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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2002
OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 0-27316

Molecular Devices Corporation
(Exact name of registrant as specified in its charter)

1311 Orleans Drive
Sunnyvale, California 94089
(Address of principal executive offices, including zip code)

(408) 747-1700
(Registrant’s telephone number, including area code)

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 [   ]

As of November 13, 2002, 15,318,149 shares of the Registrant’s Common Stock were outstanding.

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MOLECULAR DEVICES CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002

INDEX

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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

The accompanying notes are an integral part of these statements.

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MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts, unaudited)

The accompanying notes are an integral part of these statements.

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MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

The accompanying notes are an integral part of these statements.

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MOLECULAR DEVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Decription of Business and Basis of Presentation

Molecular Devices Corporation, a Delaware corporation, is principally involved in the design, development, manufacture, sale and service of bioanalytical measurement systems for life sciences and drug discovery applications. The principal markets for Molecular Devices’ products include leading pharmaceutical and biotechnology companies as well as medical centers, universities, government research laboratories and other institutions throughout the world. In this Quarterly Report, “Molecular Devices”, “the Company”, “we”, “our”, or “us” refers to Molecular Devices Corporation and its subsidiaries, unless the context requires otherwise.

The condensed consolidated financial statements included herein have been prepared in accordance with the published rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements as allowed by such SEC rules and regulations. However, management believes that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2001, included in the Molecular Devices Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the SEC on April 1, 2002.

The unaudited condensed consolidated financial statements include the accounts of Molecular Devices and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements contained herein reflect all adjustments (which include only normal, recurring adjustments), which are, in the opinion of management, necessary to state fairly the results for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results for the three and nine-month periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2002.

Note 2. Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 requires goodwill to be tested for impairment under certain circumstances, and written down when impaired, rather than being amortized as previous standards required. Furthermore, SFAS 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.

SFAS 142 was effective as of the beginning of the fiscal year ending December 31, 2002 and, accordingly, Molecular Devices ceased amortizing goodwill as of the beginning of fiscal 2002. Molecular Devices also performed the initial goodwill impairment test and did not note impairment indicators. Impairment tests are required to be performed annually and between annual tests in certain circumstances. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings. Molecular Devices reassessed the useful lives of all other purchased intangible assets. No adjustments to amortization periods were deemed necessary.

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The following table presents the impact of adoption of SFAS 142 had the standard been in effect for the three and nine months ended September 30, 2001 (in thousands, except per share data):

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 establishes a single accounting model, based on the framework established in Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“SFAS 121”), for long-lived assets to be disposed of by sale, and resolves implementation issues related to SFAS 121. We adopted SFAS 144 as of January 1, 2002. The adoption of SFAS 144 did not have an impact on our results of operations or financial position.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses significant issues relating to the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities, and nullifies the guidance in Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that the initial liability for costs associated with exit and disposal activities be measured at fair value and prohibits the recognition of a liability based solely on an entity’s commitment to a plan. The provisions of SFAS 146 are effective for exit and disposal activities initiated after December 31, 2002. We do not believe that the adoption of SFAS 146 will have a material impact on our financial position or results of operations.

Note 3. Goodwill and Purchased Intangible Assets

The changes in goodwill during the nine months ended September 30, 2002 were as follows (in thousands):

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Purchased intangible assets not subject to amortization are comprised of tradename, valued at $707,000 as of September 30, 2002 and $0 at December 31, 2001.

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

The estimated future amortization expense of purchased intangible assets as of September 30, 2002 was as follows (in thousands):

Note 4. Business Combinations

On June 1, 2002, Molecular Devices acquired Universal Imaging Corporation (“UIC”) pursuant to a Stock Purchase Agreement, in exchange for $22 million in cash. In addition, Molecular Devices incurred $1.2 million of acquisition costs. As a result of the acquisition, UIC became a wholly-owned subsidiary of Molecular Devices. The acquisition expands Molecular Devices’ portfolio of novel tools for cell analysis to include MetaMorph™, cellular imaging software widely used in life sciences research, and the Discovery-1 screening system for drug discovery. The excess of the purchase price over the identified net assets of UIC has been allocated to goodwill, tradename and developed technology as follows (in thousands):

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Pro forma consolidated results of operations for the three and nine months ended September 30, 2002 and 2001 for Molecular Devices as if the acquisition had been consummated January 1, 2001 were as follows (in thousands, except per share amount):

The pro forma information does not purport to be indicative of the results that actually would have occurred had the acquisition been consummated January 1, 2001, or of the results which may occur in the future.

