data,

       - time delays and

       - loss of costly compounds and reagents.

    INABILITY TO REACH HIGH PERFORMANCE IN DENSER FORMATS.  Many analyzers can
    achieve high performance in the standard 96-well microplate format. However,
    drug discovery companies are moving to the denser 384-well and 1,536-well
    formats to reduce costs of reagents, assays and compounds, while increasing
    throughput. Most existing analyzers cannot achieve high performance in this
    denser format.

    LIMITATIONS OF CURRENT ASSAYS.  Many assays in use today are performed in a
    complex, multi-step process and are expensive, time-consuming and difficult
    to implement in a high throughput setting. In

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    addition, certain assays use radioactive isotopes, which are hazardous and
    result in expensive waste-disposal. Fluorescence-based assays are becoming
    more accepted in high throughput settings due to the relative lack of
    waste-disposal problems, as well as their sensitivity, versatility and
    adaptability to high throughput. However, historically the use of many of
    the fluorescence-based assays in high throughput was limited by the relative
    insensitivity of available analyzers. Certain assays are also unsuitable for
    high throughput because of the low sensitivity of both the assay and
    general-purpose analyzer.

    The high throughput laboratory today must balance the needs for performance,
such as dynamic range, sensitivity and analytical flexibility. The increasing
use of high throughput and the need for higher throughput further exposes the
limitations of current screening systems. These limitations result in higher
costs, lower throughput and lower productivity.

OUR SOLUTION

    We design, produce and sell products under the CRITERION-TM- name
specifically targeted for both the current and evolving high throughput markets.
To develop these products, we have assembled an integrated team of scientists
and engineers with expertise in fluorescence chemistry, biophysics,
biochemistry, chemical and mechanical engineering, electronics and software.
Since our inception in 1988, we have designed, developed and manufactured high
performance clinical diagnostics analyzers and other automated instruments.

    Starting in the second half of 1996, we began focusing on the high
throughput market. Since then our efforts have resulted in the achievement of
several key milestones.

    - In May 1998, we began shipping Analyst-TM- HT, our first-generation
      detection system for the high throughput market. This system was designed
      specifically for the high throughput market and offers multi-mode
      capability, flexibility and performs up to 70,000 screens per day.

    - Later in 1998, we shipped our first ultra-high throughput system,
      Acquest-TM-. Also multi-modal, the Acquest was designed to accept
      microplates with both 384-well and 1,536-well formats. Assay throughput is
      estimated at up to 200,000 tests per day.

    - In June 1999, we began shipping Analyst AD, which was designed
      specifically for assay development and is fully compatible with Analyst
      HT.

    We believe that the Analyst and Acquest product lines provide several
important customer benefits, including:

    - increased throughput,

    - improved analytical performance and flexibility, especially in higher
      density formats,

    - lower reagents costs and

    - the ability to be quickly integrated into existing high throughput
      laboratories and to evolve with changing high throughput needs.

    We have developed and are developing value-added, application-specific
reagents, assay kits and microplates, which are being optimized for use in high
throughput systems and specifically for use with our Analyst and Acquest product
lines.

    - In 1998, we introduced and shipped our first value-added consumable
      product, the TKX-TM-, or Tyrosine Kinase Fluorescence Polarization assay
      kit.

    - In September 1998, we started marketing our High Efficiency (HE) line of
      microplates.

    - In September 1999, we started marketing four additional assay and reagent
      products including:

       - DPX-TM- for dopamine receptor screening,

       - cyclic AMP (cAMP) for a general cell signaling molecule,

       - ProteasePX-TM- for protease inhibitor screens and

       - a new proprietary fluorescent reagent, Sunnyvale Red-TM-.

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    In addition, we are currently developing several other consumable products,
including additional assays, which will be optimized to perform with our
instruments. We believe that customers will prefer to purchase consumables and
instruments from a single source for convenience, ongoing support and
accountability.

OUR DRUG SCREENING STRATEGY

    Our successful market introductions in 1998 of two instruments and our TKX
assay kit, followed by our introduction of one additional instrument and four
additional assays in 1999, helped to establish our brand and set the stage for
other new products. Our proprietary technologies are already increasing the
efficiencies and reducing the cost of identifying drugs that show potential as
new medicines. In addition, we have a pipeline of instruments and consumables
that we are developing in concert with our customers, such as SmithKline Beecham
in the case of our FLARe-TM- fluorescence technology.

    Building upon this background, our objective is to become a leader in the
development and commercialization of advanced technologies and products that
accelerate the pace and improve the productivity of the drug discovery process.
To implement this strategy, we intend to:

    PROVIDE HIGH THROUGHPUT SOLUTIONS.  Our technology platform is comprised of
    two principal proprietary components: instrumentation and assay
    technologies. We intend to leverage this technology platform and our proven
    expertise in rapid product development and manufacturing of automated
    instrumentation systems to be the first to market with effective high
    throughput solutions.

    PURSUE AN EVOLUTIONARY APPROACH TO PRODUCT DEVELOPMENT.  We anticipate that
    the high throughput needs of the pharmaceutical industry will continue to
    change rapidly over the coming years and are difficult to predict at this
    time. We intend to offer products with features and capabilities that
    provide solutions to the current and evolving high throughput needs of drug
    discovery laboratories. For example, our Analyst product line can perform
    seven major types of optically detected assays (and can perform multi-mode
    protocols) in both the industry standard 96-well and 384-well microplate
    formats. Additionally, our ultra-high throughput instrument, Acquest, is
    designed to read the higher-density 1,536-well microplates at a rate of up
    to 200,000 wells per day.

    EXTEND INSTRUMENTATION AND ASSAY PRODUCTS INTO OTHER STAGES OF THE DRUG
    DISCOVERY PROCESS.  We believe that our screening products are well suited
    for primary and secondary screening and other closely related stages of the
    drug discovery process such as assay development, genotyping of SNPs,
    toxicology and lead optimization, which require repetitive screening. We
    believe that users will benefit from using integrated high performance
    screening products.

    GENERATE RECURRING REVENUE THROUGH THE SALE OF REAGENTS, ASSAY KITS AND
    CONSUMABLES.  We believe that establishing an installed base of high
    throughput instruments will enable us to generate recurring revenue from the
    sale of reagents, assay kits and consumables. These products are envisioned
    as high value-added, application-specific tools that are optimized for use
    in high throughput systems and specifically with our high throughput
    instruments. We believe that customers will prefer to purchase reagents and
    instruments from one source for convenience, ongoing support and
    accountability.

    DEVELOP AND ACQUIRE NOVEL SCREENING TECHNOLOGIES.  We believe our FLARe
    technology, a platform of patented bioassay technologies, will address a
    number of the current limitations associated with fluorescence-based high
    throughput assays. We are also developing internally certain reagent
    technologies and have licensed and intend to license or acquire additional
    screening technologies in order to establish and maintain a market advantage
    for our products.

    PROVIDE EARLY ACCESS TO STRATEGIC CUSTOMERS.  In September 1998, SmithKline
    Beecham signed a collaborative agreement with us, which gives them early
    access to our FLARe technology. In October 1999, AstraZeneca signed a Master
    Technology Partnership Agreement (MTPA) with us,

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    which gives them early access to emerging technologies such as FLARe and our
    assay development services. In addition to these agreements, we intend to
    provide strategic customers early access to certain of our technologies,
    which will provide insight into next generation product requirements and
    technology needs. We believe this insight will allow us to provide products
    that more closely meet the needs of our customers.

OUR SNP GENOTYPING PLATFORM AND BUSINESS STRATEGY

    SNP genotyping generally involves a multi-step chemical reaction, the
results of which are detected using a specialized hardware platform. We have
developed a proprietary implementation of polarization technology that enables
sensitive and robust detection, called High-Efficiency Fluorescence Polarization
(HEFP-TM-). During the second half of 1999, our customers and our staff have
demonstrated that this HEFP platform has the ability to perform highly accurate,
cost effective, high throughput SNP genotyping, using off-the-shelf consumables.
We believe that our HEFP genotyping platform has significant advantages because
it requires only a simple "mix and measure" chemical reaction, without the need
to attach any molecules to a solid surface and the attendant washing and
separation steps. In addition, our approach to genotyping does not require
labeled primers, thus further reducing costs and complexity. Similar to our high
throughput technologies used in drug discovery, we intend to expand our genomics
product portfolio and augment this HEFP hardware platform with proprietary
software solutions and LJL consumables. In addition to HEFP, we are developing
other high throughput technologies.

    Our goal is to become the leader in the commercialization of high throughput
SNP analysis technology, capitalizing on what we believe is the quickly emerging
demand for SNP genotyping. Our strategy is to initially focus on the drug
discovery and development markets, where we already have a customer base. We
intend to expand our penetration within our customer base into related areas
such as clinical and pre-clinical trials to perform patient stratification by
genetic traits. We believe that there are other significant potential
applications areas for our HEFP platform in SNP genotyping, including human DNA
diagnostics and other life science areas. To implement this strategy, we created
the Genomics Sciences Group at LJL in August 1999. We have started selling and
shipping our HEFP platform for high throughput SNP genotyping. Customers at
several leading genomics organizations are already successfully utilizing our
high throughout HEFP-SNP platform. We intend to grow the genomics business in a
manner similar to the way we are growing our business in high throughput drug
discovery.

CRITERION PRODUCT LINE

ANALYST PRODUCT LINE

    Starting in May 1998, we began commercial shipments of Analyst HT, the first
assay detection instrument system in our Analyst product line. Analyst HT is a
multi-mode analyzer designed specifically for use in high throughput settings.
The term "assay detection" refers to the instrument's ability to read and
analyze how potential drug compounds perform when tested against specific
biological targets. Analyst HT can read several major types of fluorescence and
other assays, including HEFP. We believe that our SmartOptics-TM- proprietary
technology enables Analyst HT to detect assay results with improved sensitivity
in smaller volumes, thus saving costs. With a built-in capability of reading
both 96-well and 384-well plates, our customers are currently using our
Analyst HT to perform up to 70,000 tests per day.

    Starting in June 1999, we began commercial shipments Analyst AD, which is
designed specifically to allow for an efficient transfer of assays from assay
development to the screening and lead optimization part of the drug discovery
process. Analyst AD is a cost-effective system with flexible assay development
capabilities and is fully compatible with our other products. Having this
compatibility eliminates the need to modify or re-validate assays upon their
transfer from assay development into screening and lead optimization.

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ACQUEST PRODUCT LINE

    Starting in September 1998, we began commercial shipments of Acquest, our
first ultra-high throughput system. This high-density analyzer is an evolution
of the Analyst technology platform, which dramatically increases the number of
screens that can be performed at any one time. Current assay throughput is
estimated at up to 200,000 tests per day. The Acquest is also multi-modal and
accepts microplates with both 384-well and 1,536-well formats. In addition,
Acquest performs screens using significantly reduced assay volumes, thus
reducing the costs of reagents, assays and compounds. We are developing
1,536-well microplates to operate with Acquest. We believe that high throughput
system performance will be optimized with the use of these proprietary plates in
conjunction with Acquest due to the lower error tolerance between system
components in this miniaturized format. In addition, Acquest operates with third
party 1,536-well microplates, reagents and liquid handling systems. We also plan
to bring to market additional reagents and assay kits and intend to miniaturize
certain of our first generation reagents and assays for use in the high-density
format.

REAGENTS, ASSAYS AND PLATES

    In 1998, we began offering high value-added, application-specific reagents
and assay kits that are optimized for use in high throughput and specifically
for use with our CRITERION product line instruments. We intend to develop
additional reagents and assay kits in a single-step format. We believe that a
single-step assay format is better suited to the high throughput environment
because it is faster, less expensive and easier to automate than multi-step
assays. We also believe that our reagents and assay kits will provide two major
benefits to our customers. First, overall assay performance is expected to
improve as these consumables are being optimized for use with our Analyst and
Acquest product lines. Second, we believe that customers will prefer to purchase
reagents and instruments from a single source for convenience, integrated
support and accountability.

    The use of fluorescence-based assays in high throughput is increasing due to
their sensitivity, versatility, adaptability, safety and lack of waste-disposal
problems associated with radioactive isotopic assays. Among fluorescence-based
assays, fluorescence polarization assays are especially well suited for high
throughput because they can be used in a single-step format and are relatively
insensitive to volume variations.

    We believe the increased sensitivity and precision of our Analyst and
Acquest product lines in the HEFP format will improve the performance of
fluorescence polarization assays. We are currently developing a new,
long-lifetime fluorescence polarization reagent based on our proprietary FLARe
assay technology. Currently available fluorescence polarization reagents have
short lifetimes and cannot be used in screening certain targets. We believe that
our long- lifetime fluorescence polarization reagent has the potential to expand
the class of available targets for certain major diseases, including
cardiovascular and immunodeficiency diseases, that can be screened in a
single-step, fluorescence polarization format.

    We also introduced High Efficiency (HE-TM-) microplates in 1998 to provide a
"tuned" solution that optimizes assay performance in the Analyst system. These
microplates allow users to reduce assay volume and as a result, dramatically
reduce the costs without loss of performance.

NEW CRITERION TECHNOLOGIES BEING DEVELOPED

    SCREENSTATION-TM-.  In September 1999, we demonstrated a prototype and
announced the introduction of our next generation instrument platform, the
ScreenStation. ScreenStation is being developed to permit unattended operations,
non-contact micro-volume dispensing, and multiple detection modes. We believe
ScreenStation technology represents a significant advance in high throughput
screening as it enables pharmaceutical companies to easily implement homogeneous
assays that are fast, miniaturized, and non-radioactive. We plan to start
shipments in 2000.

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    FLARE TECHNOLOGY AND SMITHKLINE BEECHAM COLLABORATION.  FLARe (Fluorescence
Lifetime Assay Repertoire) is our patented and patent pending instrumentation
and reagent platform for addressing next generation solutions for critical drug
discovery challenges. Many targets, compounds and microplates have transient
fluorescent properties that obscure the assay specific signal by transient
background signal, or noise. Through a combination of advanced biophysics and
electronics, FLARe reduces the effect of background noise by 98% in certain
fluorescence-based assays.

    Fluorescence-based assay technologies are well suited to high throughput
because they are:

    - sensitive,

    - versatile,

    - easy to automate and

    - safer than radioisotopic assays.

However, use of fluorescence-based high throughput assays has been limited due
to the high level of background noise in the fluorescence signal within the
assay, which obscures the assay-specific signal and results in loss of
sensitivity and reduced accuracy. We believe our FLARe technology may
significantly reduce false readings when running these assays.

    In September 1998, we entered into a collaboration agreement with SmithKline
Beecham which provides them early access to our FLARe technology. In May 1999,
we announced the successful completion of the first milestone in our
collaboration with SmithKline Beecham, which demonstrated the unique enabling
performance of FLARe. In September 1999, we demonstrated a prototype of our
proprietary platform for drug discovery assays based on the measurement of
fluorescence lifetime using our FLARe technology.

SALES AND MARKETING

    We market our CRITERION product line worldwide through a direct sales force
in North America and Europe and distributors in other parts of the world. We
currently have a marketing and sales organization consisting of more than 24
professionals including a staff of sales, service and applications support
people in the United States and the UK. Because our products are technically
sophisticated and our customers are Ph.D.-level researchers, the sales force
consists primarily of scientifically qualified personnel to address the
technical sophistication of our products and customers. An in-house applications
team provides sales support. We have entered into a distribution agreement with
Sumitomo in Japan, with Lab Services in the Netherlands and are currently
evaluating other distributors in certain geographical areas that are currently
selling products into the pharmaceutical R&D market.

    We are marketing our Analyst and Acquest product lines, reagents, assay kits
and HE plates under the CRITERION name. We sell reagents primarily to
laboratories that perform relatively large numbers of assays. We sell assay
kits, which include a combination of reagents and detailed instructions on
protocol and use, to laboratories where convenience and ease of use are more
important than volume purchases of reagents.

    Historically, we sold clinical diagnostics products through original
equipment manufacturing relationships to third parties. Thus, in 1999, 1998 and
1997, Chiron Corporation and Ventana Medical Systems, Inc., customers of
clinical diagnosis products, together accounted for a total of 0%, 10% and 88%,
respectively, of net sales. In 1999, net sales from original equipment
manufacturing products accounted for 8% of net sales representing a decline from
10% of net sales in 1998. Although we intend to continue to manufacture one
original equipment manufacturing product through 2000, original equipment
manufacturing product sales as a percentage of net sales are expected to further
decline in future periods.

                                       10
<PAGE>
MANUFACTURING

    We have employed a proprietary, modular, object-oriented design methodology
to develop and manufacture a number of successful analytical systems for
clinical diagnosis. Our Analyst and Acquest product lines and our clinical
diagnostics and research products are manufactured and assembled at our
facilities in Sunnyvale, California. This manufacturing process consists of
purchasing custom and other components from third parties and performing
sub-assembly, final assembly, and quality assurance functions in-house. We
believe that our manufacturing infrastructure for our Analyst and Acquest
product lines is sufficient for at least the next few years.

    We intend to initially manufacture our assay kits internally. We may
consider outsourcing the manufacture of assay kits, if it is determined to be
cost-effective. In addition, we have expanded our relationships with vendors of
plastic disposables to have them manufacture our 96-well and 384-well high
throughput microplates according to our specifications.

