##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2002                                             
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to           .                                 

Commission file #000-28229

Caliper Technologies Corp.

(Exact name of registrant as specified in its
charter)


|                         |  |                                            
|------------------------ |  | -------------------------------------------
|Delaware                 |  | 33-0675808                                 
|(State of Incorporation) |  | (I.R.S. Employer Identification
    Number)

605 Fairchild Drive

Mountain View, CA 94043-2234


(Address and zip code of principal executive
offices)


Registrants telephone number, including
area code:

(650) 623-0700


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 Par Value


(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 þ          No o

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 the 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.     þ

Indicate by check mark whether registrant is an
accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes þ          No o

Based on the closing sale price of common stock
on the Nasdaq National Market on June 28, 2002, the
aggregate market value of the voting stock held by
non-affiliates of the registrant was $149,880,705. Excludes an
aggregate of 6,520,210 shares of common stock held by
officers and directors and by each person known by the
registrant to own 5% or more of the outstanding common stock.

Exclusion of shares held by any of these persons
should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction
of the management or policies of the registrant, or that such
person is controlled by or under common control with the
registrant.

The number of shares outstanding of
registrants common stock, $0.001 par value was 24,717,255
at March 7, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in Part III of this
Annual Report on Form 10-K is incorporated by reference to
the Proxy Statement for the registrants 2003 Annual
Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by
this Form 10-K.



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TABLE OF CONTENTS



|                  |                                                                                                         |  |  |  |  |  |  | 
|----------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1           
|                  | Item 1. Business                                                                                       
|                  | Item 2. Properties                                                                                     
|                  | Item 3. Legal Proceedings                                                                              
|                  | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II          
|                  | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                           
|                  | Item 6. Selected Financial Data                                                                        
|                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                  | 7A. Quantitative and Qualitative Disclosures About Market Risk                                         
|                  | Item 8. Financial Statements and Supplementary Data                                                    
|                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III         
|                  | Item 10. Directors and Executive Officers of the Registrant                                            
|                  | Item 11. Executive Compensation                                                                        
|                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                  | Item 13. Certain Relationships and Related Transactions                                                
|                  | Item 14. Controls and Procedures                                                                       
|PART IV          
|                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES       
|POWER OF ATTORNEY
|CERTIFICATIONS   
|EXHIBIT INDEX    
|EXHIBIT 3.4      
|EXHIBIT 10.50    
|EXHIBIT 10.51    
|EXHIBIT 10.52    
|EXHIBIT 10.53    
|EXHIBIT 23.1     
|EXHIBIT 99.1     
|EXHIBIT 99.2     



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

FORM 10-K

For the Fiscal Year Ended December 31,
2002


TABLE OF CONTENTS

|                     |  |                                                                                                    |     |      |    | 
|-------------------- |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                     |  |                                                                                                    |     | Page
|                     |  |                                                                                                    |     |     
|PART I              
|Item 1.              |  | Business                                                                                           |     |      | 2  | 
|Item 2.              |  | Properties                                                                                         |     |      | 20 | 
|Item 3.              |  | Legal Proceedings                                                                                  |     |      | 20 | 
|Item 4.              |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 21 | 
|PART II             
|Item 5.              |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |     |      | 21 | 
|Item 6.              |  | Selected Financial Data                                                                            |     |      | 22 | 
|Item 7.              |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |     |      | 24 | 
|Item 7A.             |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |     |      | 47 | 
|Item 8.              |  | Financial Statements and Supplementary Data                                                        |     |      | 48 | 
|Item 9.              |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |     |      | 48 | 
|PART III            
|Item 10.             |  | Directors and Executive Officers of the Registrant                                                 |     |      | 48 | 
|Item 11.             |  | Executive Compensation                                                                             |     |      | 48 | 
|Item 12.             |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |     |      | 48 | 
|Item 13.             |  | Certain Relationships and Related Transactions                                                     |     |      | 48 | 
|Item 14.             |  | Controls and Procedures                                                                            |     |      | 48 | 
|PART IV             
|Item 15.             |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |     |      | 49 | 
|Signatures           |  |                                                                                                    | 54  |     
|Power of Attorney    |  |                                                                                                    | 54  |     
|Certifications       |  |                                                                                                    | 56  |     
|Financial Statements |  |                                                                                                    | F-1 |     

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This Annual Report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Act of 1934. These statements
relate to future events or our future financial performance. We
have attempted to identify forward-looking statements by
terminology including anticipates,
believes, can, continue,
could, estimates, expects,
intends, may, plans,
potential, predicts, should
or will or the negative of these terms or other
comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under Factors
Affecting Operating Results contained in
Part II  Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, that may cause our actual results, levels of
activity, performance or achievements to be materially different
from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking
statements.

Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance
or achievements. Our expectations are as of the date we file
this Form 10-K, and we do not intend to update any of the
forward-looking statements after the date we file this Annual
Report on Form 10-K to conform these statements to actual
results, unless required by law.

LabChip, the LabChip logo, Caliper and the
Caliper logo are registered trademarks of Caliper. We have
applied for registration for the LibraryCard trademark.




PART 1






|        |         
|------- | --------
|Item 1. | Business

Overview

We are a leader in microfluidic lab-on-a-chip
technologies. We believe our LabChip systems can assemble the
power and reduce the size of laboratories full of equipment and
people. Our LabChip systems miniaturize, integrate and automate
many laboratory processes and put them on a chip. Each chip
contains a network of microscopic channels through which fluids
and chemicals are moved, using electricity or pressure, in order
to perform experiments. The chips are the key components of our
LabChip systems, which also include reagents, as well as
instruments and software, that together control and read the
chips. We believe our LabChip systems have the potential to
revolutionize experimentation in a wide range of industries by
enabling researchers to get better quality data faster while
using less material. Our initial commercialization focus is the
pharmaceutical industry, where there is an urgent need to
improve the efficiency and reduce the cost of drug discovery and
development. Future target industries potentially include
diagnostics, chemicals, agriculture and consumer products.