Note 5. Comprehensive Income (Loss)

Comprehensive income (loss), net of tax, was approximately $1.2 million and ($10.8) million for the three-month periods ended September 30, 2002 and 2001, respectively. Comprehensive income (loss), net of tax, was approximately $4.9 million and ($7.2) million for the nine-month periods ended September 30, 2002 and 2001, respectively. The differences between reported net income (loss) and comprehensive income (loss) are principally comprised of changes in accumulated foreign currency translation, which is recorded in stockholders’ equity.

Note 6. Cash Equivalents and Short-Term Investments

Molecular Devices considers all highly liquid investments in debt securities with a remaining maturity from the date of purchase of 90 days or less to be cash equivalents. As of September 30, 2002, Molecular Devices’ cash and cash equivalents was $41.4 million. Cash equivalents consist of money market funds, corporate debt securities and U.S. government debt instruments.

As of September 30, 2002, Molecular Devices’ short-term investments included obligations of $5.7 million of governmental agencies and $4.0 million of corporate debt securities with original maturities ranging between 3 and 12 months. By policy, Molecular Devices limits concentration of credit risk by diversifying its investments among a variety of high credit-quality issuers. All cash equivalents and short-term investments are classified as available-for-sale. Available-for-sale securities are carried at amortized cost, which approximated fair value at September 30, 2002. Material unrealized gains and losses, if any, are reported in stockholders’ equity and included in other comprehensive income (loss). Fair value is estimated based on available market information. The cost of securities sold is based on the specific identification method. For the three and nine months ended September 30, 2002 and September 30, 2001, gross realized gains and losses on available-for-sale securities were immaterial.

Note 7. Inventories

Inventories consist of (in thousands):

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Note 8. Stock Repurchase

In the first quarter of 2002, Molecular Devices completed the repurchase of 220,000 shares of common stock. The repurchase occurred at various times throughout the quarter subsequent to approval of the repurchase plan by the Molecular Devices Board of Directors in October 2001, allowing for the repurchase of up to 1.5 million shares. As of September 30, 2002, 240,045 shares remained on Molecular Devices’ balance sheet as treasury stock, at cost.

Note 9. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and diluted net income (loss) per share is computed using the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from outstanding stock options (using the treasury stock method), when dilutive. Computation of earnings per share is as follows (in thousands, except per share amounts):

For the three and nine months ended September 30, 2001, the total number of shares excluded from the calculations of diluted net loss per share was 165,000 and 482,000, respectively, as the options’ weighted-average exercise price was greater than the average market price of the common shares and, therefore, the effect would have been anti-dilutive.

Note 10. Legal Proceedings

On April 16, 2002, Caliper Technologies Corp. (“Caliper”) filed a patent infringement lawsuit against us alleging that our IMAP and reagent assay kits infringe a U.S. patent held by Caliper. We believe that none of our products infringes any claim of the Caliper patent. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. IMAP products represented less than 1% of our revenues for the first nine months of 2002 and are expected to represent less than 1% of our anticipated revenues for the full year of 2002. Accordingly, based on both our assessment of the lack of merit to the lawsuit and the anticipated immateriality of our IMAP product sales, we believe that any outcome of the patent infringement lawsuit will not have a material effect on the results of operations or financial condition of Molecular Devices.

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MOLECULAR DEVICES CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following discussion contains “forward-looking statements.” For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “anticipates,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by these forward-looking statements, including, among others, those discussed below and under the caption “Factors that May Affect Future Results,” as well as those identified in the Molecular Devices Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC on April 1, 2002.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I — Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2001 contained in the Molecular Devices Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC on April 1, 2002, including in particular the discussion of Critical Accounting Policies included therein. The results for the first nine months of 2002 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2002.