    Our success will depend in part on the expansion of our operations and the
effective management of these expanded operations. Manufacturers often encounter
difficulties in scaling up production of new products, including:

    - problems involving quality control and assurance,

    - component supply and

    - shortages of qualified personnel.

Difficulties encountered by us in manufacturing scale-up could have a material
adverse effect on our business, financial condition and results of operations.

NEW TECHNOLOGY RISKS

    The pharmaceutical, biotechnology and genomics instrumentation and reagents
markets are characterized by rapid technological change and frequent new product
introductions by many competitors. Our future success will depend on our ability
to enhance and maintain our current and planned CRITERION product line products
and to develop and introduce, on a timely basis, new technologies and products
that address the evolving needs of our customers. These new technologies and
products include but are not limited to fluorescence-based reagents and assay
kits, products based on our ScreenStation-TM-, FLARe-TM- and SmartOptics-TM-
technologies, as well as future additions to our SNP genotyping platform.
Development of these new technologies subjects us to significant risks and
uncertainties, as we may encounter unantipated technical issues that may cause
development delays. These technical issues may require us to cancel such
development programs altogether, if we are unable to find solutions to these
issues. Even if development is successful, we anticipate that production units
for these new products may not be available for several months or years, if at
all. The production of CRITERION product line instruments, microplates,
fluorescence-based reagents and assay kits may present manufacturing challenges.
We may experience difficulties that could delay or prevent the successful
manufacturing, introduction and marketing of our new products or our product
enhancements. Any failure to manufacture and introduce products in a timely
manner in response to changing market demands or customer requirements could
have a material adverse effect on our business, financial condition and results
of operations.

COMPETITION

    The market for high throughput instrumentation, assays for drug discovery
and SNP genotyping is highly competitive. We anticipate that competition will
increase significantly as more customers adopt high throughput tools for drug
discovery and SNP genotyping, and as competitors enter the market with new
advanced technologies and products. We are competing in many areas, including
high throughput instruments, assay development, consumables and reagent sales.
We compete with companies that directly market high throughput products. In
addition, pharmaceutical and biotechnology companies, academic

                                       11
<PAGE>
institutions, governmental agencies and other research organizations are
conducting research and developing products in various areas which compete with
our technology platform, either on their own or in collaboration with others. As
a result, our potential customers may choose not to purchase our products. Our
potential customers may assemble and run high throughput systems by purchasing
products from competitors or making their own. Further, certain companies offer
screening and genotyping services on a contract or collaborative basis, and
these services could eliminate the need for a potential customer to purchase our
products. Our technological approaches may be rendered obsolete or uneconomical
by advances in existing technological approaches or the development of different
approaches by one or more of our current or future competitors. Many of these
competitors have greater financial and personnel resources, and more experience
in research and development, sales and marketing and other areas than us.

INTELLECTUAL PROPERTY RISKS

    Our success will depend in part on our ability to obtain patents, maintain
trade secret protection and operate without infringing the proprietary rights of
others. As of January 31, 2000, LJL held five U.S. patents and had fourteen
pending U.S. patent applications, one pending European patent application, one
pending Israeli patent application, one pending Japanese patent application,
eleven pending international patent applications, and twenty-three pending U.S.
provisional patent applications. To supplement our proprietary technology, we
have licensed, and expect to continue to license from time to time, certain
patent rights from third parties. In the event of a material breach by us, these
licenses may be terminated. Furthermore, under some of these agreements, the
licensors may elect to convert the exclusive rights into non-exclusive rights in
the event that we fail to make certain minimum royalty payments. If the
licensors were to terminate certain of these licenses due to a material breach
of the license by us, then we would lose the right to incorporate the licensed
technology into our products, which would require us to exclude this certain
technology from our existing and future products and either license or
internally develop alternative technologies. There can be no assurance that we
would be able to license alternative technologies on commercially acceptable
terms, or at all, or that we would be capable of internally developing such
technologies. Furthermore, other companies may independently develop technology
with functionality similar or superior to the licensed technology that does not
or is claimed not to infringe the licensed patents or that otherwise circumvents
the technology we have licensed.

    We are aware of third party patents that contain issued claims that may
cover certain aspects of our reagent technologies. In the future we may be
required to license third-party patents to produce certain reagents, assay kits
and related products. Licenses for such patents may not be available on
commercially acceptable terms, if at all. Any action against us claiming damages
and seeking to enjoin commercial activities relating to the affected
technologies could subject us to potential liability for damages. We could incur
substantial costs in defending patent infringement claims, obtaining patent
licenses, engaging in interference and opposition proceedings or other
challenges to our patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. Our inability to obtain necessary licenses or our involvement in
proceedings concerning patent rights could have a material adverse effect on our
business, financial condition and results of operations.

    The patent positions of life science product companies, including ours, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued. Consequently, there can be no assurance that our patent
applications or those of our licensors will result in patents being issued or
that any issued patents will provide protection against competitive technologies
or will be held valid if challenged or circumvented. Others may independently
develop products similar to our products, or design around or otherwise
circumvent patents issued to us. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, we could be prevented
from practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each of such patents or to redesign
our products or processes to avoid infringement. There can be no assurance that
such licenses would be

                                       12
<PAGE>
available or, if available, would be on terms acceptable to us or that we would
be successful in any attempt to redesign our products or processes to avoid
infringement. If we do not obtain the necessary licenses, we could be subject to
litigation and encounter delays in product introductions while we attempt to
design around such patents. Alternatively, the development, manufacture or sale
of such products could be prevented. Litigation would result in significant
costs to us as well as diversion of management time. Adverse determinations in
any such proceedings could have a material adverse effect on our business,
financial condition and results of operations.

    We also rely on trade secret and copyright law, as well as employee and
third-party nondisclosure agreements to protect our intellectual property rights
in our products and technology. There can be no assurance that these agreements
and measures will provide meaningful protection of our trade secrets,
copyrights, know-how, or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure. In addition, others may
independently develop substantially equivalent proprietary technologies.
Litigation to protect our trade secrets or copyrights would result in
significant costs to us as well as diversion of management time. Adverse
determinations in any such proceedings or unauthorized disclosure of our trade
secrets could have a material adverse effect on our business, financial
condition and results of operations. In addition, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
U.S. laws. There can be no assurance that we will be able to protect our
intellectual property in these markets.

GOVERNMENT REGULATION

    While we believe that none of the products in our CRITERION product line
will be regulated as medical devices or otherwise subject to FDA regulation, our
clinical diagnostics products, including the Luminometer, Q2000, Horizon and a
microplate heater, are subject to FDA regulation as medical devices, as well as
similar foreign regulation. The process of obtaining and maintaining required
regulatory clearances and approvals and otherwise remaining in regulatory
compliance in the U.S. and certain other countries is lengthy, expensive and
uncertain. Although we have phased out production of the Luminometer, Q2000 and
the microplate heater, we will continue to manufacture the Horizon on an
original equipment manufacturing basis during 2000 but do not expect to
manufacture the Horizon after 2000. The Horizon is used in research and clinical
laboratories to perform in vitro diagnostic tests, which are exempt from
investigational device exemption requirements, including the need to obtain the
FDA's prior approval, provided that, among other things:

    - the testing is noninvasive;

    - the product is not used as a diagnostic procedure without confirmation by
      another medically established test or procedure; and

    - distribution controls are established to assure that in vitro diagnostic
      products distributed for research are used only for those purposes.

    To our knowledge, our original equipment manufacturing customers have met
these conditions. However, the FDA may not agree that our original equipment
manufacturing customers' distribution of our clinical diagnostic products meets
and have met the requirements for investigational device exemption. Failure by
us, our original equipment manufacturing customers or the recipients of our
clinical diagnostic products to comply with the investigational device exemption
requirements could result in enforcement action by the FDA, which could
adversely affect us or our original equipment manufacturing customers' ability
to gain marketing clearance or approval of these products or could result in the
recall of previously distributed products.

    Applicable law requires that we comply with the FDA's regulations for the
manufacture of the Horizon. The FDA monitors compliance with its regulations by
subjecting medical product manufacturers to periodic FDA inspections of their
manufacturing facilities. The FDA has recently revised its regulations, and the
new regulations impose design controls and make other significant changes in the
requirements

                                       13
<PAGE>
applicable to manufacturers. We are also subject to other regulatory
requirements, and may need to submit reports to the FDA, including adverse event
reporting. Failure to comply with current FDA regulations or other applicable
legal requirements can lead to, among other things:

    - warning letters;

    - seizure of violative products;

    - suspension of manufacturing, government injunctions; and

    - potential civil or criminal liability on our part and the part of the
      responsible officers and employees.

    In addition, the government may halt or restrict continued sale of such
instruments. In conjunction with the export of our clinical diagnostics
instruments, we maintain International Organization for Standardization ("ISO")
9001 certification and apply the CE mark to certain products that are exported,
which subjects our operations to periodic surveillance audits. While we believe
we are currently in compliance with all applicable regulations and standards,
there can be no assurance that our operations will be found to comply with these
regulations or standards or other applicable legal requirements in the future or
that we will not be required to incur substantial costs to maintain our
compliance with existing or future manufacturing regulations, standards or other
requirements. Any such noncompliance or increased cost of compliance could have
a material adverse effect on our business, results of operations and financial
condition.

    We are also subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection,
storage, use and disposal of hazardous or potentially hazardous substances. Any
material failure to comply with such laws could require us to incur significant
costs and would have a material, adverse effect upon our ability to do business.
Changes in existing requirements or adoption of new requirements or policies
relating to government regulations could materially and adversely affect our
ability to comply with such requirements.

EMPLOYEES

    As of December 31, 1999, we had 91 employees, of which 13 are employed in
manufacturing, 36 in research and development, and 42 in marketing, sales and
administration. Our future success depends upon the continued service of our key
scientific, technical and senior management personnel and our continuing ability
to attract and retain highly qualified technical and managerial personnel. None
of our employees are represented by a labor union or covered by a collective
bargaining agreement. We consider our relations with our employees to be
satisfactory.

FACILITIES

    Our headquarters are located in Sunnyvale, California, and are comprised of
approximately 25,000 square feet of office, research and development and
manufacturing space. Our lease and subleases of these premises expire at various
dates between June 30, 2000 and December 31, 2002. The lease of office space for
our UK subsidiary in Leatherhead, Surrey, England converts into a
quarter-to-quarter lease effective May 2000. As we hire additional research and
development, administrative and marketing personnel, we plan to either lease
additional space or to move our headquarters within the next 24 months in order
to support our projected growth. We expect that additional space will be
available on commercially reasonable terms.

                                       14
<PAGE>
ITEM 2.  PROPERTIES

    We have offices in Sunnyvale, California and Leatherhead, Surrey, England.
These properties are described below:

<TABLE>
<CAPTION>
                                                                                        LEASE
      LOCATION          OWNERSHIP                      FACILITIES                     EXPIRATION
---------------------   ---------   ------------------------------------------------  ----------
<S>                     <C>         <C>                                               <C>
404 Tasman Drive         Leased     Approximately 14,130 square feet of office and    12/31/2002
Sunnyvale, CA 94089                 manufacturing space

405 Tasman Drive        Subleased   Approximately 9,600 square feet of office and     5/31/2002
Sunnyvale, CA 94089                 manufacturing space

1170 Morse Avenue       Subleased   Approximately 830 square feet of laboratory       6/30/2000
Sunnyvale, CA 94089                 space

Leatherhead, Surrey      Leased     Approximately 700 square feet of office space     4/30/2000
England
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

    We are not currently involved in any material legal proceedings.

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

    There were no matters submitted to a vote of security holders during the
fourth quarter of our fiscal year ended December 31, 1999.

                                       15
<PAGE>
                                    PART II

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

    Our common stock is included for quotation on The Nasdaq National Market
under the symbol "LJLB" since our initial public offering in March 1998. The
following table sets forth, for the periods indicated, the range of high and low
bid information for our common stock as reported on The Nasdaq National Market
for 1999 and 1998.

<TABLE>
<CAPTION>
FISCAL YEAR 1999                                                HIGH          LOW
----------------                                              ---------   -----------
<S>                                                           <C>         <C>
4(th) Quarter ended December 31, 1999.......................  $9 5/8      $1 7/8
3(rd) Quarter ended September 30, 1999......................   4 5/8       2 7/8
2(nd) Quarter ended June 30, 1999...........................   6 1/16      3 1/8
1(st) Quarter ended March 31, 1999..........................   8 1/8       3 1/4

<CAPTION>
FISCAL YEAR 1998                                                HIGH          LOW
----------------                                              ---------   -----------
<S>                                                           <C>         <C>
4(th) Quarter ended December 31, 1998.......................  $3 3/8      $2
3(rd) Quarter ended September 30, 1998......................   5           2 1/2
2(nd) Quarter ended June 30, 1998...........................   7 1/8       4 7/8
1(st) Quarter ended March 31, 1998..........................   7 1/4       6 13/16
</TABLE>

    As of December 31, 1999, there were approximately 92 holders of record of
12,756,203 shares of our common stock. The number of record holders does not
include those beneficial owners who hold shares in street or nominee names. When
such beneficial owners are included, we believe the number of stockholders
exceeds 400.

DIVIDEND POLICY

    Prior to June 1997, we operated as an S corporation for federal and state
income tax purposes and distributed our taxable income to our stockholders in
the form of dividends. Since June 1997, we have operated as a C corporation and
do not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain all available funds and any future earnings for use in the
operation of our business.

                                       16
<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data for each of the last five
fiscal years has been derived from our audited consolidated financial
statements. The selected consolidated financial data set forth below is not
necessarily indicative of the results of future operations and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in Item 7 of this report and the
"Consolidated Financial Statements" and "Notes to Consolidated Financial
Statements" contained in Item 8 of this report.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------------------
                                                          1999       1998       1997       1996       1995
                                                        --------   --------   --------   --------   --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:

Net sales.............................................  $ 9,917    $ 4,436    $ 5,204     $9,285     $5,151
Cost of sales.........................................    3,554      2,487      2,319      2,755      1,174
                                                        -------    -------    -------     ------     ------
  Gross profit........................................    6,363      1,949      2,885      6,530      3,977
                                                        -------    -------    -------     ------     ------
Operating expenses:
  Research and development............................    6,787      5,472      3,511      2,384      1,740
  Selling, general and administrative.................    8,199      5,308      2,145      4,062      1,963
                                                        -------    -------    -------     ------     ------
    Total operating expenses..........................   14,986     10,780      5,656      6,446      3,703
                                                        -------    -------    -------     ------     ------
Income (loss) from operations.........................   (8,623)    (8,831)    (2,771)        84        274
Interest and other income, net........................      590        629        237        181         87
Interest expense......................................      (90)       (35)        (9)        (5)        (5)
                                                        -------    -------    -------     ------     ------
Income (loss) before provision for income taxes.......   (8,123)    (8,237)    (2,543)       260        356
Provision for income taxes............................       15         --         12          2          4
                                                        -------    -------    -------     ------     ------
Net income (loss).....................................   (8,138)    (8,237)    (2,555)       258        352
Accretion of mandatorily redeemable convertible
  preferred stock redemption value....................       --       (254)      (636)        --         --
                                                        -------    -------    -------     ------     ------
Net income (loss) available to common stockholders....  $(8,138)   $(8,491)   $(3,191)    $  258     $  352
                                                        =======    =======    =======     ======     ======
Basic and diluted net income (loss) per share
  available to common stockholders....................  $ (0.65)   $ (0.91)   $ (0.71)    $ 0.06     $ 0.08
                                                        =======    =======    =======     ======     ======
Shares used in computation of basic and diluted net
  income (loss) per share available to common
  stockholders........................................   12,506      9,283      4,504      4,501      4,501
                                                        =======    =======    =======     ======     ======

<CAPTION>
                                                                            DECEMBER 31,
                                                        ----------------------------------------------------
                                                          1999       1998       1997       1996       1995
                                                        --------   --------   --------   --------   --------
                                                                           (IN THOUSANDS)
BALANCE SHEET DATA:
<S>                                                     <C>        <C>        <C>        <C>        <C>

Cash, cash equivalents and investments................  $ 8,458    $10,204    $ 5,525     $1,166     $1,773
Total assets..........................................   14,358     13,458      6,793      2,458      2,483
Mandatorily redeemable convertible preferred stock....       --         --      9,308         --         --
Retained earnings (accumulated deficit)...............  (20,379)   (12,241)    (3,750)      (226)        46
Total stockholders' equity (deficit)..................    9,780     10,420     (3,795)      (187)        85
</TABLE>

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

See Note 1 of "Notes to Consolidated Financial Statements" for a description of
the computation of basic and diluted per share amounts.

                                       17
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

    The following discussion should be read in conjunction with our Consolidated
Financial Statements and Notes thereto contained in Item 8 of this report.
Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report and, in particular, the
factors described below under "Additional Factors That May Affect Future
Results."