We believe that we are the first company to sell
and deliver microfluidic lab-on-a-chip products to customers. We
have two channels of distribution for our products; direct to
customers and through Original Equipment Manufacturers
(OEM). Our OEM distribution channel, of which
Agilent Technologies, Inc. (Agilent) is a prime
example, is core to our business strategy, and complementary to
our direct sales activities, as it enables us to extend the
commercial potential of our microfluidic LabChip technology into
new industries and new applications with experienced commercial
partners. In the direct systems business, we sell complete
systems solutions, developed by Caliper, to end customers. In
the OEM channel we provide chips and enabling technologies to
commercial partners who then integrate the application solution
and market it to their end customers.

Our earliest revenues were derived primarily from
contract revenue earned under our collaboration agreement with
Agilent and with other corporate partners through a fee-based
technology access program. An initial microfluidic LabChip
system, the 2100 Bioanalyzer, was introduced in late 1999 by our
commercial partner, Agilent. Subsequent to that, we began work
on our own instrument systems while continuing to expand the
menu of applications for the 2100 Bioanalyzer. In September
2001, we began the transition to a commercial products business
model when we launched the Caliper 250 Drug Discovery
system. Currently we

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have three systems that we sell directly: the
Caliper 250; the AMS 90 SE, an automated
electrophoresis system; and the Caliper 42, a microfluidics
applications development workstation. In addition, our first and
largest commercial partner, Agilent, sells the 2100 Bioanalyzer
together with a comprehensive menu of applications for this
instrument.


We were incorporated in Delaware on July 26,
1995. Our principal offices and manufacturing facilities are
located at 605 Fairchild Drive, Mountain View, California
94043-2234 and our telephone number is (650) 623-0700. We
file electronically with the Securities and Exchange Commission
(or SEC) our annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. The public may read or copy any materials we file with the
SEC at the SECs Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site that contains reports, proxy and information statements,
and other information statements, and other information
regarding issuers that file electronically with the SEC. The
address of that site is http://www.sec.gov.

You may obtain a free copy of our annual reports
on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K and any amendments to those
reports on the day of filing with the SEC through our website at
http://www.calipertech.com. Our website address is given
solely for informational purposes; we do not intend, by this
reference, that our website should be deemed to be part of this
Annual Report on Form 10-K.

Our Microfluidic LabChip Systems

We developed our microfluidic LabChip technology
to provide a revolutionary advance in laboratory experimentation
for the pharmaceutical and other industries. The chips are the
key components of our LabChip systems, which also include a
specific LabChip instrument together with experiment-specific
reagents and software. Our chips contain a network of
microscopic channels through which fluids and chemicals are
moved to perform experiments. A single type of chip used with
customized reagents and software to perform a particular
experiment make up one LabChip application. Depending on the
chip format, reagents are introduced either automatically or by
the user. The chip is then placed in the instrument, which uses
software to control the movement of fluids with pressure or
voltage. The instrument also has an optical system for detecting
the results. Because we have great flexibility in channel design
and can exert split-second computer control over fluid flow, we
have the ability to create chips for a multitude of experiments.
Our LabChip systems miniaturize, integrate and automate
experiments with the goal of providing the benefits of improved
data accuracy, reduced cost, high speed, expanded individual
researcher capability and improved enterprise-wide productivity.



| |                            
| | ---------------------------
| | Features of LabChip Systems



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Miniaturization.Conventional laboratory equipment
    typically uses about a drop of fluid, 50 to
    100 microliters, to perform each experiment. In some
    LabChip applications, this volume is reduced to
    1 nanoliter, or one billionth of a liter, an improvement of
    up to 100,000-fold over conventional systems.                                                                                    
|
| |  | Integration.Integration is the compression of
    multiple processes into a single process, or the inclusion of
    multiple functions into one device. Today most laboratory
    systems perform only one or two steps of an experimental
    protocol. Our LabChip systems can integrate complete experiments
    involving half a dozen or more steps into one continuous process
    performed on a single chip.
|
| |  | Automation.Many
    laboratory experiments are performed in multiple manual steps.
    With our LabChip systems, entire experiments can be automated
    and performed inside a chip using one instrument, freeing up
    valuable research time.                                                                                                                                                                   

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Key Benefits of LabChip Systems



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improved Data Accuracy.Our LabChip systems are designed to
    produce more accurate and consistent data by reducing human
    error and the variability caused by the use of multiple
    instruments. With higher quality data, our customers can make
    better decisions. For example, biochemical determinations
    typically require accurate liquid measurements and precise
    incubation times. When these are manually performed significant
    variations can occur in liquid dispensing and in the duration of
    reaction times.                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Reduced Reagent and Labor Cost.Our LabChip systems utilize only a
    small fraction of the usual amount of expensive reagents used in
    experiments performed in test tubes, 96-well plates, or 384-well
    plates, and also reduce labor involved in each experiment. We
    believe that saving on reagent cost and labor can enable
    pharmaceutical companies to expand the scale of experimentation
    in ways that would otherwise not be feasible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | High Speed.We
    believe our LabChip systems can accelerate some experiments as
    much as 100-fold or more, depending on the application. For
    example, molecular separations such as electrophoresis may take
    two hours or more using conventional equipment. On a chip, we
    can perform these separations in less than one minute. Another
    example is that chemical reactions are routinely incubated for
    30 minutes or more before the results are determined.
    Often, these long incubation periods are necessary only to
    provide sufficient time for manual steps to be performed on
    large numbers of samples. By integrating sample processing and
    detection, we can perform reactions in one minute or less and
    achieve comparable results. Our customers may be able to take
    advantage of this acceleration to increase throughput or to
    complete experiments faster, depending on their needs.
|
| |  | Expanded Individual Researcher Capability.Because our LabChip systems can
    collapse a multi-step, complex experiment into one step, we
    believe that individual researchers can perform experiments
    previously outside their areas of expertise. By comparison, with
    conventional, non-integrated equipment, researchers need to
    acquire the equipment and master the complexities of performing
    each individual step.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Improved Enterprise-Wide Productivity.We believe our LabChip systems can
    improve data quality to the point where researchers can rely on
    data generated outside their laboratory or organization. We
    believe this would improve enterprise-wide productivity by
    supporting data sharing and reducing the need to repeat
    experiments. When different research groups use different
    assortments of conventional equipment to perform experiments,
    they often produce data that are not strictly comparable.                                                                                                                                                                                                                                                                                                                                                                                                                  