RESULTS OF OPERATIONS — THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

REVENUES. Revenues for the third quarter of 2002 were $25.9 million, an increase of $3.8 million, or 17%, as compared to the third quarter of 2001. Revenues for the first nine months of 2002 increased $5.1 million, or 8%, to $72.0 million from $66.9 million in the same period last year. Molecular Devices’ revenues are split into two product families. The Drug Discovery product family, which includes cell analysis and HTS systems, consists of Molecular Devices’ IonWorks™ HT, FLIPR®, CLIPR, Analyst, Discovery-1 and Cytosensor systems. The Life Sciences Research product family, which includes bench top detection and liquid handling products, consists of Molecular Devices’ Maxline™, Skatron, MetaMorph™ and Threshold® products. The Drug Discovery product family experienced an increase in revenues of 5% compared with the third quarter of 2001 due to a strong contribution from the FLIPR product line, as well as the introduction of the IonWorks HT to Molecular Devices’ Drug Discovery product family. For the first nine months of 2002, the Drug Discovery product family experienced an increase of 1% when compared to the first nine months of 2001 due to strength in the FLIPR product line as well as the addition of the Discovery-1. The Life Sciences Research product family generated a 27% increase in revenues compared with the third quarter of 2001 primarily due to the addition of the MetaMorph product line in 2002 as well as growth in Maxline and Skatron products. The Life Sciences Research product family generated a 14% increase for the first nine months of 2002 when compared to the first nine months of 2001. Life Sciences Research year to date revenues increased primarily due to the addition of the MetaMorph sales, as well as growth in the unit sales of Maxline and Skatron products.

GROSS MARGIN. Gross margin decreased to 60% for the three and nine-month periods ended September 30, 2002, as compared to 61% for the three and nine-month periods ended September 30, 2001. The decreased margin for the third quarter of 2002 was due to a product mix that included a higher percentage of lower margin products. The decreased margin for the nine months ended September 30, 2002 was primarily due to special pricing on a significant FLIPR order that occurred in the second quarter of 2002 and an unfavorable product mix.

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RESEARCH AND DEVELOPMENT. Research and development expenses for the third quarter of 2002 increased by 23% to $4.6 million (18% of revenues) from $3.7 million (17% of revenues) for the third quarter of 2001. Research and development expenses for the first nine months of 2002 increased by 20% to $13.1 million (18% of revenues) from $10.9 million (16% of revenues) for the first nine months of 2001. The increased spending for the periods was primarily the result of research and development expenses related to Universal Imaging Corporation, which we acquired in June 2002, and the research and development expenses related to Cytion, which was acquired in July 2001.

WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In the third quarter of 2001, a $12.6 million write-off of in-process research and development occurred in conjunction with the acquisition of Cytion S.A. There was no similar write-off in the three and nine months ended September 30, 2002.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the third quarter of 2002 increased to $9.1 million (35% of revenues) as compared to the third quarter of 2001, which was $8.2 million, or 37% of revenues. Selling, general and administrative expenses for the first nine months of 2002 increased to $25.1 million (35% of revenues) as compared to the first nine months of 2001, which was $24.4 million, or 36% of revenues. The increases in both the three and nine-months ended September 30, 2002, when compared to the same periods of 2001, were due to the additional selling, general and administrative expenses associated with Universal Imaging Corporation, which was acquired in June 2002.

OTHER INCOME (NET). Net other income decreased to $461,000 in the third quarter of 2002 as compared to $732,000 in the same period of 2001. Net other income decreased to $1.2 million for the first nine months of 2002 as compared to $3.3 million in the same period of 2001. The decrease in net other income in both periods was primarily due to lower interest income as a result of lower average cash and short-term investment balances and the significant decline in interest rates compared to 2001. The lower average cash balances result principally from a share repurchase plan under which we have repurchased over 1.7 million shares of our common stock beginning in the third quarter of 2001, and our acquisitions of Cytion S.A. and Universal Imaging Corporation.

INCOME TAX PROVISION. We recorded an income tax provision of $504,000 in the third quarter of 2002 as compared to $884,000 in the same period of 2001. The tax provision for the third quarter of 2002 was based on an effective tax rate of 22.0%, down from 38.5% in the third quarter of 2001. In the third quarter of 2002, we revised our estimated effective annual tax rate to 32% for 2002. The significant drop in the effective tax rate for the third quarter of 2002 is necessary to adjust the year to date income tax provision to the lower estimated annual rate for 2002. The decreased rate for 2002 is primarily due to strategic tax elections in our Swiss and German subsidiaries.