OVERVIEW

    We design, produce and sell products under the CRITERION-TM- name
specifically targeted for both the current and evolving high throughput markets.
To develop these products, we have assembled an integrated team of scientists
and engineers with expertise in fluorescence chemistry, biophysics,
biochemistry, chemical and mechanical engineering, electronics and software.
Since our inception in 1988, we have designed, developed and manufactured high
performance clinical diagnostics analyzers and other automated instruments.

    Starting in the second half of 1996, we began focusing on the high
throughput market. Since then our efforts have resulted in the achievement of
several key milestones.

    - In May 1998, we began shipping Analyst-TM- HT, our first-generation
      detection system for the high throughput market. This system was designed
      specifically for the high throughput market and offers multi-mode
      capability, flexibility and performs up to 70,000 screens per day.

    - Later in 1998, we shipped our first ultra-high throughput system,
      Acquest-TM-. Also multi-modal, the Acquest was designed to accept
      microplates with both 384-well and 1,536-well formats. Assay throughput is
      estimated at up to 200,000 tests per day.

    - In June 1999, we began shipping Analyst AD, which was designed
      specifically for assay development and is fully compatible with Analyst
      HT.

    We have developed and are developing value-added, application-specific
reagents, assay kits and microplates, which are being optimized for use in high
throughput systems and specifically for use with our Analyst and Acquest product
lines. In addition, we are currently developing several other consumable
products, including additional assays, which will be optimized to perform with
our instruments. We believe that customers will prefer to purchase consumables
and instruments from a single source for convenience, ongoing support and
accountability.

    As part of our shift in focus, we have de-emphasized our original equipment
manufacturing development activities and have phased out production of all but
one of our original equipment manufacturing instruments. However, we expect to
support and may continue to manufacture products under our agreement with one
customer through 2000 and possibly beyond.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1999 AND 1998

    NET SALES.  Total sales were $9.9 million for the year ended December 31,
1999, as compared to $4.4 million for the year ended December 31, 1998,
representing an increase of $5.5 million or 124%. This increase in sales was due
primarily to an increase in sales volumes of our CRITERION products. We began
shipping and recognizing revenue on our first high throughput product, Analyst,
in the second quarter of 1998, and our follow-on ultra-high throughput product,
Acquest, in the fourth quarter of 1998. As a result, we reported combined
CRITERION product sales of $8.7 million for the year ended December 31, 1999, as
compared to $4.0 million for the year ended December 31, 1998. Sales to a single
customer represented 15% of total sales during fiscal 1999. Sales to this
customer represented less than 10% of our sales in fiscal 1998 and no customer
in fiscal 1998 represented more than 10% of sales. For

                                       18
<PAGE>
additional discussion of risks related to customer concentration, see
"Additional Factors That May Affect Future Results--The Market for Our CRITERION
Product Line Is Concentrated, Which Limits the Number of Our Potential
Customers."

    We decided in 1996 to focus our future efforts on development of our
proprietary CRITERION product platform and not to pursue additional development
or manufacturing agreements for original equipment manufacturing products. We
did, however, record sales of $764,000 related to an original equipment
manufacturing product during the year ended December 31, 1999. This compares to
sales from original equipment manufacturing product sales of $438,000 for the
year ended December 31, 1998, representing an increase of $326,000 or 74%. We
expect comparable sales from original equipment manufacturing products during
2000 but expect little or no original equipment manufacturing product sales in
future periods beyond 2000.

    COST OF SALES.  Cost of sales were $3.6 million for the year ended
December 31, 1999, as compared to $2.5 million for the year ended December 31,
1998, representing an increase of $1.1 million or 43%. This was due primarily to
the significant increase in sales of our CRITERION products. Gross profit, as a
percentage of sales, was 64% for the year ended December 31, 1999, as compared
to 44% for the year ended December 31, 1998. This increase was primarily the
result of favorable product mix and higher manufacturing volumes, which resulted
in better manufacturing overhead cost absorption. We expect that gross profit,
as a percentage of sales, will fluctuate for the next several years based on
sales volumes and product mix for the Analyst, Acquest and related products.

    RESEARCH AND DEVELOPMENT.  Research and development expenses were $6.8
million for the year ended December 31, 1999, as compared to $5.5 million for
the year ended December 31, 1998, representing an increase of $1.3 million or
24%. This increase was primarily due to increased costs associated with the
development of our CRITERION product line platform. The fiscal 1999 percentage
increase in research and development expenses of 24% was significantly lower
than the fiscal 1998 percentage increase of 56% due to our efforts in fiscal
1999 to slow the growth of research and development expense. We expect research
and development expenditures to continue to increase in future periods to
support the development of our CRITERION product line, especially reagents and
SNP related products.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
costs were $8.2 million for the year ended December 31, 1999, as compared to
$5.3 million for the year ended December 31, 1998, representing an increase of
$2.9 million or 54%. This increase was primarily due to increases in marketing
and sales expenses associated with the addition of sales and marketing personnel
and higher marketing expenses for the Analyst and Acquest product lines. This
increase was also due to increases in general and administrative expenses, which
include higher costs associated with the addition of administrative personnel
and higher infrastructure costs associated with our fiscal 1999 headcount
increases. We expect selling, general and administrative expenses to increase in
future periods for the reasons described above.

    INTEREST AND OTHER INCOME, NET.  Net interest and other income was $590,000
for the year ended December 31, 1999, as compared to $629,000 for the year ended
December 31, 1998, representing a decrease of $39,000 or 6%. This decrease was
primarily due to lower interest earned on lower average levels of invested cash,
cash equivalents and investments in 1999 as compared to 1998.

    INTEREST EXPENSE.  Interest expense was $90,000 for the year ended
December 31, 1999, as compared to $35,000 for the year ended December 31, 1998,
representing an increase of $55,000 or 157%. This increase was primarily due to
higher interest paid on a higher average level of debt on our line of credit in
1999 as compared to 1998.

YEARS ENDED DECEMBER 31, 1998 AND 1997

    SALES.  Total sales were $4.4 million for the year ended December 31, 1998,
as compared to $5.2 million for the year ended December 31, 1997, representing a
decrease of $0.8 million or 15%. This

                                       19
<PAGE>
decrease in sales was due primarily to the significant decrease in sales from
original equipment manufacturing and development agreements, which made up all
of the revenue reported in the year ended December 31, 1997, partially offset by
shipments of our first high throughput products in 1998. We began shipping and
recognizing revenue on our first high throughput product, Analyst, in the second
quarter of 1998, and our follow-on ultra-high throughput product, Acquest, in
the fourth quarter of 1998, reporting combined systems sales in excess of $4.0
million for the year ended December 31, 1998. No revenue was recognized under
development agreements for the year ended December 31, 1998, as compared with
$0.6 million recognized under development agreements for the year ended
December 31, 1997. The decrease in sales from original equipment manufacturing
products and development agreements was due to our decision in 1996 to focus our
future efforts on development of our proprietary CRITERION product platform and
not to pursue additional development or manufacturing agreements for original
equipment manufacturing products. Revenue from original equipment manufacturing
product sales was $438,000 for the year ended December 31, 1998, as compared to
$4.6 million for the year ended December 31, 1997, representing a decrease of
$4.2 million. The decrease in original equipment manufacturing product revenue
was due to our increasing focus on our CRITERION product line and the phasing
out of the Luminometer (a microplate reader), the Q2000 (a clinical analyzer)
and the microplate heater products.

    COST OF SALES.  Cost of sales were $2.5 million for the year ended
December 31, 1998, as compared to $2.3 million for the year ended December 31,
1997, representing an increase of $0.2 million or 7%. This increase was
primarily due to our transition in product mix from mature original equipment
manufacturing products to our new CRITERION product line. Gross profit, as a
percentage of product sales, was 44% for the year ended December 31, 1998, as
compared to 49% for the year ended December 31, 1997. This decrease was
primarily the result of decreased absorption of manufacturing overhead resulting
from low production volumes of CRITERION instruments early in 1998.

    RESEARCH AND DEVELOPMENT.  Research and development expenses were $5.5
million for the year ended December 31, 1998, as compared to $3.5 million for
the year ended December 31, 1997, representing an increase of $2.0 million or
56%. This increase was primarily due to increased costs associated with the
development of our CRITERION product line platform, partially offset by a
decrease in the level of research and development expenses incurred in
connection with development agreements for original equipment manufacturing
customers.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
costs were $5.3 million for the year ended December 31, 1998, as compared to
$2.1 million for the year ended December 31, 1997, representing an increase of
$3.2 million or 147%. This increase was primarily due to increases in marketing
and sales expenses associated with the addition of sales and marketing
personnel, as well as marketing expenses for the Analyst and Acquest, and other
increases in general and administrative expenses which include the additional
administrative costs of being a public company.

    INTEREST AND OTHER INCOME, NET.  Net interest and other income was $629,000
for the year ended December 31, 1998, as compared to $237,000 for the year ended
December 31, 1997, representing an increase of $392,000 or 165%. This increase
was primarily due to higher interest earned on higher average levels of invested
cash, cash equivalents and investments in 1998, as compared to 1997, as a result
of the receipt of the proceeds from our IPO.

    INTEREST EXPENSE.  Interest expense was $35,000 for the year ended
December 31, 1998, as compared to $9,000 for the year ended December 31, 1997,
representing an increase of $26,000 or 289%. This increase was primarily due to
higher interest paid on a higher average level of debt in 1998 as compared to
1997, when we did not have a line of credit but did have equipment loan
agreements with a bank related to the purchase of equipment and software.

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<PAGE>
INCOME TAXES

    Prior to June 1997, we were taxed as an S corporation for federal and state
income tax purposes. Under the Internal Revenue Code provisions regarding S
corporations, we were not subject to federal income taxes but were subject to
state income taxes at a reduced rate. As an S corporation, our stockholders paid
taxes on their share of our taxable income in their individual tax returns. In
June 1997, in connection with the preferred stock financing, we became subject
to the C corporation provisions of the Internal Revenue Code pursuant to which
our earnings are taxed for federal and state income tax purposes at the
corporate level. Through June 1997, our profits were distributed to our
stockholders through a combination of compensation, which was treated as an
expense in the Statement of Operations, and dividends. Future distributions are
not expected. During 1999, we recorded a provision for foreign income taxes of
$15,000. At December 31, 1999, we had net operating loss ("NOL") carryforwards
of approximately $18 million and $9 million for federal and state income tax
purposes, respectively, which expire from 2003 to 2020. A full valuation
allowance has been provided for the NOL and all other deferred tax assets as our
management does not consider their realization more likely than not.

LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 1999, we had cash, cash equivalents and investments of
$8.5 million, working capital of $9.3 million and an accumulated deficit of
$20.4 million. We completed an initial public offering of our common stock in
March 1998, raising approximately $12.2 million in cash, net of underwriting
discounts and associated costs. In April 1998, we sold an additional 88,000
shares of common stock in connection with the exercise of an over-allotment
option granted to the underwriters and received cash proceeds, net of
underwriting commissions and associated costs, of approximately $0.6 million. On
January 27, 1999, we raised net cash proceeds of $6.7 million in connection with
a private placement of 2.0 million shares of unregistered restricted common
stock. The terms of the sale required that we file a registration statement
covering such shares, such registration statement was filed and became effective
on July 22, 1999. On February 2, 2000, we received net cash proceeds of
approximately $18.4 million in connection with a private placement of 1.76
million shares of unregistered restricted common stock. The terms of the sale
require that we file a registration statement covering such shares by
February 16, 2000. Prior to our IPO, we satisfied our liquidity needs primarily
through cash flows generated from operations, private sales of preferred stock,
and to a lesser extent, from bank loans for equipment purchases and loans from
stockholders.

    Net cash from operating activities has historically fluctuated based on:

    - the timing of payments of accounts payable balances,

    - receipts of customer deposits,

    - payments of accounts receivable balances,

    - changes in inventory balances resulting from varying levels of
      manufacturing activities and

    - fluctuations in our net loss.

Net cash used in operating activities totaled $8.4 million, $8.1 million and
$2.9 million during the years ended December 31, 1999, 1998 and 1997,
respectively. The fiscal 1999 increase in net cash used in operations, as
compared to 1998, was attributable to changes in accounts receivable, inventory,
other current assets and accrued expenses. This increase in net cash used in
operations was partially offset by a decrease in our fiscal 1999 net loss, as
compared to fiscal 1998, as well as by changes in our accounts payable, customer
deposits and deferred revenue.

    Net cash provided by (used in) investing activities totaled $3.3 million,
$(9.0) million and $(0.4) million during the years ended December 31, 1999, 1998
and 1997, respectively. The increase in net cash provided by investing
activities in fiscal 1999, as compared to the net cash used in investing
activities in fiscal 1998, was primarily due to increased proceeds from the
sales and maturities of investments, net of purchases of investments. The
increase in net cash used in investing activities in fiscal 1998, as compared to

                                       21
<PAGE>
fiscal 1997, was due primarily to purchases of investments, net of sales and
maturities of investments. These financial instruments, like all fixed income
instruments, are subject to interest rate risk and may fluctuate in value if
market interest rates fluctuate. We attempt to limit this exposure by primarily
investing in short-term investments.

    Net cash provided by financing activities totaled $7.1 million, $13.4
million and $7.7 million during the years ended December 31, 1999, 1998 and
1997, respectively. The decrease in net cash from financing activities for
fiscal 1999, as compared to fiscal 1998, was primarily due to lower net proceeds
from our private placement of common stock during the first quarter of 1999,
which raised approximately $6.7 million, net of issuance costs, compared to our
1998 initial public offering and the related exercise of an over-allotment
option granted to the underwriters, which raised approximately $12.8 million in
cash, net of underwriting discounts and associated costs. The lower net cash
from financing activities also resulted from a decrease in the amount drawn
under our line of credit during fiscal 1999, as compared to fiscal 1998. The
increase in net cash from financing activities for fiscal 1998, as compared to
fiscal 1997, was primarily due to higher net proceeds from our 1998 initial
public offering and the related exercise of an over-allotment option granted to
the underwriters, referred to above, compared to our 1997 private placement of
mandatorily redeemable preferred stock, which raised approximately $8.7 million
in cash. The higher net cash from financing activities also resulted from an
increase in the amount drawn under our line of credit during fiscal 1998, as
compared to fiscal 1997 when we did not have a line of credit. Net cash from
financing activities for the year ended December 31, 1997 also included $1.1
million in S corporation distributions to our stockholders.

    In February 1998, we entered into an equipment financing agreement that
provided a $1.3 million line of credit that was used to finance the purchases of
equipment, computers and software necessary to support our CRITERION product
line development effort and additions to the marketing, sales and administrative
infrastructure. The initial term of this agreement was through February 16,
1999. The agreement was extended twice with the latest extension expiring on
December 31, 1999. At December 31, 1999, we had an obligation to repay $0.9
million under this agreement through 2003.

    In June 1997, we entered into a development, license and sales agreement
with FluorRx, Inc. under which we obtained worldwide rights to certain patented
assay technologies. In August 1998, we amended certain terms of this agreement.
Future minimum royalty payments due through 2003 under the agreement amount to
approximately $1.0 million.

    We may be required to raise substantial additional capital over a period of
several years in order to continue to develop and commercialize our products.
Our future capital requirements will depend on numerous factors, including:

    - the costs associated with developing and commercializing our products,

    - broadening our direct marketing and sales force,

    - maintaining existing or entering into future licensing and distribution
      agreements,

    - protecting intellectual property rights,

    - building our business,

    - broadening our product lines to include genotyping of SNPs,

    - expanding facilities and

    - consummating possible future acquisitions of technologies, products or
      businesses.

    Based on our current projections and cash, cash equivalents and short-term
investments balances, including approximately $18.4 million in net cash proceeds
from the February 2, 2000 private placement of 1.76 million shares of our
unregistered restricted common stock, we believe that our cash, cash equivalents
and investments, combined with cash to be generated from operations, will be
sufficient to fund operations for at least the next twelve months.

                                       22
<PAGE>
    We may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. Accordingly, we may be required to
raise additional capital through a variety of sources, including:

    - the public equity market,

    - private equity financing,

    - collaborative arrangements and

    - public or private debt.

There can be no assurance that additional capital will be available on favorable
terms, if at all. If adequate funds are not available, we may be required to
significantly reduce or refocus our operations or to obtain funds through
arrangements that may require us to relinquish rights to certain of our
products, technologies or potential markets; either of which could have a
material adverse effect on our business, financial condition and results of
operations. To the extent that additional capital is raised through the sale of
equity, the issuance of such securities would result in ownership dilution to
our existing stockholders.

IMPACT OF YEAR 2000

    In fiscal 1999, we established a year 2000 Program to address certain year
2000 issues. This program focused on four key areas of readiness:

    - Internal Infrastructure Readiness, addressing internal hardware and
      software, including both information and non-information technology
      systems;

    - Supplier Readiness, addressing the preparedness of suppliers providing
      material incorporated into our products;

    - Product Readiness, addressing product functionality; and

    - Customer Readiness, addressing customer support and transactional
      activity.

    For each readiness area, we performed risk assessment, tested and repaired
year 2000 issues as needed, developed contingency plans as considered necessary
to mitigate unknown risks, and communicated year 2000 information to employees,
suppliers, customers and other third parties.