We believe that our microfluidic LabChip systems
have the potential to expand the capabilities and improve the
productivity of individual researchers and, on an institutional
level, to streamline and bring greater efficiency and speed to
the drug discovery and development process. Not all laboratory
processes, however, are ideally suited to be performed with our
LabChip systems. For example, detecting clinically important
materials that appear in low concentrations in a sample, such as
the virus that causes AIDS, is not always practical with our
microfluidic LabChip systems. This is because there is a risk
that the virus will not be present in the very small volumes
employed by our chips. As a result, in certain applications use
of our microfluidic LabChip system may require the
pre-processing of a sample to increase concentration.
Furthermore, if the analysis of a sample must involve even one
process that cannot currently be performed in the microfluidic
LabChip system, then use of the microfluidic LabChip system for
the parts it can perform is often impractical. This is because
the very small scale of the chip experiment does not generally
produce enough material to be analyzed by conventional
laboratory equipment.

Products and Services

We have developed three types of LabChip systems,
based on distinct chip formats: personal laboratory systems,
automated systems and application development systems. Our
personal laboratory system uses chips with reservoirs for the
various chemical reagents. With this system, the user introduces
reagents and samples manually. Our automated systems use our
sipper chips that have a short tube, or capillary, that draws
nanoliter

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volumes of reagents or samples into the chip. Our
application development system, which is principally intended
for use by OEM partners, is a flexible workstation that is used
during product and application development.




| |                            
| | ---------------------------
| | Personal Laboratory Systems

Agilent 2100 Bioanalyzer.The first instrument platform to be
introduced for LabChip applications is the Agilent 2100
Bioanalyzer, a desktop instrument designed to perform a wide
range of everyday scientific applications using a menu of
different LabChip kits. Each kit contains a chip and reagents
designed specifically for the application. This LabChip system
brings the benefits of miniaturized, integrated and automated
experimentation to the researchers desktop. Agilent
launched this product in September 1999 and continues to sell it
today together with an expanded menu of applications.

|                              |  |                                                               |  |                    
|----------------------------- |  | ------------------------------------------------------------- |  | -------------------
|Product                       |  | Description                                                   |  | Status             
|                              |  |                                                               |  |                    
|Agilent 2100 Bioanalyzer      |  | Desktop LabChip instrument and software                       |  | Marketed by Agilent
|                             
|DNA 12000 LabChip Kit         |  | Chips and reagents for analyzing large DNA
    fragments      |  | Marketed by Agilent
|                             
|DNA 7500 LabChip Kit          |  | Chips and reagents for analyzing medium DNA
    fragments     |  | Marketed by Agilent
|                             
|DNA 1000 LabChip Kit          |  | Chips and reagents for analyzing small DNA
    fragments      |  | Marketed by Agilent
|                             
|DNA 500 LabChip Kit           |  | Chips and reagents for analyzing very small DNA
    fragments |  | Marketed by Agilent
|                             
|Protein 200 Plus LabChip Kit  |  | Chips and reagents for analyzing protein samples              |  | Marketed by Agilent
|                             
|Protein 50 LabChip Kit        |  | Chips and reagents for analyzing small protein
    samples    |  | Marketed by Agilent
|                             
|RNA 6000 Nano LabChip Kit     |  | Chips and reagents for analyzing RNA samples                  |  | Marketed by Agilent
|                             
|RNA 6000 Pico LabChip Kit     |  | Chips and reagents for analyzing very small
    amounts ofRNA |  | Marketed by Agilent
|                             
|Cell Fluorescence LabChip Kit |  | Chips and reagents for analyzing cells                        |  | Marketed by Agilent

Agilent is selling the Agilent 2100 Bioanalyzer
with a menu of four LabChip kits for DNA sizing and
concentration analysis, two for RNA sizing and concentration
analysis, two for protein sample sizing and concentration
analysis and one for cell analysis. For these applications, we
believe the systems principal advantages are that it:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | reduces analysis time from hours to minutes
    through the automation and integration of multiple experimental
    steps;
|
| |  | integrates several experimentation steps into one;                                                                        
|
| |  | significantly reduces consumption of costly
    reagents and difficult-to-obtain samples; and                             
|
| |  | produces higher quality data than conventional
    methods.                                                               

Because these applications are among the most
common experiments performed in genetic research, the potential
customer base for these applications includes most
pharmaceutical and biotechnology companies, as well as research
centers and other academic laboratories.

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| |                  
| | -----------------
| | Automated Systems

Our automated systems are designed to perform
hundreds to tens of thousands of pharmaceutical experiments per
day on each chip. The instrument platforms on which these
systems run today include the Caliper AMS 90 SE and the
Caliper 250. We are also developing new instrument
platforms that have the potential to offer customers greater
functionality and flexibility for automated experimentation. We
believe the principal advantages of Calipers automated
systems are that they:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | produce more reproducible, higher data quality
    than conventional methods;
|
| |  | integrate multiple experimental functions;                                   
|
| |  | reduce the need for user intervention; and                                   
|
| |  | reduce costly reagent consumption.                                           