Critical Accounting Policies

The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. For our critical accounting policies and estimates, refer to our Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on April 1, 2002. There have been no changes in any of our accounting policies since December 31, 2001, other than the adoption of SFAS 142 and SFAS 144, as described in the notes to the financial statements in Part I — Item I of this report.

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Liquidity and Capital Resources

We had cash, cash equivalents and short-term investments of approximately $51.1 million at September 30, 2002 compared to $67.3 million at December 31, 2001. Operating activities in the first nine months of 2002 provided approximately $13.1 million of cash primarily due to net income, decreases in accounts receivable and the use of deferred tax assets, partially offset by a decrease in accrued liabilities. In the first nine months of 2001, operating activities provided $7.9 million of cash primarily due to decreases in accounts receivable and the use of deferred tax assets, partially offset by an increase in inventory and decreased accounts payable and accrued liabilities.

$24.1 million of cash was used in investing activities in the first nine months of 2002, primarily due to $22.0 million spent to acquire Universal Imaging Corporation and $2.1 million of capital expenditures related to various computer and software related projects. In the first nine months of 2001, investing activities provided $22.4 million, primarily due to the net maturities of short-term investments, partially offset by $7.2 million to acquire Cytion S.A., $3.2 million to acquire Nihon Molecular Devices and $3.0 million of capital expenditures.

In the first nine months of 2002, financing activities used $3.7 million, primarily due to the repurchase of 220,000 shares of our common stock, partially offset by the proceeds from the issuance of common stock under the employee stock plans. In the first nine months of 2001, financing activities used $27.6 million of cash due to the repurchase of 1.5 million shares of our common stock, partially offset by the issuance of common stock under the employee stock plans.

Our ability to generate our anticipated cash flow from operations is subject to the risks and uncertainties discussed below under “Factors That May Affect Future Results”, including in particular variations in the amount of time it takes for us to sell our products and collect accounts receivable and the timing of customer orders, competition, risks associated with the pharmaceutical and biotechnology industries, supplier or manufacturing problems or delays and risks associated with past and potential future acquisitions.

We believe that our existing cash and investment securities and anticipated cash flow from our operations will be sufficient to support our current operating plan for the foreseeable future.

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

•		the progress of our research and development;
•		the number and scope of our research programs;
•		market acceptance and demand for our products;
•		the costs that may be involved in enforcing our patent claims and other intellectual property rights;
•		potential acquisition and technology licensing opportunities;
•		the costs associated with repurchasing shares of our common stock;
•		manufacturing capacity requirements; and

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•

the costs of expanding our sales, marketing and distribution capabilities both in the United States and abroad.

We have generated sufficient cash flow to fund our capital requirements primarily though operating and financing activities over the last three years. However, we cannot assure you that we will not require additional financing in the future to support our existing operations or potential acquisition and technology licensing opportunities that may arise. Therefore, we may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. Additional financing may not be available on favorable terms or at all and may be dilutive to our then-current stockholders.

Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers.

Factors That May Affect Future Results

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

Variations in the amount of time it takes for us to sell our products and collect accounts receivable and the timing of customer orders may cause fluctuations in our operating results, which could cause our stock price to decline.

The timing of capital equipment purchases by customers is expected to be uneven and difficult to predict. Many of our products represent significant capital purchases for our customers. The list prices for our instruments range from $5,000 to $494,500. Accordingly, our customers generally take a relatively long time to evaluate our products, and a significant portion of our revenues is typically derived from sales of a small number of relatively high-priced products. Purchases are generally made by purchase orders and not long-term contracts. Delays in receipt of anticipated orders for our relatively high priced products could lead to substantial variability from quarter to quarter. Furthermore, we have historically received purchase orders and made a significant portion of each quarter’s product shipments near the end of the quarter. If that pattern continues, even short delays in the receipt of orders or shipment of products at the end of a quarter could have a materially adverse affect on results of operations for that quarter.

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

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

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

We depend on orders that are received and shipped in the same quarter and therefore have limited visibility of future product shipments.