    INTERNAL INFRASTRUCTURE READINESS.  We completed an assessment of our
internal software applications and information technology hardware and completed
any necessary testing and repairs. These readiness activities were intended to
encompass all major categories of software applications we use, including:

    - those used for manufacturing, engineering, sales, finance, and human
      resources;

    - hardware, including hubs, routers, telecommunication equipment,
      workstations and other items; and

    - non-information technology systems, including embedded systems, facilities
      and other operations, such as financial, banking, security and utility
      systems.

    As of December 31, 1999, we completed the evaluation and necessary testing
and repairs of our mission critical internal infrastructure and determined it to
be year 2000 ready.

    SUPPLIER READINESS.  This area focused on minimizing two components of risk
associated with suppliers:

    - a supplier's product integrity and

    - a supplier's business capability to continue providing products and
      services.

    We identified and contacted key suppliers regarding their relative risks in
these two components. As of December 31, 1999, we had received responses from
approximately 95% of our key suppliers, who indicated that the products provided
to us were year 2000 compliant, or they were in the process of developing or
executing repair plans to address year 2000 issues which may have affected their
ability to continue providing products and services to us. Since we had no way
of testing or validating what third

                                       23
<PAGE>
party suppliers represented to us and given the fact that we had not received
responses from 100% of our key suppliers, as a contingency plan we had enough
material on hand at year end to satisfy our production needs through the first
quarter of 2000.

    PRODUCT READINESS.  This area focused on identifying and resolving year 2000
issues existing in our products. This area encompassed a number of activities,
including testing, evaluation, engineering and manufacturing implementation. As
of December 31, 1999, we had completed a year 2000 readiness assessment for our
current generation of released CRITERION products based upon a series of
industry-recognized testing parameters and had determined that these products
were year 2000 ready.

    CUSTOMER READINESS.  This area focused on customer readiness as it related
to our responsibility to provide customer support, including retrofitting
products as well as providing other services to our customers. Primarily due to
our product readiness efforts regarding our current generation of released
products, we completed our assessment of year 2000 risk in this area and
determined that there were no issues to address as of December 31, 1999.

    SUMMARY.  As of December 31, 1999, we completed our year 2000 readiness
program for internal infrastructure, product and customer readiness. Regarding
supplier readiness, since we had no way of testing or validating what third
party suppliers represented to us and given the fact that we had not received
responses from 100% of our key suppliers, we had enough material on hand at year
end to satisfy our production needs through the first quarter of 2000. Our
overall cost to address year 2000 issues was not material. As of January 31,
2000, we have not had any Year 2000 readiness issues. Although we are not aware
of any Year 2000 readiness issues affecting us at this time, there can be no
assurance that issues, not yet apparent to us, will not arise during the year
2000 and beyond.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

    WE DESIRE TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND OF SECTION 21E AND RULE 3B-6 UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SPECIFICALLY, WE WISH TO ALERT READERS THAT
THE FOLLOWING IMPORTANT FACTORS, AS WELL AS OTHER FACTORS INCLUDING, WITHOUT
LIMITATION, THOSE DESCRIBED ELSEWHERE IN REPORTS WE HAVE FILED WITH THE SEC AND
INCORPORATED INTO THIS ANNUAL REPORT ON FORM 10-K BY REFERENCE, COULD IN THE
FUTURE AFFECT, AND IN THE PAST HAVE AFFECTED, OUR ACTUAL RESULTS AND COULD CAUSE
OUR RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY
FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF US. WE ASSUME NO OBLIGATION
TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

SINCE WE ADOPTED OUR CURRENT BUSINESS STRATEGY IN 1996, WE HAVE CONSISTENTLY HAD
OPERATING LOSSES; THE MARKET FOR OUR CRITERION PRODUCTS IS RELATIVELY NEW AND
UNDEFINED, AND WE MAY NEVER ACHIEVE PROFITABILITY

    We began implementing our current strategic business model to develop
products for the high throughput market in 1996 and we began targeting the SNP
genotyping market in 1999. In connection with this change in strategy, we
shifted our focus from developing and manufacturing clinical diagnostic and
research products on an original equipment manufacturing basis to developing,
manufacturing and marketing products for the high throughput market. As a
result, our historical operating and financial performance is generally not
indicative of future financial and business results. We incurred operating
losses for the years ended December 31, 1999, 1998 and 1997 as a result of our
change in business strategy and anticipate that we may continue to incur losses
for at least the next several years, due to the substantial increases in
expenditures necessary to continue to develop and commercialize our CRITERION
product line. We began commercial shipments of our first high throughput
instrument, the Analyst HT, in the second quarter of 1998, we began commercial
shipments of our ultra-high throughput product, Acquest, in the fourth quarter
of 1998 and began commercial shipments of our Analyst AD instrument in June
1999. Accordingly, we are subject to the risks inherent in the operation of a
new business, such as:

    - the failure to develop effective sales, marketing and distribution
      channels;

                                       24
<PAGE>
    - failure to achieve market acceptance and demand for our CRITERION product
      line;

    - failure to effectively service and maintain the CRITERION product line;

    - failure to implement commercial scale-up of developed CRITERION product
      line products; and

    - failure to attract and retain key personnel.

    Furthermore, the high throughput market is new and undefined, and the use of
high throughput products by pharmaceutical and biotechnology companies is
limited. Demand for our CRITERION product line instruments will depend upon the
extent to which pharmaceutical and biotechnology companies adopt high throughput
analysis as a drug discovery tool. If high throughput analysis does not become
widely used, demand for our products will not develop as we currently expect or
at all. The lack of demand for our CRITERION product line products would have a
material adverse effect on our business, financial condition and results of
operations.

BECAUSE WE ARE IN THE EARLY STAGE OF INSTRUMENT DEVELOPMENT OF CERTAIN OF OUR
CRITERION PRODUCT LINE, OUR ABILITY TO DEVELOP AND COMMERCIALIZE THESE PRODUCTS
IS UNCERTAIN

    Our success will depend on our ability to develop and commercialize our
CRITERION product line instruments. We began commercial shipments of our first
high throughput instrument, the Analyst HT, in the second quarter of 1998, we
began commercial shipments of our ultra-high throughput product, Acquest, in the
fourth quarter of 1998 and began commercial shipments of our Analyst AD
instrument in June 1999. We had not previously developed or commercialized
products for the high throughput market before this time. We are also developing
new technologies and products for our CRITERION product line, such as the FLARe
and ScreenStation instruments. The successful implementation and operation of
our CRITERION product line, including the new technologies and products
currently being developed, is a complex process requiring the integration and
maintenance of, among other technologies:

    - advanced optics;

    - electronics;

    - robotics;

    - microfluidics;

    - fluorescence detector technologies; and

    - software and information systems.

    Even if our current and future CRITERION products appear promising at
commercial launch, they may not achieve market acceptance at a level necessary
to enable production at a reasonable cost, to support the required sales and
marketing effort, to cost effectively service and maintain, and to support
continuing research and development costs. In addition, our CRITERION product
line instruments may:

    - be difficult or overly expensive to produce;

    - fail to achieve performance levels expected by customers;

    - have a price level that is unacceptable in our targeted industries; or

    - be precluded from commercialization by the proprietary rights of others or
      other competitive forces.

    There can be no assurance that we will be able to successfully manufacture
and market our CRITERION products on a timely basis, achieve anticipated
performance levels or throughputs, gain and maintain industry acceptance of our
CRITERION products or develop a profitable business. The failure to achieve any
of these objectives would have a material adverse effect on our business,
financial condition and results of operations.

BECAUSE WE ARE IN THE EARLY STAGE IN DEVELOPMENT, OUR ABILITY TO DEVELOP
REAGENTS AND ASSAY KITS IS UNCERTAIN

    We expect in the future that a substantial portion of our revenues may be
derived from the sale of reagents, assay kits and microplates. We have limited
experience in the development, manufacture and

                                       25
<PAGE>
marketing of reagents, assay kits and microplates, having only recently
introduced our first assay kits and microplates, HE-TM- (High Efficiency). We
intend to continue to license assay technologies from third parties and to
develop reagents, assay kits and microplates internally. We may not succeed in
licensing any additional assay technologies on acceptable terms, if at all, and
we may not successfully commercialize any reagents that we license. In addition,
we are internally developing reagents, assay kits and microplates, but have
limited experience in this area. We may not successfully develop additional
reagents, assay kits or microplates internally, and any reagents, assay kits or
microplates we do develop may not achieve market acceptance. We intend to
outsource the manufacture of microplates and, as sales volumes increase, to also
outsource the manufacture of reagents and assay kits. We may not be able to
enter into agreements with third parties for the manufacture of reagents, assay
kits or microplates on terms commercially acceptable to us or at all. In
addition, we intend to sell reagents, assay kits and microplates to purchasers
of our CRITERION product line instruments, including the Analyst HT, Analyst AD
and Acquest. Sales of the Analyst HT, Analyst AD and Acquest may not be
sufficient to support this strategy. A failure to achieve commercial acceptance
of our reagents, assay kits and microplates would have a material adverse effect
on our business, financial condition and results of operations.

BECAUSE WE DEPEND ON DEVELOPING TECHNOLOGIES AND OUR MARKETS ARE SUBJECT TO
RAPID TECHNOLOGICAL CHANGE, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS

    The pharmaceutical, biotechnology and genomics instrumentation and reagents
markets are characterized by rapid technological change and frequent new product
introductions by many competitors. Our future success will depend on our ability
to enhance and maintain our current and planned CRITERION product line products
and to develop and introduce, on a timely basis, new technologies and products
that address the evolving needs of our customers. These new technologies and
products include but are not limited to fluorescence-based reagents and assay
kits, products based on our ScreenStation-TM-, FLARe-TM- and SmartOptics-TM-
technologies, as well as future additions to our SNP genotyping platform.
Development of these new technologies subjects us to significant risks and
uncertainties, as we may encounter unanticipated technical issues that may cause
development delays. These technical issues may require us to cancel such
development programs altogether, if we are unable to find solutions to these
issues. Even if development is successful, we anticipate that production units
for these new products may not be available for several months or years, if at
all. The production of CRITERION product line instruments, microplates,
fluorescence-based reagents and assay kits may present manufacturing challenges.
We may experience difficulties that could delay or prevent the successful
manufacturing, introduction and marketing of our new products or our product
enhancements. Any failure to manufacture and introduce products in a timely
manner in response to changing market demands or customer requirements could
have a material adverse effect on our business, financial condition and results
of operations.

WE HAVE LIMITED SALES, MARKETING AND SERVICE EXPERIENCE AND MAY NOT BE ABLE TO
DEVELOP A DIRECT SALES AND SERVICE FORCE OR DISTRIBUTION CHANNELS THAT CAN MEET
OUR CUSTOMERS NEEDS, AND OUR FAILURE TO DO SO WILL HURT OUR FINANCIAL RESULTS

    We have limited experience in direct marketing, sales, service and
distribution. Our future profitability will depend on our ability to further
develop a direct sales and service force to sell and maintain our CRITERION
product line. Our products are technical in nature and we therefore believe it
is necessary to develop a direct sales and service force consisting of people
with scientific backgrounds and expertise. Competition for such employees is
intense. We may not be able to attract and retain qualified sales and service
personnel or be able to build an efficient and effective sales, support and
marketing organization. Failure to attract or retain qualified sales and service
personnel or to build such a sales, support and marketing organization would
have a material adverse effect on our business, financial condition and results
of operations.

                                       26
<PAGE>
    We are marketing our CRITERION product line in certain international markets
through distributors. While we currently have two distributors in international
markets, one in Japan and another with the territory of Belgium, Netherlands and
Luxembourg, there can be no assurance that we will be able to engage additional
qualified distributors. Such distributors may:

    - fail to satisfy financial or contractual obligations to us;

    - fail to adequately market our products;

    - cease operations with little or no notice to us; or

    - offer, design, manufacture or promote competing product lines.

    The failure to develop and maintain effective distribution channels could
have a material adverse effect on our business, financial condition and results
of operations.

WE PARTICIPATE IN A HIGHLY COMPETITIVE MARKET AND OUR PRODUCTS MAY NOT BE
ACCEPTED IN THE MARKET

    The market for high throughput instrumentation, assays for drug discovery
and SNP genotyping is highly competitive. We anticipate that competition will
increase significantly as more customers adopt high throughput tools for drug
discovery and SNP genotyping, and as competitors enter the market with new
advanced technologies and products. We are competing in many areas, including
high throughput instruments, assay development, consumables and reagent sales.
We compete with companies that directly market high throughput products. In
addition, pharmaceutical and biotechnology companies, academic institutions,
governmental agencies and other research organizations are conducting research
and developing products in various areas which compete with our technology
platform, either on their own or in collaboration with others. As a result, our
potential customers may choose not to purchase our products. Our potential
customers may assemble and run high throughput systems by purchasing products
from competitors or making their own. Further, certain companies offer screening
and genotyping services on a contract or collaborative basis, and these services
could eliminate the need for a potential customer to purchase our products. Our
technological approaches may be rendered obsolete or uneconomical by advances in
existing technological approaches or the development of different approaches by
one or more of our current or future competitors. Many of these competitors have
greater financial and personnel resources, and more experience in research and
development, sales and marketing and other areas than us.

THE MARKET FOR OUR CRITERION PRODUCT LINE IS CONCENTRATED, WHICH LIMITS THE
NUMBER OF OUR POTENTIAL CUSTOMERS

    We currently market our CRITERION product line to pharmaceutical,
biotechnology and genomics companies, as well as academic institutions; however,
our primary marketing efforts and the majority of our sales are to
pharmaceutical companies. Our market for high throughput and ultra-high
throughput products is highly concentrated, with approximately 50 large
pharmaceutical companies operating a substantial portion of our targeted drug
discovery laboratories. In 1999, sales to a single customer accounted for 15% of
our sales. We expect a relatively small number of customers will continue to
account for a substantial portion of our revenues. We face risks associated with
a highly concentrated customer base to which we sell our CRITERION product line
products, including the failure to establish or maintain relationships within a
limited customer pool, or substantial financial difficulties or decreased
capital spending by our customers, any of which could have a material adverse
effect on our business, financial condition and results of operations.

OUR PRODUCTS HAVE LENGTHY SALES CYCLES, WHICH COULD CAUSE OUR OPERATING RESULTS
TO FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER

    The sale of our CRITERION product line products typically involves a
significant technical evaluation and commitment of capital by customers.
Accordingly, the sales cycle associated with our products is expected to be
lengthy and subject to a number of significant risks, including customers'
budgetary

                                       27
<PAGE>
constraints and internal acceptance reviews, that are beyond our control. Due to
this lengthy and unpredictable sales cycle, our operating results could
fluctuate significantly from quarter to quarter.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO SCALE-UP OUR
MANUFACTURING OPERATIONS TO COMMERCIAL LEVELS

    We are producing certain of our CRITERION products in limited quantities,
and have not yet manufactured other CRITERION products and reagents and assay
kits in significant quantities. We may encounter difficulties in scaling up
production of our CRITERION product line due to, among other things, quality
control and assurance, component supply and availability of qualified personnel.
Even if we successfully develop and introduce our CRITERION products to market,
we may not be able to manufacture or support them in sufficient quantities at
acceptable cost while meeting quality control standards. We intend to outsource
the manufacture of microplates and, as sales volumes increase, to evaluate
outsourcing the manufacture of reagents and assay kits. Difficulties encountered
in the manufacturing scale-up of other products in our CRITERION product line
could have a material adverse effect on our business, financial condition and
results of operations.

WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH

    Our success will depend on the expansion of our operations and the effective
management of growth, which will place a significant strain on our management,
operational and financial resources. To manage such growth, we must expand our
facilities, augment our operational, financial and management systems and hire
and train additional qualified personnel. Our failure to manage growth
effectively would have a material adverse effect on our business, financial
condition and results of operations.

WE DEPEND UPON KEY PERSONNEL WHO MAY TERMINATE THEIR EMPLOYMENT WITH US AT ANY
TIME; WE NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL

    Our success will depend to a significant degree upon the continued services
of key management, technical, and scientific personnel, including Lev J. Leytes,
the Chairman of our Board of Directors, President and Chief Executive Officer.
In addition, our success will depend on our ability to attract and retain other
highly skilled personnel. Competition for qualified personnel is intense, and
the process of hiring such qualified personnel is often lengthy. There can be no
assurance that we can recruit such personnel on a timely basis, if at all. Our
management and other employees may voluntarily terminate their employment with
us at any time. The loss of the services of key personnel, or the inability to
attract and retain additional qualified personnel, could have a material adverse
effect on our business, financial condition and results of operations.

BECAUSE WE DEPEND ON SUPPLIERS AND CONTRACT MANUFACTURERS, WE ARE SUBJECT TO
RISKS BEYOND OUR CONTROL

    Certain components used in our CRITERION product line are currently
purchased from a single or a limited number of outside sources. The reliance on
a sole or limited number of suppliers could result in:

    - delays associated with redesigning a product due to a failure to obtain a
      single source component;

    - an inability to obtain an adequate supply of required components; and

    - reduced control over pricing, quality and timely delivery.