Caliper 250 System.The Caliper 250 system performs
screening experiments in a serial, continuous flow fashion
inside the microchannels of the chip, constituting a closed,
controlled environment. The chip employs a proprietary
capillary-like sample access system, called a
sipper, through which nanoliters of test compounds
are drawn into the channels of the chip from microwell plates.
There they are mixed with equally tiny quantities of the target
biomolecule and other reagents for screening. The
Caliper 250 system using a 12-sipper chip is capable of
performing tens of thousands of experiments per chip per day,
depending upon assay conditions, and offers walk-away automation
and minimal user intervention. The system currently performs
fluorogenic and electrophoretic mobility assays for multiple
target classes including kinases, proteases, lipid-modulating
enzymes and phosphatases. We also offer, on an early
release basis, a chip that performs a calcium flux assay,
essentially enabling researchers to monitor intracellular levels
of calcium, an important variable in the analysis of G-protein
coupled receptors (GPCRs). Early release products
are available and sold to customers on a limited basis as they
have not fully completed our product development process.
Additional assays are in development. We market and distribute
the Caliper 250 system directly through our own sales and
marketing group. In addition to paying for the Caliper 250
instrument and compatible sipper chips, users of the system also
typically pay to us, on a quarterly basis, datapoint fees based
on the number of samples that the customer has processed through
the Caliper 250 system. Prior to the Caliper 250
system, the following instruments were available: the
Caliper 100 system; the Caliper 110 system; and the
Caliper 220 system. However, with the introduction of the
Caliper 250 system, we have discontinued offering the other
systems.

|                                       |  |                                                         |  |                                                    
|-------------------------------------- |  | ------------------------------------------------------- |  | ---------------------------------------------------
|Product                                |  | Description                                             |  | Status                                             
|                                       |  |                                                         |  |                                                    
|Caliper 250                            |  | Drug discovery system                                   |  | Marketed by Caliper                                
|                                      
|Off-Chip Mobility Shift LabChip device |  | 4-sipper device for off-chip reactions                  |  | Marketed by Caliper                                
|                                      
|Off-Chip Mobility Shift LabChip device |  | 12-sipper device for off-chip reactions                 |  | Marketed by Caliper                                
|                                      
|Fluorogenic LabChip device             |  | 4-sipper device for fluorogenic assays                  |  | Marketed by Caliper                                
|                                      
|Calcium Flux LabChip device            |  | 4-sipper device for measuring intracellular
    calcium |  | Marketed by Caliper on an early
    release basis
|                                      
|On-Chip Mobility Shift LabChip device  |  | 4-sipper device for on-chip reactions                   |  | Marketed by Caliper on an early
    release basis

Automated Microfluidics System 90 SE.The Automated Microfluidics System
90 SE, or AMS 90 SE, is an automated electrophoresis
system designed to meet the needs of microarray and cloning
laboratories that analyze hundreds of DNA samples per day. The
AMS 90 SE, introduced in January 2002, is an improved
version of the Caliper AMS 90. The AMS 90 was
originally introduced in the third quarter of 2000, with the
first units shipped to customers in the first quarter of 2001.
The AMS 90 SE uses sipper-chip technology to

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perform DNA fragment sizing, separation and
quantitation analyses. The AMS 90 SEs new
features include: compatibility with 96- and 384-well plates;
two DNA analysis speeds (30 seconds/sample and
55 seconds/sample); and a bar code reader for plate
tracking. A protein assay for the AMS 90 SE is in
development. We are commercializing the AMS 90 SE through
our own sales and marketing force.


Application Development Systems

Caliper 42 System.The Caliper 42 system enables users to
develop proficiency in fundamental microfluidics and to develop
novel chip-based microfluidic applications using our proprietary
LabChip technology. Principally for use by OEM partners, the
Caliper 42 system includes an applications development
workstation and diverse chip menu.

|                                    |  |                                                                                |  |                       
|----------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------
|Product                             |  | Description                                                                    |  | Status                
|                                    |  |                                                                                |  |                       
|Caliper 42 system                   |  | Workstation for investigating and developing new
    microfluidic applications |  | Available from Caliper
|                                   
|Microfluidic developer LabChip kits |  | Six different chips and manuals for performing a
    variety of experiments    |  | Available from Caliper



| |         
| | --------
| | Services

During 2001, Caliper transitioned from a
fee-based technology access program model to a commercial
products business. Previously Caliper used its automated systems
internally to offer screening services to pharmaceutical and
biotechnology customers that preferred to outsource this
activity. As a result of our transition away from a fee-based
technology access program model to a commercial product
business, we no longer offer these services. However, we do
offer a full range of customer and field service support for the
products that we sell directly to customers.

Summary

For the year ended December 31, 2002,
personal laboratory system products accounted for 23% of our
revenue, automated system products accounted for 38% of our
revenue and licensing and contract services accounted for 39% of
our revenue. In 2001, personal laboratory system products
accounted for 12% of our revenue, automated system products
accounted for 30% of our revenue and licensing and contract
services accounted for 58% of our revenue. For the year ended
December 31, 2000, personal laboratory system products
accounted for 9% of our revenue, automated system products
accounted for 8% of our revenue and licensing and contract
services accounted for 83% of our revenue.

Commercialization

Our business model includes two distribution
channels  one where we sell directly to customers
(Direct) and another that relies on commercial
partners to sell to end-users (OEM). For example, in
the U.S. and Europe we sell our automated systems, including the
Caliper 250 system for drug discovery screening and the AMS
90 SE for automated electrophoresis, directly to end-user
customers. In Japan, we have an exclusive distributor, Wako Pure
Chemical Industries, Ltd. (Wako). Wako is a major
supplier of specialty chemicals, clinical diagnostics and
biological products for Japanese biotech research. To complement
our direct efforts, Caliper is developing an OEM distribution
channel. In this case, we sell microfluidic LabChip systems and
products to end-users through partners. For example, the Agilent
2100 Bioanalyzer and related LabChip kits are sold by our
largest commercial partner, Agilent. In addition, we have a
multiple smaller partnerships in earlier stages of development.



| |                           
| | --------------------------
| | Collaboration with Agilent

In May 1998 we established a broad relationship
with Agilent to create a line of commercial research products
based on our microfluidic LabChip technologies. This
relationship provides us with the scale and

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expertise of a leading analytical instrumentation
company to bring these novel products to market. Since this
relationship was established in May 1998, Agilent and Caliper
have collectively invested over $100 million to advance our
core LabChip technologies and to create and commercialize a line
of products based on these technologies. In September 1999,
Agilent introduced the Agilent 2100 Bioanalyzer with three
different LabChip kits, our first LabChip products under this
agreement. Subsequently, Agilent and Caliper have expanded the
Agilent 2100 Bioanalyzer application menu with six additional
LabChip kits.