Our net sales in any given quarter depend upon a combination of orders received in that quarter for shipment in that quarter and shipments from backlog. Our products are typically shipped within 30 to 90 days of purchase order receipt. As a result, we do not believe that the amount of backlog at any particular date is indicative of our future level of sales. Our backlog at the beginning of each quarter does not include all product sales needed to achieve expected revenues for that quarter. Consequently, we are dependent on obtaining orders for products to be shipped in the same quarter that the order is received. Moreover, customers may reschedule deliveries, and production difficulties could delay shipments. Accordingly, we have limited visibility of future product shipments, and our results of operations are subject to significant variability from quarter to quarter.

Many of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products.

We operate in a highly competitive industry and face competition from companies that design, manufacture and market instruments for use in the life sciences research industry, from genomic, pharmaceutical, biotechnology and diagnostic companies and from academic and research institutions and government or other publicly-funded agencies, both in the United States and abroad. We may not be able to compete effectively with all of these competitors. Many of these companies and institutions have greater financial, engineering, manufacturing, marketing and customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products. Moreover, there has been significant merger and acquisition activity among our competitors and potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs. Many of our customers and potential customers are large companies that require global support and service, which may be easier for our larger competitors to provide.

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

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

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our new products may result in loss of market share due to our customers’ purchases of competitors’ products during any delay.

If we are not successful in developing new and enhanced products, we may lose market share to our competitors.

The life sciences instrumentation market is characterized by rapid technological change and frequent new product introductions. Over 76% of our revenues in 2001 were derived from the sale of products that were introduced in the last three years, and our future success will depend on our ability to enhance our current products and to develop and introduce, on a timely basis, new products that address the evolving needs of our customers. We may experience difficulties or delays in our development efforts with respect to new products, and we may not ultimately be successful in developing them. Any significant delay in releasing new systems could adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share. In addition, our future success depends on our continued ability to develop new applications for our existing products. If we are not able to complete the development of these applications, or if we experience difficulties or delays, we may lose our current customers and may not be able to attract new customers, which could seriously harm our business and our future growth prospects.

We must expend a significant amount of time and resources to develop new products and if these products do not achieve commercial acceptance, our operating results may suffer.

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

If we deliver products with defects, our credibility will be harmed and the sales and market acceptance of our products will decrease.

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

Most of our current and potential customers are from the pharmaceutical and biotechnology industries and are subject to risks faced by those industries.

We derive a significant portion of our revenues from sales to pharmaceutical and biotechnology companies. We expect that sales to pharmaceutical and biotechnology companies will continue to be a primary source of revenues for the foreseeable future. As a result, we are subject to risks and uncertainties that affect the pharmaceutical and biotechnology industries, such as pricing pressures as third-party payors continue challenging the pricing of medical products and services, government

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regulation and uncertainty of technological change, and reduction and delays in research and development expenditures by companies in these industries.

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

Our products could infringe on the intellectual property rights of others, which may cause us to engage in costly litigation and, if we are not successful, could also cause us to pay substantial damages and prohibit us from selling our products.

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

On April 16, 2002, Caliper Technologies Corp. filed a patent infringement lawsuit against us alleging that our IMAP and reagent assay kits infringe a U.S. patent held by Caliper. We believe that none of our products infringes any claim of the Caliper patent. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. However, we can not assure you that we will prevail in the Caliper lawsuit or that, even if we prevail, that attention to the lawsuit will not consume substantial financial and management resources.

We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market.

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

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

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Lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. We may also provoke third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. We cannot assure you that we will prevail in any of these suits or that the damages or other remedies awarded, if any, will be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive any of these results to be negative, it could cause our stock price to decline.

The rights we rely upon to protect our intellectual property underlying our products may not be adequate, which could enable third parties to use our technology and would reduce our ability to compete in the market.

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

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

•		the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;
•		the claims of any patents which are issued may not provide meaningful protection;
•		we may not be able to develop additional proprietary technologies that are patentable;
•		the patents licensed or issued to us or our customers may not provide a competitive advantage;
•		other companies may challenge patents licensed or issued to us or our customers;
•		patents issued to other companies may harm our ability to do business;
•		other companies may independently develop similar or alternative technologies or duplicate our technologies; and
•		other companies may design around technologies we have licensed or developed.