    We do not maintain long-term agreements with any of our suppliers, and
therefore the supply of a particular component could be terminated at any time
without penalty to the supplier. Any interruption in the supply of single source
components could have a material adverse effect on our business, financial
condition and results of operations. We intend to rely on contract
manufacturers, some of which may be single source vendors, for the development,
manufacture and supply of certain of our reagents, assay kits and microplates.
There can be no assurance that we will be able to enter into such manufacturing
contracts on commercially reasonable terms, if at all, or that our current or
future contract manufacturers will meet

                                       28
<PAGE>
our requirements for quality, quantity or timeliness. If the supply of any
components, reagents, assay kits or microplates is interrupted, components,
reagents, assay kits and microplates from alternative suppliers and contract
manufacturers may not be available in sufficient volumes within required
timeframes, if at all, to meet our production needs.

WE HAVE AN ACCUMULATED DEFICIT AND OUR FUTURE PROFITABILITY IS UNCERTAIN

    As of December 31, 1999, we had an accumulated deficit of approximately
$20.4 million. The expansion of our operations and continued development of our
CRITERION product line will require a substantial increase in sales, marketing
and research and development expenditures for at least the next several years.
As a result, we expect to incur operating losses for the next several years. Our
profitability will depend on our ability to successfully develop, support and
commercialize our CRITERION product line. Accordingly, the extent of future
losses and the time required to achieve profitability, if achieved at all, is
highly uncertain. Moreover, if profitability is achieved, the level of such
profitability cannot be predicted and may vary significantly from quarter to
quarter.

WE MAY NEED TO RAISE CAPITAL IN THE FUTURE AND ADDITIONAL FUNDING IS UNCERTAIN

    We may be required to raise substantial additional capital over a period of
several years in order to develop and commercialize our products. Our future
capital requirements will depend on numerous factors, including the costs
associated with:

    - developing and commercializing our products;

    - developing a direct marketing, service and sales force;

    - maintaining existing, or entering into future, licensing and distribution
      agreements;

    - protecting intellectual property rights;

    - expanding our reagents and assay kits business;

    - broadening our product lines to include genotyping of SNPs;

    - expanding facilities; and

    - consummating possible future acquisitions of technologies, products or
      businesses.

    We may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. Accordingly, we may be required to
raise additional capital through a variety of sources, including the public
equity market, private equity financing, collaborative arrangements, and public
or private debt. Additional capital may not be available on acceptable terms, if
at all. If adequate funds are not available, we may be required to significantly
reduce or refocus our operations or to obtain funds through arrangements that
may require us to relinquish rights to certain of our products, technologies or
potential markets, which would have a material adverse effect on our business,
financial condition and results of operations. To the extent that additional
capital is raised through the sale of equity or convertible securities, the
issuance of such securities would result in ownership dilution to our existing
stockholders.

WE HAVE INTERNATIONAL SALES AND OPERATIONS, WHICH SUBJECT US TO RISKS RELATED TO
FOREIGN CURRENCY EXCHANGE RATES, TARIFFS, FOREIGN REGULATIONS, IMPORT AND EXPORT
RESTRICTIONS AND DIFFICULTIES MANAGING AND STAFFING INTERNATIONAL OPERATIONS.

    We sell products in foreign countries in local currencies, which exposes us
to foreign currency exchange risk. In order to reduce the risk from fluctuation
in foreign currency exchange rates, the U.S. dollar is the functional currency
for our UK subsidiary; however, our UK subsidiary often bills its customers in
the customers' local currencies. Foreign currency assets and liabilities are
translated into U.S. dollars at end-of-period exchange rates, except for
property and equipment, which is translated at historical exchange rates. Sales
and expenses are translated at average exchange rates in effect during each
period, except for those expenses related to balance sheet amounts, which are
translated at historical

                                       29
<PAGE>
exchange rates. Gains or losses from foreign currency transactions are included
in net income (loss) and to date have not been material. We have not entered
into any currency hedging activities but may choose to do so in the future.

    We expect that international sales could account for a significant portion
of our total sales in the future. International sales and operations are subject
to a number of risks, including:

    - the imposition of government controls;

    - export license requirements;

    - restrictions on the export of critical technology;

    - political and economic instability or conflicts;

    - trade restrictions;

    - changes in tariffs and taxes;

    - difficulties in staffing and managing international operations;

    - problems in establishing or managing distributor relationships; and

    - general economic conditions.

    In addition, as we expand our international operations and the amount of
sales invoiced in local currencies becomes a larger portion of our business,
fluctuations in the value of foreign currencies relative to the U.S. dollar may
adversely affect our business, financial condition and results of operations.

WE MAY ACQUIRE TECHNOLOGIES AND BUSINESSES, WHICH COULD EXPOSE US TO ADDITIONAL
RISKS AND BE DILUTIVE TO EXISTING STOCKHOLDERS

    We may acquire certain technologies, products or businesses to broaden the
scope of our existing and planned product lines and technologies. Such
acquisitions would expose us to:

    - the risks associated with the assimilation of new technologies,
      operations, sites and personnel;

    - the diversion of resources from our existing business and technologies;

    - the inability to generate revenues to offset associated acquisition costs;

    - the requirement to maintain uniform standards, controls, and procedures;
      and

    - the impairment of relationships with employees and customers as a result
      of any integration of new management personnel.

    Acquisitions may also result in the issuance of dilutive equity securities,
the incurrence or assumption of debt or additional expenses associated with the
amortization of acquired intangible assets or potential businesses. Our failure
to successfully address such risks could have a material adverse effect on our
business, financial condition and results of operations.

THIRD PARTY INTELLECTUAL PROPERTY RIGHTS MAY LIMIT OUR ABILITY TO DEVELOP,
SUPPORT AND SELL OUR PRODUCTS; WE HAVE LICENSED TECHNOLOGY THAT WE USE IN OUR
PRODUCTS, BUT WE COULD LOSE RIGHTS TO THIS TECHNOLOGY AND THE ABILITY TO SELL
AND SUPPORT OUR PRODUCTS IF WE MATERIALLY BREACH THIS LICENSE

    Our success will depend in part on our ability to obtain patents, maintain
trade secret protection and operate without infringing the proprietary rights of
others. As of January 31, 2000, LJL held five U.S. patents and had fourteen
pending U.S. patent applications, one pending European patent application, one
pending Israeli patent application, one pending Japanese patent application,
eleven pending international patent applications, and twenty-three pending U.S.
provisional patent applications. To supplement our proprietary technology, we
have licensed, and expect to continue to license from time to time, certain
patent rights from third parties. In the event of a material breach by us, these
licenses may be terminated. Furthermore, under some of these agreements, the
licensors may elect to convert the exclusive rights into non-exclusive rights in
the event that we fail to make certain minimum royalty payments. If the
licensors were to terminate certain of these licenses due to a material breach
of the license by us, then we would lose the right to incorporate the licensed
technology into our products, which would require us to exclude this

                                       30
<PAGE>
certain technology from our existing and future products and either license or
internally develop alternative technologies. There can be no assurance that we
would be able to license alternative technologies on commercially acceptable
terms, or at all, or that we would be capable of internally developing such
technologies. Furthermore, other companies may independently develop technology
with functionality similar or superior to the licensed technology that does not
or is claimed not to infringe the licensed patents or that otherwise circumvents
the technology we have licensed.

    We are aware of third party patents that contain issued claims that may
cover certain aspects of our reagent technologies. In the future we may be
required to license third-party patents to produce certain reagents, assay kits
and related products. Licenses for such patents may not be available on
commercially acceptable terms, if at all. Any action against us claiming damages
and seeking to enjoin commercial activities relating to the affected
technologies could subject us to potential liability for damages. We could incur
substantial costs in defending patent infringement claims, obtaining patent
licenses, engaging in interference and opposition proceedings or other
challenges to our patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. Our inability to obtain necessary licenses or our involvement in
proceedings concerning patent rights could have a material adverse effect on our
business, financial condition and results of operations.

    The patent positions of life science product companies, including ours, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued. Consequently, there can be no assurance that our patent
applications or those of our licensors will result in patents being issued or
that any issued patents will provide protection against competitive technologies
or will be held valid if challenged or circumvented. Others may independently
develop products similar to our products, or design around or otherwise
circumvent patents issued to us. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, we could be prevented
from practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each of such patents or to redesign
our products or processes to avoid infringement. There can be no assurance that
such licenses would be available or, if available, would be on terms acceptable
to us or that we would be successful in any attempt to redesign our products or
processes to avoid infringement. If we do not obtain the necessary licenses, we
could be subject to litigation and encounter delays in product introductions
while we attempt to design around such patents. Alternatively, the development,
manufacture or sale of such products could be prevented. Litigation would result
in significant costs to us as well as diversion of management time. Adverse
determinations in any such proceedings could have a material adverse effect on
our business, financial condition and results of operations.

    We also rely on trade secret and copyright law, as well as employee and
third-party nondisclosure agreements to protect our intellectual property rights
in our products and technology. There can be no assurance that these agreements
and measures will provide meaningful protection of our trade secrets,
copyrights, know-how, or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure. In addition, others may
independently develop substantially equivalent proprietary technologies.
Litigation to protect our trade secrets or copyrights would result in
significant costs to us as well as diversion of management time. Adverse
determinations in any such proceedings or unauthorized disclosure of our trade
secrets could have a material adverse effect on our business, financial
condition and results of operations. In addition, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
U.S. laws. There can be no assurance that we will be able to protect our
intellectual property in these markets.

SOME OF OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION, AND THE FAILURE BY US
OR OUR ORIGINAL EQUIPMENT MANUFACTURING CUSTOMERS TO COMPLY WITH GOVERNMENT
REGULATIONS COULD LIMIT OUR SALES OF THESE PRODUCTS

    While we believe that none of our CRITERION product line will be regulated
as medical devices or otherwise subject to FDA regulation, our clinical
diagnostics products, including the Luminometer, Q2000,

                                       31
<PAGE>
Horizon and a microplate heater, are subject to FDA regulation as medical
devices, as well as similar foreign regulation. The process of obtaining and
maintaining required regulatory clearances and approvals and otherwise remaining
in regulatory compliance in the U.S. and certain other countries is lengthy,
expensive and uncertain. Although we have phased out production of the
Luminometer, Q2000 and the microplate heater, we will continue to manufacture
the Horizon on an original equipment manufacturing basis during 2000 but do not
expect to manufacture the Horizon after 2000. The Horizon is used in research
and clinical laboratories to perform in vitro diagnostic tests, which are exempt
from investigational device exemption requirements, including the need to obtain
the FDA's prior approval, provided that, among other things:

    - the testing is noninvasive;

    - the product is not used as a diagnostic procedure without confirmation by
      another medically established test or procedure; and

    - distribution controls are established to assure that in vitro diagnostic
      products distributed for research are used only for those purposes.

    To our knowledge, our original equipment manufacturing customers have met
these conditions. However, the FDA may not agree that our original equipment
manufacturing customers' distribution of our clinical diagnostic products meets
and have met the requirements for investigational device exemption. Failure by
us, our original equipment manufacturing customers or the recipients of our
clinical diagnostic products to comply with the investigational device exemption
requirements could result in enforcement action by the FDA, which could
adversely affect us or our original equipment manufacturing customers' ability
to gain marketing clearance or approval of these products or could result in the
recall of previously distributed products.

    Applicable law requires that we comply with the FDA's regulations for the
manufacture of the Horizon. The FDA monitors compliance with its regulations by
subjecting medical product manufacturers to periodic FDA inspections of their
manufacturing facilities. The FDA has recently revised its regulations, and the
new regulations impose design controls and make other significant changes in the
requirements applicable to manufacturers. We are also subject to other
regulatory requirements, and may need to submit reports to the FDA, including
adverse event reporting. Failure to comply with current FDA regulations or other
applicable legal requirements can lead to, among other things:

    - warning letters;

    - seizure of violative products;

    - suspension of manufacturing, government injunctions; and

    - potential civil or criminal liability on our part and the part of the
      responsible officers and employees.

    In addition, the government may halt or restrict continued sale of such
instruments. In conjunction with the export of our clinical diagnostics
instruments, we maintain International Organization for Standardization ("ISO")
9001 certification and apply the CE mark to certain products that are exported,
which subjects our operations to periodic surveillance audits. While we believe
we are currently in compliance with all applicable regulations and standards,
there can be no assurance that our operations will be found to comply with these
regulations or standards or other applicable legal requirements in the future or
that we will not be required to incur substantial costs to maintain our
compliance with existing or future manufacturing regulations, standards or other
requirements. Any such noncompliance or increased cost of compliance could have
a material adverse effect on our business, results of operations and financial
condition.

    We are also subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection,
storage, use and disposal of hazardous or potentially hazardous substances. Any
material failure to comply with such laws could require us to incur significant
costs and would have a material, adverse effect upon our ability to do business.
Changes in existing

                                       32
<PAGE>
requirements or adoption of new requirements or policies relating to government
regulations could materially and adversely affect our ability to comply with
such requirements.

WE USE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE MATERIALS BY OUR
EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT FINANCIAL PENALTIES

    Our research and development and manufacturing operations involve the use of
hazardous materials, biological samples and chemicals. In the future, we plan to
manufacture certain reagents, some of which likely will contain hazardous
materials, including carcinogens. We are subject to federal, state and local
laws and regulations governing the storage, use and disposal of such materials
and certain waste products. The risk of accidental contamination or injury from
the use of these materials cannot be completely eliminated. In the event of an
accident, we could be held liable for damages that result and any such liability
could exceed our resources, which would have a material adverse effect on us. We
may incur substantial costs to comply with environmental and safety regulations
if we develop our own commercial reagents manufacturing facility.

YEAR 2000 PROBLEMS COULD ADVERSELY IMPACT OUR BUSINESS

    In fiscal 1999, we established a year 2000 Program to address certain year
2000 issues. This program focuses on four key areas of readiness:

    - Internal Infrastructure Readiness, addressing internal hardware and
      software, including both information and non-information technology
      systems;

    - Supplier Readiness, addressing the preparedness of suppliers providing
      material incorporated into our products;

    - Product Readiness, addressing product functionality; and

    - Customer Readiness, addressing customer support and transactional
      activity.

    For each readiness area, we performed risk assessment, tested and repaired
year 2000 issues as needed, developed contingency plans as considered necessary
to mitigate unknown risks, and communicated year 2000 information to employees,
suppliers, customers and other third parties.

    INTERNAL INFRASTRUCTURE READINESS.  We completed an assessment of our
internal software applications and information technology hardware and completed
any necessary testing and repairs. These readiness activities were intended to
encompass all major categories of software applications we use, including:

    - those used for manufacturing, engineering, sales, finance, and human
      resources;

    - hardware, including hubs, routers, telecommunication equipment,
      workstations and other items; and

    - non-information technology systems, including embedded systems, facilities
      and other operations, such as financial, banking, security and utility
      systems.

    As of December 31, 1999, we completed the evaluation and any necessary
testing and repairs of our mission critical internal infrastructure and
determined it to be year 2000 ready.

    SUPPLIER READINESS.  This area focused on minimizing two components of risk
associated with suppliers:

    - a supplier's product integrity; and

    - a supplier's business capability to continue providing products and
      services.

    We identified and contacted key suppliers regarding their relative risks in
these two components. As of December 31, 1999, we had received responses from
approximately 95% of our key suppliers, who indicated that the products provided
to us were year 2000 compliant, or they were in the process of developing or
executing repair plans to address year 2000 issues which may have affected their
ability to continue providing products and services to us. Since we had no way
of testing or validating what third

                                       33
<PAGE>
party suppliers represented to us and given the fact that we had not received
responses from 100% of our key suppliers, as a contingency plan we had enough
material on hand at year end to satisfy our production needs through the first
quarter of 2000.

    PRODUCT READINESS.  This area focuses on identifying and resolving year 2000
issues existing in our products. This area encompassed a number of activities,
including testing, evaluation, engineering and manufacturing implementation. As
of December 31, 1999, we had completed a year 2000 readiness assessment for our
current generation of released CRITERION products based upon a series of
industry-recognized testing parameters and had determined that these products
were year 2000 ready.

    CUSTOMER READINESS.  This area focused on customer readiness as it related
to our responsibility to provide customer support, including retrofitting
products as well as providing other services to our customers. Primarily due to
our product readiness efforts regarding our current generation of released
products, we completed our assessment of year 2000 risk in this area and
determined that there were no issues to address as of December 31, 1999.

    SUMMARY.  As of December 31, 1999, we completed our year 2000 readiness
program for internal infrastructure, product and customer readiness. Regarding
supplier readiness, since we had no way of testing or validating what third
party suppliers represent to us and given the fact that we had not received
responses from 100% of our key suppliers, we had enough material on hand at year
end to satisfy our production needs through the first quarter of 2000. Our
overall cost to address year 2000 issues was not material. As of January 31,
2000, we have not had any Year 2000 readiness issues. Although we are not aware
of any Year 2000 readiness issues affecting us at this time, there can be no
assurance that issues, not yet apparent to us, will not arise during the year
2000 and beyond

OUR FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE

    Our future operating results are likely to fluctuate substantially from year
to year and quarter to quarter. The degree of fluctuation will depend on a
number of factors, including:

    - the timing and level of sales;

    - the mix of products sold through direct sales channels and third party
      distributors; and

    - any change in the product mix among our existing and planned product
      lines.