Our collaboration relationship with Agilent was
established on a mutually exclusive basis during the term of the
collaboration. The field of the collaboration includes products
based on our lab-on-a-chip technologies for research,
development, analytical and manufacturing applications, but
excludes almost all diagnostic applications. Under the terms of
our agreement, Agilent is required to obtain our consent before
it may offer products exceeding established sample throughput
limits, other than through our product collaboration. In return,
Caliper is required to obtain Agilents consent before we
may develop or offer Caliper products within the collaboration
field of interest, directly or with other OEM customers, in
excess of agreed upon limits. In December 2001, we agreed to
permit Agilent to develop and manufacture certain chromatography
products independent of Caliper, subject to gross margin sharing
payments to Caliper, and Agilent agreed that Caliper could offer
drug discovery products in the research market outside of our
collaboration.

In May 2002, we notified Agilent of our intent to
terminate the collaboration agreement effective May 2003, as
permitted under the terms of the agreement. The existing
collaboration agreement with Agilent spells out in detail the
nature of the companies commercial product supply
relationships for a three-year period after termination. Our
principal motivation in terminating the formal agreement with
Agilent was to give us more flexibility in developing new
applications with other commercial partners. Termination of the
agreement will also provide Caliper with greater ability to
market and sell existing products in the field of the
collaboration directly to end-user customers, in part utilizing
the reciprocal supply arrangements set forth in the termination
provisions of the agreement. Both parties will either operate
under the existing termination provisions of the collaboration
agreement or establish new terms, as yet to be determined.

In our collaboration with Agilent, Caliper has
primarily focused on developing core LabChip technology and
product applications. We have also manufactured the chips and
supplied the chips and reagents to Agilent. Agilent has
primarily focused on developing instruments and software,
manufacturing instruments and marketing, selling and supporting
complete systems. Agilent and Caliper have worked in a
collaborative manner to identify new applications for
development and distribution. Historically Agilent has also
provided product development funding to Caliper. This funding
could cease at any time after the termination of the formal
agreement in May 2003. However, we anticipate that some product
development funding will continue as we are working steadily
with Agilent to develop new products.

Under the collaboration, Agilent purchases chips
and reagents at a price which reimburses us for our costs of
manufacturing chips and reagents and pays us a share of the
gross margin on sales by Agilent of all components of LabChip
systems, including instruments. We recognize revenue related to
the reimbursement of costs for the supply of chips and reagents
to Agilent upon shipment and we recognize the related costs as
components of cost of sales. We recognize as revenue our share
of gross margin on components of the systems sold by Agilent
upon shipment to the end user. This general structure for
existing products will survive termination of the agreement. Our
gross margin share varies depending on the type of collaboration
product, and on whether Agilent or we manufacture the
collaboration product. After the collaboration agreement
terminates in May 2003, our gross margin share for existing
products will remain the same until November 2004. In November
2004, our gross margin share for chips and reagents will
decrease, and in May 2006 our gross margin share for chips and
reagents will decrease again. Our gross margin share for
existing instruments will also decrease in the same time
periods, although at somewhat different rates. Upon termination
of the agreement in May 2003, Agilent will have a non-exclusive
license in the field of the collaboration to Calipers then
existing LabChip technology to develop, manufacture and sell new
products in that field. Agilent will be required to pay
royalties to Caliper based on its net revenue from sales of such
products at the established royalty rates set forth in the
termination provisions of our collaboration agreement.

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Upon termination of the agreement, to the extent
requested by Agilent, Caliper will be obligated to continue to
supply existing chips and reagents to Agilent for a three-year
period. Agilent will also have a non-exclusive license to
manufacture chips for Agilent LabChip applications, in each case
subject to gross margin sharing or royalty payments to Caliper
described above. During the six-month period following
termination, Caliper will also be obligated to train Agilent
personnel with respect to the manufacturing of chips, subject in
certain circumstances to reimbursement by Agilent of our
incurred expenses. Agilent will be similarly obligated to train
Caliper personnel regarding the manufacturing of instruments,
and upon Calipers request, to transfer to us all Agilent
know-how incorporated into collaboration products. Caliper will
retain its entire license rights to Agilents technology
granted to us during the term of the collaboration.

After a six-month period following termination of
our agreement with Agilent, Caliper will be entitled to market,
sell and support, either independently or with other third
parties, all products developed during the collaboration. For a
three-year period following termination, Caliper will be
required to purchase its requirements for such products from
Agilent, on the terms set forth in the termination provisions of
the agreement.

In summary, although our first collaborative
agreement with Agilent will end effective May 2003, we highly
value our relationship with Agilent. We will work to continue to
grow our business with Agilent, either in accordance with the
termination provisions set forth in the existing agreement or
pursuant to new terms to be agreed to by Agilent and us.

Additional Corporate Partnerships

Central to Calipers business strategy is
the expansion of the number and type of our commercial
relationships. In addition to Agilent, the most mature of these
partnerships, Caliper has announced agreements with two
companies. These companies are Bacterial BarCodes, Inc. and
Ambion, Inc. In addition, Caliper has certain research
collaborations that we believe have the potential to evolve into
commercial partnerships.