In addition to patents, we rely on a combination of trade secrets, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. If they do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries. For a variety of reasons, we may decide not to file for patent, copyright or trademark protection or prosecute potential infringements of our patents. We also realize that our trade secrets may become known through other means not currently foreseen by us. Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology and

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products without infringing on any of our intellectual property rights or design around our proprietary technologies.

We obtain some of the components and subassemblies included in our systems from a single source or a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenues.

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

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

•		we may be unable to obtain an adequate supply of required components;
•		we have reduced control over pricing and the timely delivery of components and subassemblies; and
•		our suppliers may be unable to develop technologically advanced products to support our growth and development of new systems.

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

We may encounter manufacturing and assembly problems or delays, which could result in lost revenues.

We assemble our systems in our manufacturing facilities located in Sunnyvale, California, Downingtown, Pennsylvania and Norway. Our manufacturing and assembly processes are highly complex and require sophisticated, costly equipment and specially designed facilities. As a result, any prolonged disruption in the operations of our manufacturing facilities could seriously harm our ability to satisfy our customer order deadlines. As a result of the electricity crisis in California, our Sunnyvale manufacturing facility periodically runs the risk of a partial or complete power failure. If we cannot deliver our systems in a timely manner, our revenues will likely suffer.

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

As we develop new products, we must transition the manufacture of a new product from the development stage to commercial manufacturing. We cannot predict whether we will be able to

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

We may have difficulty managing our growth.

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

We rely upon distributors for product sales and support outside North America.

In 2002 approximately 9% of our sales have been made through distributors outside North America. We often rely upon distributors to provide customer support to the ultimate end users of our products. As a result, our success depends on the continued sales and customer support efforts of our network of distributors. The use of distributors involves certain risks, including risks that distributors will not effectively sell or support our products, that they will be unable to satisfy financial obligations to us and that they will cease operations. Any reduction, delay or loss of orders from our significant distributors could harm our revenues. We also do not currently have distributors in a number of significant international markets that we have targeted and will need to establish additional international distribution relationships. There can be no assurance that we will engage qualified distributors in a timely manner, and the failure to do so could have a materially adverse affect on our business, financial condition and results of operations.

If we do not successfully develop and commercialize new products, we will have incurred significant costs that may harm our business.

Our research and development costs have increased as a result of the acquisition of Cytion S.A. Achieving the benefits of the acquisition of Cytion will depend in part on our ability to develop new products, including technology acquired through the acquisition of Cytion, or enhancements thereto, in a timely and efficient manner. Failure to develop new products in a timely and efficient manner, or at all, may prevent us from offering first-to-market products in the electrophysiology market segment. As a result, we may lose customers and our business and results of operations may be harmed. We have made an investment in, and obtained exclusive world-wide rights to commercialize the high-throughput patch clamp system products of, Essen Instruments, Inc. While we believe that the technology acquired through the acquisition of Cytion complements the high-throughput patch clamp system products of Essen Instruments, we cannot assure you that the acquisition of Cytion will be complementary to the Essen products. In addition, we may continue to incur costs from integrating Cytion’s technology and operations, which may be expensive and time consuming and may adversely impact our ability to successfully develop products. Such costs may include costs for reorganization or closures of facilities, employee redeployment or severance, conversion of information systems or other costs arising from the coordination of our development teams. We cannot assure you that we will be able to retain the key personnel or that the anticipated benefits of their expertise will be realized. Further, successful product development may place a significant burden on our existing management and our internal resources, which could have a materially adverse effect on our business, financial condition and operating results. Finally, the market price of Molecular Devices’ common stock could decline as a result of the acquisition if we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial analysts or investors.

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If we choose to acquire additional new and complementary businesses, products or technologies instead of developing them ourselves, we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business or technology in a cost-effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. To this end, from time to time we have acquired complementary businesses, products or technologies instead of developing them ourselves, and we may choose to do so in the future. For example, in June 2002 we acquired Universal Imaging Corporation (UIC). We do not know if we will be able to complete any additional acquisitions, or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees. Integrating any business, product or technology we acquire could be expensive and time consuming, disrupt our ongoing business and distract our management. In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private equity or debt financings. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that may result in dilution to our stockholders. If we are unable to integrate any acquired entities, products or technologies effectively, our business will suffer. In addition, any impairment of goodwill and amortization of other intangible assets or charges resulting from the costs of acquisitions could harm our business and operating results.