    Fluctuations of these factors could have a material adverse effect on our
business, financial condition and results of operations. Because we expect a
significant portion of our business to be derived from orders placed by a
limited number of large customers, variations in the timing of such orders could
cause significant fluctuations in our operating results. Other factors that may
result in fluctuations in operating results include:

    - industry acceptance of high throughput and ultra-high throughput products
      as a drug discovery tool;

    - market acceptance of our products;

    - the timing of new product announcements and the introduction of new
      products and new technologies by us or our competitors;

    - delays in research and development of new products;

    - increased research and development expenses;

    - increased marketing and sales expenses associated with the implementation
      of our direct marketing efforts;

    - increased spending to develop and market our SNP genotyping product lines;

    - availability and cost of component parts from our suppliers;

    - competitive pricing pressures; and

    - developments with respect to regulatory matters.

                                       34
<PAGE>
    In connection with future introductions of new products, we may be required
to record charges for inventory obsolescence in connection with unsold
inventory, if any, of older generations of products.

    Our expenditures for research and development, selling, support and
marketing and general and administrative functions are based in part on future
revenue projections. We may be unable to adjust spending in a timely manner in
response to any unanticipated declines in revenues, which may have a material
adverse effect on our business, financial condition and results of operations.
We may be required to reduce prices in response to competitive pressures or
other factors or increase spending to pursue new market opportunities. Any
decline in the average selling price of a product which is not offset by a
reduction in product costs or by sales of other products with higher gross
margins would decrease our overall gross profit and adversely affect our
business, financial condition and results of operations. In addition, our
operating results may vary from the expectations of public market analysts and
investors, and, as a result, the price of our common stock could be materially
and adversely affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The following discussion about our market risk disclosures contains
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We assume no obligation to update
these forward-looking statements. We are exposed to market risk related to
changes in interest rates and foreign currency exchange rates. We do not use
derivative financial instruments for speculative or trading purposes.

    INTEREST RATE RISK.  Our strategy to manage interest rate risk is to invest
primarily in cash equivalents and short-term marketable securities with at least
an investment grade rating to minimize interest rate and credit risk as well as
to provide for appropriate liquidity. We diversify our cash equivalents and
marketable securities portfolio by investing in multiple types of short-term
investment grade securities. Interest rates payable on our debt are generally
fixed. Based on these factors, we do not believe that near-term changes in
interest rates will have a material effect on our future results of operations.

    FOREIGN CURRENCY RISK.  We have a wholly owned UK subsidiary which exposes
us to foreign currency exchange rate risk. The U.S. dollar is the functional
currency for our UK subsidiary; however, we do enter into transactions in
currencies other than the U.S. dollar or pound sterling. Monetary and
non-monetary assets and liabilities of our UK subsidiary are remeasured into
U.S. dollars at period end and historical exchange rates, respectively. Sales
and expenses are remeasured at average exchange rates in effect during each
period, except for those expenses related to non-monetary assets, which are
remeasured at historical exchange rates. Gains or losses resulting from foreign
currency transactions are included in net loss and to date have not been
material. We have not entered into any currency hedging activities but may
choose to do so in the future.

                                       35
<PAGE>
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                          --------
<C>         <S>                                                           <C>
            Report of Independent Accountants...........................     37

            Consolidated Balance Sheet..................................     38

            Consolidated Statement of Operations........................     39

            Consolidated Statement of Stockholders' Equity (Deficit)....     40

            Consolidated Statement of Cash Flows........................     41

            Notes to Consolidated Financial Statements..................     42

Schedules:

    II      Valuation and Qualifying Accounts...........................     59
</TABLE>

                                       36
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

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

    In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of LJL BioSystems, Inc. and its subsidiary at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index 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 audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP

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

                                       37
<PAGE>
                              LJL BIOSYSTEMS, INC.

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
ASSETS

Current assets:
  Cash and cash equivalents.................................  $ 3,891,000   $ 1,831,000
  Short-term investments....................................    4,567,000     5,510,000
  Accounts receivable, net..................................    2,047,000       840,000
  Inventories...............................................    2,591,000     1,173,000
  Other current assets......................................      159,000       262,000
                                                              -----------   -----------
      Total current assets..................................   13,255,000     9,616,000

Property and equipment, net.................................      880,000       789,000
Investments.................................................           --     2,863,000
Loans receivable from employees.............................      223,000       190,000
                                                              -----------   -----------
                                                              $14,358,000   $13,458,000
                                                              ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................  $ 1,245,000   $   508,000
  Accrued expenses..........................................    2,026,000     1,801,000
  Customer deposits.........................................      293,000        19,000
  Deferred revenue..........................................      146,000            --
  Current portion of long-term debt.........................      282,000       168,000
                                                              -----------   -----------
      Total current liabilities.............................    3,992,000     2,496,000

Long-term debt, net of current portion......................      586,000       542,000
                                                              -----------   -----------
      Total liabilities.....................................    4,578,000     3,038,000
                                                              -----------   -----------
Commitments and contingencies (Note 9)

Stockholders' equity:
  Common stock; $0.001 par value; 50,000,000 shares
    authorized at December 31, 1999 and 1998, 12,756,203 and
    10,524,493 shares issued and outstanding at
    December 31, 1999 and 1998, respectively................       13,000        11,000
  Additional paid-in capital................................   30,601,000    23,258,000
  Deferred stock compensation...............................     (435,000)     (614,000)
  Accumulated other comprehensive income (loss).............      (20,000)        6,000
  Accumulated deficit.......................................  (20,379,000)  (12,241,000)
                                                              -----------   -----------
      Total stockholders' equity............................    9,780,000    10,420,000
                                                              -----------   -----------
                                                              $14,358,000   $13,458,000
                                                              ===========   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       38
<PAGE>
                              LJL BIOSYSTEMS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1999          1998          1997
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net sales.............................................  $ 9,917,000   $ 4,436,000   $ 5,204,000
Cost of sales.........................................    3,554,000     2,487,000     2,319,000
                                                        -----------   -----------   -----------
  Gross profit........................................    6,363,000     1,949,000     2,885,000
                                                        -----------   -----------   -----------
Operating expenses:
  Research and development............................    6,787,000     5,472,000     3,511,000
  Selling, general and administrative.................    8,199,000     5,308,000     2,145,000
                                                        -----------   -----------   -----------
    Total operating expenses..........................   14,986,000    10,780,000     5,656,000
                                                        -----------   -----------   -----------
Loss from operations..................................   (8,623,000)   (8,831,000)   (2,771,000)
Interest and other income, net........................      590,000       629,000       237,000
Interest expense......................................      (90,000)      (35,000)       (9,000)
                                                        -----------   -----------   -----------
Loss before provision for income taxes................   (8,123,000)   (8,237,000)   (2,543,000)
Provision for income taxes............................       15,000            --        12,000
                                                        -----------   -----------   -----------
Net loss..............................................   (8,138,000)   (8,237,000)   (2,555,000)
Accretion of mandatorily redeemable convertible
  preferred stock redemption value....................           --      (254,000)     (636,000)
                                                        -----------   -----------   -----------
Net loss available to common stockholders.............  $(8,138,000)  $(8,491,000)  $(3,191,000)
                                                        ===========   ===========   ===========
Basic and diluted net loss per share available to
  common stockholders.................................  $     (0.65)  $     (0.91)  $     (0.71)
                                                        ===========   ===========   ===========
Shares used in computation of basic and diluted net
  loss per share available to common stockholders.....   12,505,955     9,283,076     4,503,969
                                                        ===========   ===========   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       39
<PAGE>
                              LJL BIOSYSTEMS, INC.

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                     ACCUMULATED                        TOTAL
                                  COMMON STOCK        ADDITIONAL      DEFERRED          OTHER                       STOCKHOLDERS'
                              ---------------------     PAID-IN         STOCK       COMPREHENSIVE    ACCUMULATED       EQUITY
                                SHARES      AMOUNT      CAPITAL     COMPENSATION    INCOME (LOSS)      DEFICIT        (DEFICIT)
                              ----------   --------   -----------   -------------   --------------   ------------   -------------
<S>                           <C>          <C>        <C>           <C>             <C>              <C>            <C>
Balance at December 31,
  1996......................   4,500,500   $ 5,000    $    34,000     $      --       $      --      $  (226,000)    $  (187,000)
S corporation dividends
  paid......................          --        --             --            --              --       (1,075,000)     (1,075,000)
Transfer of S corporation
  accumulated deficit (Note
  1)........................          --        --       (742,000)           --              --          742,000              --
Issuance of common stock
  upon exercise of
  restricted stock purchase
  rights....................      45,000        --         90,000            --              --               --          90,000
Issuance of common stock
  upon exercise of stock
  options...................      38,250        --          4,000            --              --               --           4,000
Accretion of mandatorily
  redeemable convertible
  preferred stock redemption
  value.....................          --        --             --            --              --         (636,000)       (636,000)
Deferred compensation
  related to certain stock
  options and restricted
  stock.....................          --        --        772,000      (772,000)             --               --              --
Stock compensation
  expense...................          --        --        547,000        17,000              --               --         564,000
Net loss....................          --        --             --            --              --       (2,555,000)     (2,555,000)
                              ----------   -------    -----------     ---------       ---------      ------------    -----------
Balance at December 31,
  1997......................   4,583,750     5,000        705,000      (755,000)             --       (3,750,000)     (3,795,000)
Accretion of mandatorily
  redeemable convertible
  preferred stock redemption
  value.....................          --        --             --            --              --         (254,000)       (254,000)
Conversion of mandatorily
  redeemable convertible
  preferred stock...........   3,621,503     4,000      9,559,000            --              --               --       9,563,000
Issuance of common stock
  upon initial public
  offering..................   2,088,000     2,000     12,818,000            --              --               --      12,820,000
Issuance of common stock
  upon exercise of stock
  options...................     216,578        --         78,000            --              --               --          78,000
Issuance of common stock
  under Employee Stock
  Purchase Plan.............      14,662        --         64,000            --              --               --          64,000
Deferred compensation
  related to certain stock
  options and restricted
  stock grants..............          --        --         34,000       (34,000)             --               --              --
Stock compensation
  expense...................          --        --             --       175,000              --               --         175,000
Comprehensive income:
  Unrealized gains on
    investments.............          --        --             --            --           6,000               --           6,000
Net loss....................          --        --             --            --              --       (8,237,000)     (8,237,000)
                              ----------   -------    -----------     ---------       ---------      ------------    -----------
Balance at December 31,
  1998......................  10,524,493    11,000     23,258,000      (614,000)          6,000      (12,241,000)     10,420,000
Issuance of common stock
  upon private placement....   2,000,000     2,000      6,728,000            --              --               --       6,730,000
Issuance of common stock
  upon exercise of stock
  options...................     192,188        --        131,000            --              --               --         131,000
Issuance of common stock
  under Employee Stock
  Purchase Plan.............      39,522        --        149,000            --              --               --         149,000
Stock compensation
  expense...................          --        --        335,000       179,000              --               --         514,000
Comprehensive income:
  Unrealized (losses) on
    investments.............          --        --             --            --         (26,000)              --         (26,000)
Net loss....................          --        --             --            --              --       (8,138,000)     (8,138,000)
                              ----------   -------    -----------     ---------       ---------      ------------    -----------
Balance at December 31,
  1999......................  12,756,203   $13,000    $30,601,000     $(435,000)      $ (20,000)     $(20,379,000)   $ 9,780,000
                              ==========   =======    ===========     =========       =========      ============    ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       40
<PAGE>
                              LJL BIOSYSTEMS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------
                                                           1999           1998          1997
                                                        -----------   ------------   -----------
<S>                                                     <C>           <C>            <C>
Cash flows from operating activities:
  Net loss............................................  $(8,138,000)  $ (8,237,000)  $(2,555,000)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization.....................      402,000        296,000       138,000
    Stock compensation expense........................      514,000        175,000       564,000
    Changes in assets and liabilities:
      Accounts receivable.............................   (1,207,000)      (781,000)      338,000
      Inventories.....................................   (1,418,000)      (890,000)      390,000
      Other current assets............................      103,000        222,000      (413,000)
      Accounts payable................................      737,000       (173,000)      448,000
      Accrued expenses................................      225,000      1,441,000       (36,000)
      Customer deposits...............................      274,000       (134,000)   (1,790,000)
      Deferred revenue................................      146,000             --            --
                                                        -----------   ------------   -----------
        Net cash used in operating activities.........   (8,362,000)    (8,081,000)   (2,916,000)
                                                        -----------   ------------   -----------
Cash flows provided by (used in) investing activities:
  Purchases of property and equipment.................     (493,000)      (643,000)     (429,000)
  Purchases of investments............................   (7,730,000)   (14,762,000)           --
  Proceeds from sales and maturities of investments...   11,488,000      6,406,000            --
                                                        -----------   ------------   -----------
        Net cash provided by (used in) financing
          activities..................................    3,265,000     (8,999,000)     (429,000)
                                                        -----------   ------------   -----------
Cash flows provided by financing activities:
  Proceeds from borrowings............................      361,000        785,000        13,000
  Repayments of borrowings............................     (203,000)      (161,000)           --
  Issuance of long-term loans receivable to
    employees.........................................      (33,000)      (190,000)           --
  Proceeds from issuance of mandatorily redeemable
    convertible preferred stock, net..................           --             --     8,672,000
  Proceeds from issuance of common stock, net.........    7,010,000     12,962,000        94,000
  Payment of S corporation dividends..................           --             --    (1,075,000)
                                                        -----------   ------------   -----------
        Net cash provided by financing activities.....    7,135,000     13,396,000     7,704,000
                                                        -----------   ------------   -----------
Effect of exchange rate changes on cash and cash
  equivalents.........................................       22,000        (10,000)           --
Net increase (decrease) in cash and cash
  equivalents.........................................    2,060,000     (3,694,000)    4,359,000
Cash and cash equivalents at beginning of year........    1,831,000      5,525,000     1,166,000
                                                        -----------   ------------   -----------
Cash and cash equivalents at end of year..............  $ 3,891,000   $  1,831,000   $ 5,525,000
                                                        ===========   ============   ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
  Cash paid during the year for interest..............  $    90,000   $     35,000   $    10,000
                                                        ===========   ============   ===========
  Cash paid during the year for income taxes..........  $        --   $         --   $     1,000
                                                        ===========   ============   ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
  ACTIVITIES:
  Issuance of common stock upon conversion of
    mandatorily redeemable convertible preferred
    stock.............................................  $        --   $  9,562,000   $        --
                                                        ===========   ============   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       41
<PAGE>
                              LJL BIOSYSTEMS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY

    LJL BioSystems, Inc. (the "Company") was incorporated in Delaware on
January 19, 1993 and is the surviving corporation of three commonly controlled
predecessor companies. In March 1998, the Company established a wholly owned
subsidiary, LJL BioSystems, Ltd., in the United Kingdom. The Company designs,
produces, and sells primarily to pharmaceutical and biotechnology firms
infrastructure products and, to a lesser extent, services that accelerate and
enhance the process of discovering new drugs. The Company's proprietary
integrated technology platform is comprised of instrumentation and consumables
(microplates and fluorescence-based assay technologies) designed to provide
flexible solutions to the current and evolving high throughput requirements of
drug discovery laboratories. The Company operates in one business segment.

BASIS OF PRESENTATION

    The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated on consolidation.

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INITIAL PUBLIC OFFERING

    In April 1998, the Company completed an initial public offering of 2,088,000
shares of its common stock, raising net cash proceeds of $12.8 million. In
connection with the offering, all outstanding shares of mandatorily redeemable
convertible preferred stock were converted into 3,621,503 shares of the
Company's common stock.

REVENUE RECOGNITION

    Product sales are generally recognized upon shipment. Amounts received prior
to completion of the earnings process are recorded as customer deposits or
deferred revenue, as appropriate. Development agreements, which were completed
during 1997, were performed on a best effort basis and revenues were recognized
based on work performed using the percentage-of-completion method, completion
being measured using costs incurred to total estimated costs at completion.

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.

                                       42
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

INVESTMENTS

    The Company's short-term and long-term investments consist of marketable
securities classified as "available-for-sale." 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.

    Fair values of marketable securities are based on quoted market values at
December 31, 1999. At December 31, 1999, the difference between the fair value
and amortized cost of marketable securities was not significant. As of December
31, 1999, marketable securities consisted of U.S. government securities and
corporate securities maturing within twelve months or less.

COMPREHENSIVE INCOME

    The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," during 1998. Under SFAS 130, the
Company is required to display comprehensive income and its components as part
of the Company's consolidated financial statements. The measurement and
presentation of net income (loss) did not change. Comprehensive income is
comprised of net income (loss) and other comprehensive income. Other
comprehensive income includes certain changes in the equity of the Company that
are excluded from net income (loss). Specifically, SFAS 130 requires unrealized
gains and losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which otherwise would have been reported
separately in stockholders' equity, to be included in accumulated other
comprehensive income. Comprehensive income (loss) for the years ended
December 31, 1999 and 1998 has been reflected in the Consolidated Statement of
Stockholders' Equity (Deficit).