Bacterial BarCodes,
Inc.In December 2001, we entered into
an agreement with Bacterial BarCodes, Inc. (BBCI) to
co-distribute molecular diagnostic systems based on our
microfluidic LabChip technology and BBCIs proprietary
molecular identification and DNA fingerprinting technology known
as rep-PCR (repetitive sequence-based polymerase chain
reaction). As part of this collaboration, we developed the
Caliper 1000 Analyzer system in 2002. The Caliper 1000
Analyzer instrument is manufactured for us by Agilent on an OEM
basis. The Caliper 1000 Analyzer is being used with BBCIs
proprietary rep-PCR products to generate DNA fingerprints of
bacteria for microbial typing and identification applications.
We believe that the combination of Calipers microfluidic
LabChip systems for DNA analysis and BBCIs rep-PCR
technology offers a practical method to quickly produce
bacterial fingerprints in an automated format. The rep-PCR
method produces a mixture of DNA fragments of varying sizes that
must be separated according to size to form the actual unique
fingerprint patterns. Previously, the rep-PCR method relied upon
DNA molecule separation using traditional slab gel
electrophoresis, a largely manual and time-consuming process.

The combined Caliper/ BBCI system is in the final
stages of field-testing. Relative to traditional approaches, the
system offers improved speed, ease-of-use and data analysis
capabilities. Customer response at the testing sites has been
positive, and we anticipate a product rollout in 2003. BBCI
initially has targeted laboratories involved in epidemiology
testing, such as reference laboratories and facilities in large
hospitals. A clinical product, requiring regulatory approval, is
also planned for which BBCI will manage the required submissions
to the Food and Drug Administration. Under our agreement,
Caliper will provide chips and analysis reagents to BBCI. BBCI
will sell a combined assay kit that includes our chips and their
rep-PCR DNA fingerprinting reagents and protocols, plus software
to access BBCIs database of bacterial DNA fingerprints. We
will market and sell the Caliper 1000 Analyzer designed to run
the chips.

Ambion, Inc.In
October 2002, we initiated an application development
collaboration with Ambion, Inc. (Ambion), an
RNA-based products company, to develop a microfluidic RNA
amplification system. The system would be used by researchers
conducting gene expression experiments to prepare an amplified
RNA probe prior to performing microarray analysis. Currently
available amplification processes are labor-intensive.

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Additionally, the quantity of sample RNA to be
amplified is often limited. These challenges, which contribute
to the time and expense of conventional RNA amplification
methods, can also impact the validity of the results. Caliper
and Ambion hope to address these inefficiencies by optimizing
and automating RNA amplification in a microfluidic environment.
The benefits of this approach should include increasing
throughput, greater ease of use, minimizing sample requirements
and achieving a uniformly high level of consistency in the
amplified RNA probe.


Currently, Caliper scientists are developing the
microfluidic LabChip device and instrument platform, assisting
with assay development and collaborating with Ambion in the
development of the integrated system. It is conceivable that a
third-party will also participate in the development of the
instrumentation. At this time, Ambion is primarily involved in
the assay development and is optimizing reagents and conditions
for the chip. We are working to develop a first-generation
LabChip device and to complete feasibility experiments. In 2003,
we anticipate making further progress toward an early stage,
completely integrated LabChip amplification system. To date this
work has been largely funded through Ambion by a Small Business
Innovation Research grant from the National Institute of General
Medical Sciences.

Other Corporate Relationships

In 2000, Caliper created the Applications
Developer Program (ADP) to enable customers to
establish their own in-house microfluidic research programs
using our microfluidic LabChip technology and developmental tool
set. Participation in the ADP involved the purchase of
instrumentation, training in microfluidics, custom-chip design
services and a supply of microfluidic chips. During
participation in the ADP, customers would determine the
feasibility of, and develop, novel microfluidic applications by
identifying an assay to address their specific needs.
Subsequently, we would custom design a chip to perform that
assay. We retain the rights to microfluidic technologies
resulting from these collaborations, subject in some
circumstances to royalties or other compensation to our
collaborators.

All of the five ADP collaborations underway at
the beginning of 2002 are being assessed to determine if they
have significant commercial potential and a specific path to
commercialization, similar to the criteria that we apply to our
OEM prospects. Using this criteria, one of the collaborations,
with an unnamed agricultural partner, has recently been
terminated.



| |                                              
| | ---------------------------------------------
| | Relationship with Amphora Discovery
    Corp.

In September 2001, Caliper completed the
formation of a new company, Amphora Discovery Corp.
(Amphora), to create and commercialize a
comprehensive database of chemical genomics information. Since
that time, Amphora has engaged in large-scale implementation of
LabChip drug discovery systems purchased directly from Caliper.
Headquartered in Research Triangle Park, North Carolina, Amphora
also maintains an office in Mountain View, California.

At the time of its formation, various venture
capital firms invested $25 million in Amphora, resulting in
Amphora becoming a separate, independent company from Caliper
with its own management team and board of directors. ARCH
Venture Partners and Venrock Associates are two of the venture
capital firms that have invested in Amphora. One of our
directors, Robert T. Nelsen, is a Managing Director of ARCH
Venture Partners, and another of our directors, Anthony B.
Evnin, is a Managing General Partner of Venrock Associates.

In December 2002, Amphora completed a second
round of venture capital financing. After the completion of this
financing, Calipers ownership in Amphora was reduced to
approximately 13% from 28% on a fully diluted basis. Over time,
if Amphora raises further equity capital, we expect that our
ownership in Amphora will be further diluted, as we have no
plans to make any future equity investments in Amphora. Caliper
initially had the right to appoint two representatives to
Amphoras six-member board of directors. On March 17,
2003, one of Calipers two representatives,
Dr. Michael R. Knapp, resigned from Amphoras board of
directors. Due to the reduction in Calipers percentage
ownership of Amphora, Caliper now has the right to appoint only
one member to Amphoras board. Dr. Daniel L. Kisner,
our chairman of the board, continues to serve as the sole
Caliper representative on Amphoras board of directors.