If we do not successfully manufacture, promote, sell and service UIC’s products, develop new products and retain UIC’s customer relationships and key employees, we may fail to achieve the expected benefits of the acquisition of UIC.

Achieving the benefits of the acquisition of UIC will depend in part on our ability to continue to successfully manufacture, promote, sell and service UIC’s products and develop new products and features in a timely and efficient manner. Our failure to do so could have a materially adverse effect on the combined company’s business, financial condition and results of operations. Any significant delay or reduction in orders for UIC’s products could have a materially adverse effect on the combined company’s business, financial condition and results of operations. Finally, the failure to integrate UIC into our operations and retain UIC’s key employees could diminish the benefits of the acquisition. Achieving the benefits of the acquisition will depend on part on the successful integration and coordination of Molecular Devices’ and UIC’s operations and personnel in a timely and efficient manner. We cannot assure you that we will be able to retain UIC’s key employees or that the anticipated benefits of their expertise, experience and capabilities will be realized. Molecular Devices may incur unanticipated costs if integrating UIC’s operations and key employees is difficult or unsuccessful. We do not know whether Molecular Devices will be successful in these integration efforts and cannot assure you that we will realize the expected benefits of the acquisition.

We depend on our key personnel, the loss of whom would impair our ability to compete.

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

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We are dependent on international sales and operations, which exposes us to foreign currency exchange rate, political and economic risks.

We maintain facilities in Norway, the United Kingdom, Germany, Japan and Switzerland, and sales to customers outside the U.S. have accounted for approximately 35% of our revenues in the first nine months of 2002. We anticipate that international sales will continue to account for a significant portion of our revenues.

All of our sales to international distributors are denominated in U.S. dollars. All of our direct sales in the United Kingdom, Germany, France, Japan and Canada are denominated in local currencies and totaled $28.9 million (31% of total revenues) in 2001. To the extent that our sales and operating expenses are denominated in foreign currencies, our operating results may be adversely affected by changes in exchange rates. Historically, foreign exchange gains and losses have been immaterial to our results of operations. However, we cannot predict whether these gains and losses will continue to be immaterial, particularly as we increase our direct sales outside North America. Owing to the number of currencies involved, the substantial volatility of currency exchange rates, and our constantly changing currency exposures, we cannot predict the effect of exchange rate fluctuations on our future operating results. We do not engage in foreign currency hedging transactions currently, but may consider developing a hedging program in the future.

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

•		political, social and economic instability;
•		trade restrictions and changes in tariffs;
•		import and export license requirements and restrictions;
•		difficulties in staffing and managing international operations;
•		disruptions in international transport or delivery;
•		difficulties in collecting receivables; and
•		potentially adverse tax consequences.

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

Our operating results fluctuate and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price.

We typically experience a decrease in the level of sales in the first calendar quarter as compared to the fourth quarter of the preceding year because of budgetary and capital equipment purchasing patterns in the life sciences industry.

Our quarterly operating results have fluctuated in the past, and we expect they will fluctuate in the future as a result of many factors, some of which are outside of our control. In particular, if sales levels in a particular quarter do not meet expectations, we may not be able to adjust operating expenses sufficiently quickly to compensate for the shortfall, and our results of operations for that quarter may be seriously harmed. We manufacture our products based on forecasted orders rather than to outstanding orders. Our manufacturing procedures may in certain instances create a risk of excess or inadequate inventory levels

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if orders do not match forecasts. In addition, our expense levels are based, in part, on expected future sales, and we generally cannot quickly adjust operating expenses. For example, research and development and general and administrative expenses are not affected directly by variations in revenues.

It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors. In this event, the market price of our common stock may fall abruptly and significantly. Because our revenues and operating results are difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance.

Our stock price is volatile, which could cause stockholders to lose a substantial part of their investment in our stock.

The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies. Over the last twelve months, our stock price has ranged from $9.95 to $23.65. Our stock price could decline regardless of our actual operating performance, and stockholders could lose a substantial part of their investment as a result of industry or market-based fluctuations. In the past, our stock has traded relatively thinly. If a more active public market for our stock is not sustained, it may be difficult for stockholders to resell shares of our common stock. Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless they sell them.