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

    Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash, cash equivalents, short-term
investments, loans receivable from employees and accounts receivable. The
Company deposits cash with high credit quality financial institutions. The
Company's cash equivalents and marketable securities are primarily invested in
federal government agency obligations and corporate securities that have various
maturities during 2000. The Company has issued a loan to an executive officer as
part of the terms of his employment agreement. The executive's home and shares
of the Company's common stock secure the loan.

    The Company's accounts receivable are derived from revenue earned from
customers located in the U.S., the United Kingdom and Japan. Generally, the
Company requires no collateral on trade receivables. The Company performs
ongoing credit evaluations of its customers' financial condition and provides
for expected losses; however, such amounts have not been significant. At
December 31, 1999, amounts due from one customer represented 43% of gross trade
receivables, amounts due from another customer represented 13% of gross trade
receivables and amounts due from another customer represented 10% of gross trade
receivables. At December 31, 1998, amounts due from one customer represented 25%
of gross trade receivables and amounts due from four other customers each
represented 13% of gross trade

                                       43
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

receivables. As a percentage of total revenues, product sales and revenues
recognized under development agreements from individual customers in excess of
10% of total revenues were as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                        ------------------------------------
                                                          1999          1998          1997
                                                        --------      --------      --------
<S>                                                     <C>           <C>           <C>
AstraZeneca...........................................     15%           --            --
Chiron Corporation....................................     --             1%           64%
Ventana Medical Systems, Inc..........................     --             9%           24%
Becton Dickinson and Company..........................     --            --            10%
</TABLE>

INVENTORIES

    Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market.

CAPITALIZED SOFTWARE COSTS

    Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with Statement of
Financial Standards No. 86; "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." Amortization of capitalized software
development costs is the greater of the amount computed using (a) the ratio of
current revenues to the total of current and anticipated future revenues or
(b) the straight-line method over the estimated economic life of the product. No
amounts have been capitalized to date.

PROPERTY AND EQUIPMENT

    Property and equipment is recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally ranging from three to five years, or the lease term of the
respective assets. Maintenance and repairs are expensed as incurred.

LONG-LIVED ASSETS

    The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that the assets might be impaired. No
such events have occurred with respect to the Company's long-lived assets, which
consist primarily of property and equipment and leasehold improvements.

RESEARCH AND DEVELOPMENT EXPENSE

    Research and development costs are expensed as incurred and consist of costs
incurred for internally funded research and development activities and
development agreements. These amounts include direct costs and research-related
overhead expenses. Research and development expenses under development
agreements were $316,000 in 1997.

INCOME TAXES

    Prior to June 6, 1997, the Company elected to be treated as an S corporation
for federal and California income tax purposes. As a result, little or no
federal or state income taxes were payable at the corporate level. Rather, the
Company's stockholders included their respective portions of the Company's

                                       44
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

taxable income in their individual income tax returns. On June 6, 1997, in
connection with the preferred stock financing, the Company became subject to the
C corporation provisions of the Internal Revenue Code. Accordingly, any earnings
after this date are taxed at federal and state corporate income tax rates. Upon
termination of the Company's S corporation status, the S corporation accumulated
deficit of $742,000 was transferred to additional paid-in capital.

    The Company uses the asset and liability approach for accounting for income
taxes which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events recognized in the Company's
consolidated financial statements or income tax returns. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary
differences, net operating losses and tax credit carryforwards when their
realization is considered more likely than not. Deferred tax expense represents
the change in the deferred tax asset and liability balances.

FOREIGN CURRENCY

    The U.S. dollar is the functional currency of the Company's UK subsidiary.
Monetary and non-monetary assets and liabilities are remeasured into U.S.
dollars at period end and historical exchange rates, respectively. Sales and
expenses are remeasured at average exchange rates in effect during each period,
except for these expenses related to non-monetary assets which are remeasured at
historical exchange rates. Gains or losses resulting from foreign currency
transactions are included in net loss and were not material.

SEGMENT REPORTING

    In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 requires use of the "management" approach, which
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of reportable
segments. SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not have a
material effect on the consolidated financial statements or notes thereto. At
December 31, 1999, 97% of the Company's total assets were held domestically and
the Company earned 69% of its fiscal 1999 sales from domestic customers. At
December 31, 1998, 98% of the Company's total assets were held domestically and
the Company earned 91% of its fiscal 1998 sales from domestic customers. During
1997, 100% of the Company's assets and sales, were domestic.

STOCK-BASED COMPENSATION

    The Company has adopted the pro forma disclosure requirements of Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation". As permitted, the Company continues to recognize
stock-based compensation under the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25. The pro forma effects
of applying SFAS 123 are shown in Note 7 to the consolidated financial
statements. The Company accounts for stock options issued to consultants in
accordance with the provisions of SFAS 123 and EITF 96-18.

                                       45
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON STOCKHOLDERS

    Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon conversion of outstanding convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Potential common shares are excluded from the computation if their effect is
anti-dilutive, as was the case for the years ended December 31, 1999, 1998 and
1997. For the years ended December 31, 1998 and 1997, the net loss available to
common stockholders includes $254,000 and $636,000, respectively, to reflect
accretion of the mandatorily redeemable convertible preferred stock redemption
value.

    Shares excluded from the computation of diluted net loss per share include
the following:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                              ---------------------------------
                                                1999        1998        1997
                                              ---------   ---------   ---------
<S>                                           <C>         <C>         <C>
Stock options...............................  1,748,827   1,498,105     605,308
Stock warrants..............................     75,076      69,049      37,413
Convertible preferred stock.................         --     704,457   2,063,761
                                              ---------   ---------   ---------
                                              1,823,903   2,271,611   2,706,482
                                              =========   =========   =========
</TABLE>

RECLASSIFICATIONS

    Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.

NOTE 2  COMPOSITION OF BALANCE SHEET AMOUNTS:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1999         1998
                                                       ----------   ----------
<S>                                                    <C>          <C>
Accounts receivable comprise:
  Trade receivables..................................  $1,915,000   $  872,000
  Other receivables..................................      56,000       12,000
                                                       ----------   ----------
                                                        1,971,000      884,000
  Less allowance for doubtful accounts...............     (76,000)     (44,000)
                                                       ----------   ----------
                                                       $2,047,000   $  840,000
                                                       ==========   ==========

Inventories comprise:
  Raw materials......................................  $1,224,000   $  476,000
  Work-in-process....................................     214,000           --
  Finished goods.....................................   1,153,000      697,000
                                                       ----------   ----------
                                                       $2,591,000   $1,173,000
                                                       ==========   ==========
</TABLE>

                                       46
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2  COMPOSITION OF BALANCE SHEET AMOUNTS: (CONTINUED)

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1999         1998
                                                       ----------   ----------
<S>                                                    <C>          <C>
Property and equipment comprise:
  Computer equipment and software....................  $1,267,000   $1,057,000
  Furniture and equipment............................     877,000      594,000
  Leasehold improvements.............................      64,000       64,000
                                                       ----------   ----------
                                                        2,208,000    1,715,000
  Less accumulated depreciation and amortization.....  (1,328,000)    (926,000)
                                                       ----------   ----------
                                                       $  880,000   $  789,000
                                                       ==========   ==========

Accrued expenses comprise:
  Accrued employee costs.............................  $  990,000   $  879,000
  Warranty accrual...................................     439,000      351,000
  Accrued professional services......................     133,000      218,000
  Public company related expenses....................     300,000      200,000
  Other..............................................     164,000      153,000
                                                       ----------   ----------
                                                       $2,026,000   $1,801,000
                                                       ==========   ==========
</TABLE>

NOTE 3  LONG-TERM DEBT:

    In September 1995, September 1996 and June 1997, the Company entered into
equipment loan agreements with a bank related to the purchase of equipment and
software. The loans, which were collateralized by the related equipment and
software and by personal guarantees by the Company's stockholders, bore interest
at 10.20% to 11.85% per annum and were repaid in full in March 1998.

    In February 1998, the Company entered into an equipment financing agreement
that provided a $1.3 million line of credit that was used to finance the
purchases of equipment, computers and software necessary to support the
Company's CRITERION product line development effort and additions to the
marketing, sales and administrative infrastructure. 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. At December 31, 1999, the
Company had an obligation to repay $868,000 under this agreement through 2003.
Future principal payments under this line of credit are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                           <C>
2000........................................................  $282,000
2001........................................................   317,000
2002........................................................   243,000
2003........................................................    26,000
                                                              --------
                                                              $868,000
                                                              ========
</TABLE>

                                       47
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4  INCOME TAXES:

    The provision for income taxes for the year ended December 31, 1997 reflects
S corporation taxes imposed in California at the statutory rate of 1.5% of
taxable income, adjusted for nondeductible items. On June 6, 1997, the Company
became subject to the C corporation provisions of the Internal Revenue Code. No
provision for income taxes relating to the US operation of the Company has been
recognized for periods subsequent to June 6, 1997, as the Company incurred net
operating losses for income tax purposes and has no carryback potential. During
1999, the Company recorded a provision for foreign income taxes relating to its
UK subsidiary.

    The significant components of deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     -------------------------
                                                        1999          1998
                                                     -----------   -----------
<S>                                                  <C>           <C>
Net operating loss and tax credit carryforwards....  $ 7,375,000   $ 4,788,000
Nondeductible reserves and accruals................      481,000       288,000
                                                     -----------   -----------
  Gross deferred tax assets........................    7,856,000     5,076,000
Valuation allowance................................   (7,856,000)   (5,076,000)
                                                     -----------   -----------
  Net deferred tax assets..........................  $        --   $        --
                                                     ===========   ===========
</TABLE>

    Due to incurring ongoing operating losses, management believes that there is
sufficient uncertainty regarding the realization of deferred tax assets such
that a full valuation allowance is appropriate.

    At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $18 million and $9 million, respectively,
available to reduce future taxable income, which expire from 2003 to 2020. The
Company's ability to utilize net operating loss and tax credit carryforwards may
be subject to limitation as set forth in applicable federal and state tax laws.
As specified in the Internal Revenue Code, an ownership change of more than 50%
during any three-year period would result in certain annual limitations on the
Company's ability to utilize its net operating loss and tax credit
carryforwards.

NOTE 5  MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

    In May and June 1997, the Company amended its Certificate of Incorporation
to authorize a total of 7,400,000 shares of preferred stock for future issuance.
In June 1997, the Company completed a private placement of 3,621,503 shares of
Series A mandatorily redeemable convertible preferred stock (the "Series A") for
$2.60 per share, resulting in cash proceeds of $8,672,000, net of issuance costs
of $744,000.

    The Series A stockholders were entitled to annual dividends at a rate of
$0.312 per share (subject to adjustment for dilution or stock splits). Such
dividends were noncumulative and were payable when and if declared by the Board
of Directors provided, however, that such dividends would be deemed to be
accrued and cumulatively payable upon the redemption of the Series A shares or a
liquidation or dissolution of the Company. Accordingly, such amounts were
accreted to the carrying value of the Series A shares with a corresponding
charge to accumulated deficit. The Series A shares were converted into 3,621,503
shares of common stock in connection with the Company's initial public offering
in March 1998.

                                       48
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6  STOCKHOLDERS' EQUITY:

    The Company has the right to repurchase, at the original issuance price,
certain of the shares of common stock issued to employees and directors under
restricted stock agreements. The Company's repurchase right lapses over four
years based on the length of the individual's service with the Company. At
December 31, 1999, 45,000 shares of common stock were subject to repurchase by
the Company.

    In connection with the Series A private placement in June 1997, the Company
issued to the placement agent two warrants to purchase a total of 65,653 shares
of Series A at an exercise price of $5.20 per share. The warrants originally
were to expire on the earlier of June 6, 2002, the closing of an initial public
offering of the Company's common stock pursuant to a registration statement
under the Securities Act of 1993 or a merger or sale of substantially all of the
Company's assets and were exercisable immediately. In March 1998, the terms of
the warrants were amended such that the warrants are now exercisable to purchase
65,653 shares of the Company's common stock at an exercise price of $7.00 per
share and expire in 2001. The Company determined that the value of the amended
warrants was not material.

    In connection with entering into a line of credit agreement with a leasing
company in February 1998, the Company issued a warrant to purchase up to 13,290
shares of the Company's common stock at $5.38. The actual number of shares to be
issued under the warrant was based on 5.5% of the borrowings against the line of
credit divided by the exercise price of $5.38 and was determined during 1999 to
be 10,312 shares of the Company's common stock, none of which were exercised as
of December 31, 1999. The warrant will expire in February 2002. The Company
determined that the value of this warrant was not material.

    At December 31, 1999, the Company had two million shares of preferred stock
authorized, of which no shares were issued or outstanding.

NOTE 7  EQUITY INCENTIVE PLANS:

    In January 1994, the Company adopted the 1994 Equity Incentive Plan (the
"1994 Plan") under which 499,500 shares of the Company's common stock were
reserved for issuance to employees, directors and consultants of the Company, as
approved by the Board of Directors. On March 14, 1997, the Company reduced the
number of shares reserved for issuance under the 1994 Plan to 479,250. The 1994
Plan, which expires in 2004, provides for the grant of incentive as well as
nonstatutory stock options, stock bonuses, stock appreciation rights and
restricted stock purchase rights.

    In March 1997, the Company adopted the 1997 Stock Plan (the "1997 Plan"). As
amended, 2,520,750 shares of the Company's common stock have been reserved for
issuance to employees, directors and consultants of the Company under the 1997
Plan. The 1997 Plan, which expires in 2007, provides for the grant of incentive
as well as nonstatutory stock options and restricted stock purchase rights.

    Options granted under the 1994 Plan and the 1997 Plan are for terms not to
exceed ten years. If the option is granted to a stockholder who owns more than
10% of the Company's outstanding stock, the term may not exceed five years and
the exercise price of the stock option must be at least 110% of the fair market
value of the stock at the date of grant. Exercise prices of incentive stock
options granted to all other persons are generally equal to at least 100% of the
fair market value of the stock at the date of grant. For nonstatutory stock
options granted to all other persons, the exercise price under the 1994 Plan and
the 1997 Plan is generally equal to at least 50% or 85%, respectively, of the
fair market value of the stock at the date of grant. Options under the plans
generally vest over a five-year period.

                                       49
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7  EQUITY INCENTIVE PLANS: (CONTINUED)

    The term of restricted stock purchase rights granted under the 1997 Plan is
thirty days, after which unaccepted stock purchase rights expire. If the stock
purchase right is granted to a stockholder who owns stock representing more than
10% of the total combined voting power of all classes of stock of the Company,
the exercise price is generally at least equal to 100% of the fair market value
of the stock on the date of grant. The exercise price of stock purchase rights
granted to all other persons is generally equal to at least 85% of the fair
market value of the stock on the date of grant. There were no unaccepted
restricted stock purchase rights outstanding at December 31, 1999.

    On December 16, 1997, the Board of Directors adopted the 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan") and the 1998 Directors' Plan and
reserved 300,000 and 150,000 shares of common stock, respectively, for issuance
under these plans, which were approved by the stockholders in February 1998. The
1998 Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, permits eligible employees to purchase common stock
through payroll deductions at a purchase price equal to 85% of the fair market
value of the Company's common stock at the beginning or end of the offering
period, whichever is less. During 1999, 39,522 shares were issued under the 1998
Purchase Plan. The 1998 Directors' Plan provides for certain automatic grants of
nonstatutory stock options to nonemployee directors of the Company. Options
granted under the 1998 Directors' Plan vest over four years, have a term of ten
years and are granted at exercise prices equal to the fair market value of the
Company's common stock on the date of grant.