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Since the completion of Amphoras initial
financing in September 2001, our investment in Amphora has been
accounted for under the equity method of accounting. As our
investment in Amphora has no basis for accounting purposes and,
because Caliper does not guarantee any debt or have any
commitment to fund losses of Amphora, Caliper has not recorded
its proportionate share of Amphoras operating losses in
its financial statements. The completion of Amphoras
second round of venture capital financing in December 2002 did
not have any impact on our method of accounting for Amphora.

For the fiscal year ended 2002, sales to Amphora
of instruments, LabChip devices, datapoints and contract
services were $6.2 million. Of the $6.2 million in
total 2002 sales, $3.3 million related to drug discovery
system products and, under the equity method of accounting,
Caliper deferred 28% of the gross profit of these sales, or
$333,000, that reflects its retained ownership interest in the
products sold to Amphora in 2002. As all drug discovery system
sales to Amphora occurred prior to Amphoras December 2002
third party financing, all future drug discovery system sales
will be deferred at Calipers then retained ownership
interest level which is approximately 13% currently. In 2002,
Caliper recognized a total of $177,000 of this deferred gross
profit as revenue of which $121,000 related to drug discovery
system products sold in 2001 and $56,000 related to products
sold in 2002. Caliper expects to recognize the remaining
$499,000 as revenue ratably over the next 36 months as
Amphora records depreciation on its Caliper 250 Drug
Discovery systems. For the fiscal year ended 2001, sales to
Amphora of instruments, LabChip devices, datapoints and contract
services were $3.9 million. As further described below,
Caliper and Amphora agreed to a restructuring of the commercial
relationship between the two companies in December 2002. Based
on the restructured relationship, we expect in 2003 that Amphora
will purchase one Caliper 250 instrument and make approximately
$1.6 million in minimum datapoint payments to us. All
revenues generated from Amphora are reported as related-party
revenues.

In September 2001, we entered into a LabChip
Solutions Agreement and an Intellectual Property Agreement with
Amphora. Under the Intellectual Property Agreement, we granted
Amphora certain exclusive rights to use our drug discovery
products in a chemical genomics database business. The LabChip
Solutions Agreement provided for the ongoing supply of our drug
discovery systems and chips to Amphora, and for the provision of
related services by us to Amphora. Under this agreement, Amphora
had agreed to purchase a minimum of 11 Caliper 250 instruments
by December 31, 2001 and at least 11 additional Caliper 250
instruments by December 31, 2002. Amphora had also agreed
to purchase datapoints at a fixed amount of $2.0 million in
the first year and a minimum of $4.0 million to a maximum,
based on volume, of $6.0 million in the second year of the
agreement, which began in December 2002.

In connection with the completion of
Amphoras December 2002 financing, Caliper and Amphora
agreed to a renegotiation of Amphoras obligations under
the LabChip Solutions Agreement. Under the renegotiated
agreement, the Companies agreed to restructure the
$4 million minimum datapoint payment for 2002 as follows:
Amphora agreed to purchase a minimum of $1.8 million of
datapoints during the second year of the agreement beginning in
December 2002 and over time to make up to $2.2 million of
deferred payments to Caliper. These deferred payments are
contingent upon Amphoras future revenue generation,
datapoint production and other conditions and can be satisfied
by Amphora under three methods: i) quarterly payments to
Caliper based on Amphoras revenues; ii) commissions
earned by Amphora as they provide certain marketing assistance
to Caliper for Calipers instruments; and
iii) additional datapoint payments if Amphora exceeds the
certain minimum datapoint levels. Caliper also agreed to defer
to December 31, 2003 Amphoras obligation to purchase
the one remaining Caliper 250 instrument of the
11 originally scheduled to be purchased by Amphora before
December 31, 2002. In consideration for Calipers
agreement to this restructuring, Amphora issued to
Caliper 2.5 million shares of Amphora preferred stock.
Caliper ascribed a nominal value of $25,000 to these shares as
Amphora is a privately held research and development company.

In September 2001, Amphora entered into a
three-year Sublease Agreement with Caliper for the rent of
approximately 5,700 square feet in one of Calipers three
Mountain View, CA leased buildings for Amphoras research
and development use. In December 2002, in connection with the
completion of Amphoras financing, we agreed to an early
termination of this Sublease Agreement as of March 31,
2003. Although we were receiving approximately $20,000 a month
in rent from Amphora, we intend to utilize this
5,700 square feet for our own research and development
activities starting in April 2003.

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| |                                                      
| | -----------------------------------------------------
| | Early Commercial Model: Technology Access
    Program

Prior to transitioning to a commercial products
business model, we had Technology Access Program
(TAP) customers. In this program, focused on drug
discovery screening systems, we worked directly with
pharmaceutical company customers during the product development
process. In 2001, following the commercial launch of the
Caliper 250 system, our existing TAP customers purchased
these systems for their internal use. These customers included:
Millennium Pharmaceuticals, Eli Lilly and Amgen.

Beginning in August 2001, within the context of
our planned evolution away from the Technology Access Program
and conversion to a commercial products business structure, we
initiated the renegotiation of our TAP agreements. We proposed
to each customer, and they agreed, to convert the remaining
technology access and subscription fees due us under their
agreement to credits toward the purchase of products and
services. The renegotiated contracts with Amgen, Eli Lilly and
Millennium include discounts off our product list prices for
their commitment and ongoing participation as a customer of our
commercial business for a time period roughly equivalent to the
length of time that they were a TAP customer.