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

•		our failure to meet our the performance estimates or those developed by securities analysts;
•		changes in financial estimates of our revenues and operating results or buy/sell recommendations by securities analysts;
•		the timing of announcements by us or our competitors of significant products, contracts or acquisitions or publicity regarding actual or potential results or performance thereof; and
•		general stock market conditions, other economic or external factors.

Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the price investors might be willing to pay in the future for our common stock.

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

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consummating a merger or combination involving us. Further, in October 2001, our Board of Directors adopted a stockholder rights plan, commonly known as a “poison pill.” The provisions described above and our poison pill could limit the price that investors might be willing to pay in the future for our common stock.

Our actual results could differ materially from those anticipated in our forward-looking statements.

This report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. When used in this report, you can identify forward-looking statements by terminology such as “anticipates,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and the negative of these terms or other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in our forward-looking statements as a result of many factors, including those set forth here under “Factors That May Affect Future Results” and elsewhere in this report.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in interest rates and foreign currency exchange rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. A discussion of our accounting policies for financial instruments and further disclosures relating to financial institutions is included in the Summary of Significant Accounting Policies note in the Notes to Consolidated Financial Statements included in the Molecular Devices Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

Our interest income is sensitive to changes in the general level of interest rates, primarily United States interest rates. In this regard, changes in United States interest rates affect the interest earned on our cash equivalents and short-term investments. We invest our excess cash primarily in demand deposits with United States banks and money market accounts and short-term securities. These securities, consisting of $5.7 million of U.S. government agency securities and $4.0 million of commercial paper, are carried at market value, which approximate cost, typically mature or are redeemable within 90 to 360 days and bear minimal valuation risk. We have not experienced any significant losses on these investments.

We are exposed to changes in exchange rates primarily in the United Kingdom, Germany, Japan and Canada, where we sell direct in local currencies. Further, a strengthening of the U.S. dollar could make our products less competitive in overseas markets, as most of our costs are incurred in the U.S. dollar. Translation gains and losses related to our foreign subsidiaries in the United Kingdom, Germany, Japan, Switzerland and Norway are accumulated as a separate component of stockholders’ equity.

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ITEM 4. CONTROLS AND PROCEDURES.

Our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-14(c)) are sufficiently effective to ensure that the information required to be disclosed by us in the reports we file under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted within 90 days prior to the date of this Quarterly Report.

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above, nor were there any significant deficiencies or material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken.

Limitations on the Effectiveness of Controls

The company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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MOLECULAR DEVICES CORPORATION

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 16, 2002, Caliper Technologies Corp. filed a patent infringement lawsuit against us alleging that our IMAP and reagent assay kits infringe a U.S. patent held by Caliper. We believe that none of our products infringes any claim of the Caliper patent. On May 8, 2002, we filed an answer and counter-claim to Caliper’s lawsuit denying all allegations of infringement, setting forth certain affirmative defenses and making a counter-claim for declaratory relief that, among other things, we are not infringing and have not infringed any valid and enforceable claim of the Caliper patent and that the Caliper patent is invalid. IMAP products represented less than 1% of our revenues for the first three quarters of 2002 and are expected to represent less than 1% of our anticipated revenues for the full year of 2002. Accordingly, based on both our assessment of the lack of merit to the lawsuit and the anticipated immateriality of our IMAP product sales, we believe that any outcome of the patent infringement lawsuit will not have a material effect on our results of operations or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In 2000, we entered into an employment arrangement with Patricia Sharp pursuant to which we are obligated to issue an aggregate of up to 2,500 shares of our common stock over a period of two years to Ms. Sharp in exchange for services rendered. As a result of this arrangement, we issued shares of our common stock to this officer as indicated below in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

(b)

Reports on Form 8-K

An Amended Form 8-K report was filed on August 9, 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

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

	1.		I have reviewed this quarterly report on Form 10-Q of Molecular Devices Corporation;
	2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
	4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

5.

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

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ JOSEPH D. KEEGAN, PH.D Joseph D. Keegan, Ph.D. Chief Executive Officer

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I, Timothy A. Harkness, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of Molecular Devices Corporation;
	2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
	3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
	4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

5.

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

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ TIMOTHY A. HARKNESS Timothy A. Harkness Chief Financial Officer

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EXHIBIT INDEX