    The following table summarizes activity under the 1994 Plan, the 1997 Plan
and the 1998 Directors' Plan:

<TABLE>
<CAPTION>
                                                                         WEIGHTED
                                                SHARES        STOCK      AVERAGE
                                               AVAILABLE     OPTIONS     EXERCISE
                                               FOR GRANT   OUTSTANDING    PRICE
                                               ---------   -----------   --------
<S>                                            <C>         <C>           <C>
Balance at December 31, 1996.................    111,250      388,250     $0.10

Shares authorized............................  2,050,500           --        --
Issuance of restricted stock.................    (45,000)          --      2.00
Options granted..............................   (480,000)     480,000      1.34
Options exercised............................         --      (38,250)     0.10
                                               ---------    ---------     -----

Balance at December 31, 1997.................  1,636,750      830,000      0.71

Options granted..............................   (964,256)     964,256      3.76
Options exercised............................         --     (216,578)     0.36
Options canceled.............................     79,723      (79,723)     4.19
                                               ---------    ---------     -----
Balance at December 31, 1998.................    752,217    1,497,955      2.53

Shares authorized............................    600,000           --        --
Options granted..............................   (696,640)     696,640      4.98
Options exercised............................         --     (192,188)     0.69
Options canceled.............................    150,687     (150,687)     3.44
                                               ---------    ---------     -----
Balance at December 31, 1999.................    806,264    1,851,720      3.57
                                               =========    =========     =====
</TABLE>

                                       50
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7  EQUITY INCENTIVE PLANS: (CONTINUED)

    The following table summarizes information about stock options under the
1994 Plan, the 1997 Plan and the 1998 Directors' Plan at December 31, 1999:

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                   ------------------------------------   ----------------------
                                  WEIGHTED
                                   AVERAGE     WEIGHTED                 WEIGHTED
                                  REMAINING    AVERAGE                  AVERAGE
     RANGE OF        NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
  EXERCISE PRICES  OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
  ---------------  -----------   -----------   --------   -----------   --------
  <S>              <C>           <C>           <C>        <C>           <C>
  $0.10 to $1.00      309,314    7.1 years      $0.75       126,997      $0.77
  $2.00 to $2.875     467,340    8.5 years       2.58       117,452       2.41
  $3.19 to $4.50      538,150    9.4 years       3.94        45,300       4.19
  $5.00 to $6.30      536,916    8.5 years       5.69       125,035       5.72
                    ---------                               -------
                    1,851,720    8.5 years       3.57       414,784       3.10
                    =========                               =======
</TABLE>

    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.
From inception through June 1997, all stock options were granted at exercise
prices that equaled the estimated fair value of the underlying stock on the
respective grant dates. In August 1997, the Company granted options to purchase
a total of 75,000 shares of common stock at an exercise price of $1.00 per
share. Deferred compensation of approximately $56,000 was recorded on these
options, based on the deemed fair value of the common stock on the date of grant
of $1.75 per share. In October 1997, the Company granted options to purchase
24,500 shares of common stock at an exercise price of $1.00 per share.
Additional deferred compensation of approximately $123,000 was recorded based on
a deemed fair value of $6.00 per share on the date of grant. Additionally, in
October 1997 the Company granted to a consultant options to purchase 7,500
shares of the Company's common stock at an exercise price of $1.00 per share,
resulting in additional deferred compensation of $40,000 based on the estimated
fair value of the options granted. In December 1997, the Company granted rights
to purchase 45,000 shares of restricted common stock at an exercise price of
$2.00 per share and options to purchase 30,250 shares of common stock at an
exercise price of $2.00 per share. Additional deferred compensation of
approximately $553,000 related to these grants was recorded based on a deemed
fair value of the common stock of $9.35 per share on the date of grant. On
March 10, 1998, the Company granted an option to an employee to purchase 15,000
shares of the Company's 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. Deferred compensation is
amortized over the vesting period of the options, generally four to five years.

    In December 1997, the Company also granted fully vested options to employees
to purchase 75,000 shares of common stock at exercise prices of $2.00 to $2.20
per share, in lieu of cash bonuses. Compensation expense of $547,000 related to
these options, based on a deemed fair value of the common stock on the date of
grant of $9.35 per share, was recognized in 1997.

    Stock compensation expense for options granted to consultants has been
determined using the Black-Scholes option pricing model to measure the fair
value of the option. The fair value of such options is periodically remeasured
as the options vest.

    The Company accounts for issuances of stock options to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
Had compensation cost for the Company's option plans

                                       51
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7  EQUITY INCENTIVE PLANS: (CONTINUED)

been determined based on the fair value of the options at the dates of grant, as
prescribed in SFAS 123, the Company's pro forma net income (loss) for the years
ended December 31, 1999, 1998 and 1997 would have included additional stock
compensation expense of $394,000, $286,000 and $10,000, respectively. The fair
value of each option has been estimated on the date of grant using the
Black-Scholes option pricing model for all options granted after the effective
date of the Company's initial public offering on March 13, 1998 and using the
minimum value method for options granted prior to the initial public offering.
The following assumptions were used in computing the fair value of options
granted: dividend yield of 0.0% for 1999, 1998 and 1997; risk-free interest
rates of 4.6% to 6.4% for 1999, 4.4% to 5.7% for 1998, and 6.3% to 6.5% for
1997; volatility of 90% for options granted in 1999, volatility of 84% for
options granted after the effective date of the Company's initial public
offering on March 13, 1998 through December 31, 1998; and a weighted average
expected option term of four years for 1999 and 1998 and 1997.

    Additional option grants are expected to be made beyond 1999. Accordingly,
pro forma disclosures may differ significantly from the reported results of
operations in the future.

    At December 31, 1999, the Company had 2,723,637 shares of common stock
reserved for future issuance upon the exercise of stock options and common stock
purchase warrants.

NOTE 8  EMPLOYEE BENEFIT PLAN:

    The Company maintains the tax deferred LJL BioSystems, Inc. 401(k) Plan (the
"401(k) Plan"), that covers all employees over twenty-one years of age who
become eligible to enroll the first day of the calendar month following their
employment date. Employees may 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. Pre-tax contributions are allocated to each employee's
individual account, which is invested in selected investment alternatives
according to the directions of the employee. The Company may contribute a
discretionary matching contribution equal to a specified percentage of the
participant's compensation. Matching contributions to an individual employee's
account vest over five years of service with the Company. Through December 31,
1999, the Company had not made any matching contributions under the 401(k) Plan.

NOTE 9  COMMITMENTS AND CONTINGENCIES:

    In January 2000, the Company amended its operating lease agreement for one
of its principal facilities to extend the lease term to December 2002. The lease
agreement requires the Company to pay minimum rent as well as certain facilities
operating expenses incurred by the lessor. In July 1997, the Company entered
into a lease agreement for a laboratory facility and the use of certain
laboratory equipment. During 1999, the lease was amended to extend the lease
term to June 2000, at which time the lease may be continued on a month-to-month
basis, by mutual consent. In April 1998, the Company entered into a lease
agreement for a facility in the United Kingdom with a lease term to April 1999.
In April 1999, the Company extended its operating lease on its United Kingdom
office space through April 2000. In January 2000, the Company amended its
operating lease agreement for its other principal facility to extend the lease
term to May 2002. The lease agreement requires the Company to pay minimum rent
as well as certain facility operating expenses incurred by the lessor. Rent
expense during the years ended December 31, 1999, 1998 and 1997 totaled
$542,000, $381,000 and $161,000, respectively.

                                       52
<PAGE>
                              LJL BIOSYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9  COMMITMENTS AND CONTINGENCIES: (CONTINUED)

    Future minimum payments under non-cancelable operating leases are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                           <C>
2000........................................................  $  514,000
2001........................................................     330,000
2002........................................................     238,000
                                                              ----------
                                                              $1,082,000
                                                              ==========
</TABLE>

    In June 1997, the Company entered into a development, license and sales
agreement (the "Agreement") under which the Company obtained worldwide rights to
certain patented assay technologies. As amended, the Agreement provides for
future minimum royalties that aggregate approximately $1.0 million and are due
through 2003.

    In the normal course of business, the Company is subject to various claims
and assessments, which, in the opinion of management, will not have a material
adverse effect on its results of operations or financial condition.

NOTE 10  RELATED PARTY TRANSACTIONS:

    During 1998, the Company extended a loan in the amount of $190,000 to an
executive officer as part of the terms of the executive's employment agreement.
The officer's home and shares of the Company's common stock secure the loan. The
loan bears interest at 5.83% per annum and is to be repaid in full on the
earliest of February 15, 2008 or the dates of certain other conditions of the
note. All or a portion of the loan and the interest may be forgiven based on the
executive's performance or upon termination by the Company without cause. During
1999, the Company extended two loans totaling $32,500 to two employees as part
of the terms of each employee's employment agreement. One loan is unsecured and
bears interest at 5.187% per annum and is to be repaid in full on the earliest
of January 12, 2003 or the dates of certain other conditions of the note. The
other loan is secured by shares of the Company's common stock, bears interest at
7.5% per annum and is to be repaid in full thirty days after the employee's
termination or on the dates of certain other conditions of the note. All or a
portion of each loan and the interest may be forgiven based on the respective
employee's performance or upon termination of the respective employee by the
Company without cause.

NOTE 11  SUBSEQUENT EVENT:

    On February 2, 2000, the Company received net cash proceeds of approximately
$18.4 million in connection with a private placement of 1.76 million shares of
unregistered restricted common stock. The terms of the sale require that the
Company file a registration statement covering such shares by February 16, 2000.

                                       53
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

    Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    This information required by this item is contained in the Registrant's
definitive proxy statement, which the Registrant will file with the Commission
no later than May 1, 2000 and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

    This information required by this item is contained in the Registrant's
definitive proxy statement, which the Registrant will file with the Commission
no later than May 1, 2000 and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    This information required by this item is contained in the Registrant's
definitive proxy statement, which the Registrant will file with the Commission
no later than May 1, 2000 and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    This information required by this item is contained in the Registrant's
definitive proxy statement, which the Registrant will file with the Commission
no later than May 1, 2000 and is incorporated herein by reference.

                                       54
<PAGE>
                                    PART IV

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

<TABLE>
<S>     <C>
(a)(1)  Consolidated Financial Statements and Financial Statement
        Schedule of LJL BioSystems, Inc. are filed as part of this
        report on Form 10-K beginning on page 36 under the caption
        "Item 8. Consolidated Financial Statements and Supplementary
        Data."

        Report of Independent Accountants

        Consolidated Balance Sheet

        Consolidated Statement of Operations

        Consolidated Statement of Stockholders' Equity (Deficit)

        Consolidated Statement of Cash Flows

        Notes to Consolidated Financial Statements

  (2)   Schedule II--Valuation and Qualifying Accounts

(b)     We filed the following reports on Form 8-K during the period
        from our initial public offering through December 31, 1999.

            Report on Form 8-K dated February 11, 1999
            Report on Form 8-K dated July 30, 1999
            Report on Form 8-K dated September 1, 1999
            Report on Form 8-K dated November 1, 1999

(c)     Exhibits

 3.1    Amended and Restated Certificate of Incorporation of the
        Company, as currently in effect.(1)
 3.2    Amended and Restated Bylaws of the Company.(2)
 4.1    Specimen Stock Certificate.(3)
 4.2    Amended and Restated Investors' Rights Agreement dated
        June 17, 1997 between the Company and the individuals and
        entities listed in the signature pages thereto.(4)
 4.4    Common Stock Purchase Agreement dated January 25, 1999, by
        and among LJL BioSystems, Inc. and the Purchasers (as
        defined therein).(9)
 4.5    Registration Rights Agreement dated January 27, 1999, by and
        among the Company and the Holders (as defined therein).(9)
 4.6    Form of Stock Purchase Agreement by and between LJL
        BioSystems, Inc. and the Investors.(10)
10.1    Agreement dated June 5, 1997 between the Company and
        FluorRx, Inc.*(5)
10.2    Form of Indemnification Agreement between the Company and
        each of its officers and directors.(5)
10.3    Severance Agreement dated December 6, 1995 between the
        Company and Lev J. Leytes.(5)
10.4    Lease between Company and Yageo USA Inc., as amended.(5)
10.5    1994 Equity Incentive Plan and Forms of Agreements. (5)
10.6    1997 Stock Plan and Forms of Agreements.(5)
10.7    1998 Directors' Stock Option Plan and Forms of
        Agreements.(5)
10.8    1998 Employee Stock Purchase Plan and Subscription
        Agreement.(5)
10.9    Equipment Financing Agreement dated February 16, 1998
        between the Company and Lease Management Services, Inc.(5)
10.10   Warrant to Purchase Shares of Common Stock dated
        February 16, 1998 between the Company and Lease Management
        Services, Inc.(5)
10.11   Lease between Company and Coptech West. (6)
</TABLE>

                                       55
<PAGE>
<TABLE>
<S>     <C>
10.12   Secured Loan Agreement between LJL BioSystems, Inc. and
        James S. Richey dated April 28, 1998.(7)
10.13   Amended Warrant to Purchase Shares of Common Stock between
        LJL BioSystems, Inc. and Lease Management Services, Inc.
        dated February 16, 1998, amended June 1, 1998.(7)
10.14   Employment Agreement between LJL BioSystems, Inc. and Larry
        Tannenbaum, dated November 4, 1998.(8)
21.1    Subsidiaries of the Registrant.
23.1    Consent of Independent Accountants.
24.1    Power of Attorney. See page 57.
27.1    Financial Data Schedule.
</TABLE>

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

(1) Incorporated by reference to Exhibit 3.3 filed with Registrant's
    Registration Statement on Form S-1 (File No. 333-43529) declared effective
    on March 12, 1998.

(2) Incorporated by reference to Exhibit 3.5 filed with Registrant's
    Registration Statement on Form S-1 (File No. 333-43529) declared effective
    on March 12, 1998.

(3) Incorporated by reference to Exhibit 4.2 filed with Registrant's
    Registration Statement on Form S-1 (File No. 333-43529) declared effective
    on March 12, 1998.

(4) Incorporated by reference to Exhibit 4.3 filed with Registrant's
    Registration Statement on Form S-1 (File No. 333-43529) declared effective
    on March 12, 1998.

(5) Incorporated by reference to the identically numbered exhibits filed with
    the Registrant's Registration Statement on Form S-1 (File No. 333-43529)
    declared effective on March 12, 1998.

(6) Incorporated by reference to the identically numbered exhibit filed with the
    Registrant's Form 10-Q for the quarter ended March 31, 1998.

(7) Incorporated by reference to the identically numbered exhibit filed with the
    Registrant's Form 10-Q for the quarter ended June 30, 1998.

(8) Incorporated by reference to the identically numbered exhibit filed with the
    Registrant's Form 10-K for the fiscal year ended December 31, 1998.

(9) Incorporated by reference to the identically numbered exhibit filed with the
    Registrant's Form 8-K dated February 10, 1999.

(10) Incorporated by reference to the identically numbered exhibit filed with
    the Registrant's Form 8-K dated February 3, 2000.

*   Confidential treatment requested as to certain portions of this exhibit.
    Omitted portions have been filed separately with the SEC.

(d) Financial Statement Schedules

    Schedule II Valuation and Qualifying Accounts

    Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
consolidated financial statements or notes to consolidated financial statements.

                                       56
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Report on Form 10-K to be signed on its behalf by the
undersigned; thereunto duly authorized, in the City of Santa Clara, State of
California, on February 16, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       LJL BIOSYSTEMS, INC.

                                                       By:              /s/ LEV J. LEYTES
                                                            -----------------------------------------
                                                                          Lev J. Leytes
                                                              PRESIDENT, CHIEF EXECUTIVE OFFICER AND
                                                                CHAIRMAN OF THE BOARD OF DIRECTORS

                                                       By:             /s/ LARRY TANNENBAUM
                                                            -----------------------------------------
                                                                         Larry Tannenbaum
                                                            SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
                                                                             OFFICER

                                                       By:             /s/ ROBERT T. BEGGS
                                                            -----------------------------------------
                                                                         Robert T. Beggs
                                                                  VICE PRESIDENT OF FINANCE AND
                                                                          ADMINISTRATION
</TABLE>

                               POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS LEV J. LEYTES, LARRY TANNENBAUM AND ROBERT
T. BEGGS, AND EACH OF THEM, AS HIS ATTORNEY-IN-FACT, WITH FULL POWER OF
SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
TO THIS REPORT ON FORM 10-K, AND TO FILE THE SAME, WITH EXHIBITS THERETO AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED
BY OUR SAID ATTORNEY TO ANY AND ALL AMENDMENTS TO SAID REPORT ON FORM 10-K.

    PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT ON FORM 10-K HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
                                                       President, Chief Executive
                  /s/ LEV J. LEYTES                      Officer, and chairman of
     -------------------------------------------         the Board of Directors      February 16, 2000
                    Lev J. Leytes                        (Principal Executive
                                                         Officer)

                  /s/ GALINA LEYTES
     -------------------------------------------       Executive Vice President and  February 16, 2000
                    Galina Leytes                        Director
</TABLE>

                                       57
<PAGE>

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
                                                       Senior Vice President and
                /s/ LARRY TANNENBAUM                     Chief Financial Officer
     -------------------------------------------         (Principal Financial        February 16, 2000
                  Larry Tannenbaum                       Officer)

                                                       Vice President of Finance
                 /s/ ROBERT T. BEGGS                     and Administration
     -------------------------------------------         (Principal Accounting       February 16, 2000
                   Robert T. Beggs                       Officer)

              /s/ GEORGE W. DUNBAR, JR.
     -------------------------------------------       Director                      February 16, 2000
                George W. Dunbar, Jr.

                /s/ MICHAEL F. BIGHAM
     -------------------------------------------       Director                      February 16, 2000
                  Michael F. Bigham

              /s/ JOHN G. FREUND, M.D.
     -------------------------------------------       Director                      February 16, 2000
                John G. Freund, M.D.

                /s/ DANIEL S. JANNEY
     -------------------------------------------       Director                      February 16, 2000
                  Daniel S. Janney

                 /s/ JOHN D. DIEKMAN
     -------------------------------------------       Director                      February 16, 2000
                   John D. Diekman
</TABLE>

                                       58
<PAGE>
                                                                     SCHEDULE II

                              LJL BIOSYSTEMS, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                                   BALANCE AT                                BALANCE AT
CLASSIFICATION                                  BEGINNING OF YEAR   ADDITIONS   DEDUCTIONS   END OF YEAR
--------------                                  -----------------   ---------   ----------   -----------
<S>                                             <C>                 <C>         <C>          <C>
Allowance for doubtful accounts
  Year ended December 31, 1997................       $(51,000)      $     --      $47,000     $ (4,000)
  Year ended December 31, 1998................         (4,000)       (40,000)          --      (44,000)
  Year ended December 31, 1999................       $(44,000)      $(32,000)     $    --     $(76,000)
</TABLE>

                                       59