| |          
| | ---------
| | Customers

To date, we have generated a substantial portion
of our revenue from a limited number of sources. In the year
ended December 31, 2002, Agilent, our major collaboration
partner, alone accounted for 39% of our total revenue and 35% of
our product revenue. We notified Agilent in May 2002 of our
election to terminate the agreement between the companies as of
May 2003. Under the terms of our agreement with Agilent, when
our agreement terminates in May 2003, we will grant to Agilent a
non-exclusive, royalty-bearing license to our LapChip
technologies as then developed for Agilent to develop, make and
sell products in the field of the collaboration. Consequently,
there is the possibility that we may experience competition from
Agilent after May 2003, which would reduce our ability to sell
products independently or through other commercial partners.
Amphora, a related party, accounted for 24% of our total revenue
and 34% of our product revenue. Initial licensing of the Ramsey
family of patents to Aclara accounted for 10% of our revenue and
our former Technology Access Program customers, Amgen, Eli Lilly
and Millennium, collectively accounted for 12% of our revenue in
the 2002 period. In 2001, Agilent alone accounted for 32% of our
revenue in this period, one TAP customer, Millennium, accounted
for 10% of our revenue, Amphora alone accounted for 13% of our
revenue, and initial licensing of the Ramsey family of patents
to Aclara accounted for 17% of our revenue. In 2000, Agilent
alone accounted for 45% of our revenue, and our three TAP
customers, Amgen, Eli Lilly and Millennium, each accounted for
14%, 18% and 13%, respectively, of our revenue in this period.
Although we are seeking to expand our customer base, we cannot
assure you that these efforts will be successful. The loss of
any of these customers would have a material adverse effect on
our results of operations.

During the course of 2002, 2001 and 2000, we did
not experience any material backlog in supplying products or
services to our customers. Our customers purchase our products
under standard commercial terms and conditions for payment due
in 30 days from the invoice date, as we do not offer
extended payment terms. We invoice our customers upon shipment
FOB Origin on products or on the completion of
services under our agreements. We offer our customers a one-year
warranty on our automated system purchases and a 90-day warranty
on chip purchases.

Approximately 92%, 97% and 100% of our total
revenues for 2002, 2001 and 2000, respectively, were derived
from customers in the United States as described in Note 17
to our financial statements located at the end of this Annual
Report. Substantially all of our long-lived assets are located
in the United States.

Technology

We believe that we have established a leading
position in three areas of lab-on-a-chip technology.



| |                 
| | ----------------
| | Microfabrication

We create microfluidic lab-on-a-chip devices
using manufacturing methods similar to the semiconductor
industry, sometimes referred to as microfabrication.
Microfabrication makes it possible to create intricate

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designs of interconnected channels that are
extremely small and precise. Each pattern is designed to support
a series of fluid manipulation steps that will comprise an
experiment. We use the principles of fluid dynamics, chemical
and electrical engineering, biophysics and computer-aided design
tools to create various chip designs. Because we have designed,
manufactured and tested hundreds of different chip
configurations, we have the know-how and have developed
proprietary design tools that make each cycle of chip creation
and application development faster. The chips are designed to be
passive devices, inexpensive and easy to manufacture. They rely
on computer-controlled specialized instrumentation to manipulate
the timing and sequencing of chemical processes on the chip.


Once a design or pattern is completed, we use
microfabrication methods to replicate the design as channels in
a sheet of quartz or glass. This process creates highly precise
and reproducible channels with dimensions that can be varied by
width and depth. A typical channel is roughly 50 microns
wide and 10 microns deep, or smaller than the size of a
strand of human hair. In the next step, a second sheet of quartz
or glass with a pattern of holes, or wells, is fused to the
first sheet using a proprietary bonding process. This second
sheet covers the channels and converts them into closed
microfluidic conduits. The end of each channel connects to an
open reservoir through which fluids are introduced. The sheets
are then cut into individual chips, which can be less than one
inch to a few inches on a side. The individual chips are then
packaged into plastic holders making them easier to handle.

We currently make two chip formats. In our planar
chips, such as those used in the Agilent 2100 Bioanalyzer,
the user pipettes all of the chemical reagents into the
reservoirs or wells of the chip, including the various samples
to be tested. The chip is then placed into the instrument. In
our sipper chip products, such as those used in the
AMS 90 SE and the Caliper 250 system, a small
glass tube, or capillary, is part of the chip. Once the user
prepares the chip and the chip is placed into a Caliper
instrument, minute quantities of sample can be introduced, or
sipped, through the capillary into the chip. This
sipping process can be repeated many times, enabling a single
chip to analyze thousands of samples quickly and without human
intervention. Samples on sipper chips are processed utilizing
continuous flow designs with integrated channel networks for
completing experiments. We have a number of issued U.S. patents
covering this sipper and continuous flow assay technique.



| |              
| | -------------
| | Microfluidics

In our LabChip systems, the movement of minute
quantities of fluids, or microfluidics, is actively
controlled by computer programs. We use two different methods of
generating fluid motion in microchannels, namely,
electrokinetics and pressure.

Electrokinetic flow is generated when electrodes
connected to computer-driven power supplies are placed in the
reservoirs at each end of a channel and activated to generate
electrical current through the channel. Under these conditions,
fluids of the appropriate type will move by a process known as
electro-osmosis. Another electrokinetic phenomenon
known as electrophoresis also occurs in the
channels. This is the movement of charged molecules or particles
in an electric field. Electrophoresis can be used to move
molecules in solution or to separate molecules with very subtle
differences. Electrophoresis and electro-osmosis generally occur
at the same time in channels. However, we have developed
proprietary techniques for minimizing either force while
maintaining the other, as appropriate, for a given application.

Pressure can also be used to move fluid in
microchannels. An advantage to using pressure is that both
charged and uncharged molecules, as well as cells, can be moved
without separation.

Under typical conditions, flow rates in the
microfluidic channels are about a millimeter per second. At
these rates, and in contrast to macro conditions, the dispersion
of fluids is limited and highly predictable. As a result, we are
able to get very exact, reproducible data.

We use both computer-controlled pressure and
electrokinetic forces to gain precise control over fluid flow in
the microfluidic channel network. It is possible to use
electrokinetic forces alone, pressure forces alone, or a
combination of the two methods.

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| |                         
| | ------------------------
| | Applications Development

We have developed a large amount of expertise at
discovering new functions that microfluidic chips can perform.
We have generated proprietary computer models of how an
experiment can be carried out. We store these functional
designs, and we can incorporate them into new designs that
simulate complete experimental pathways. In this way, we believe
the value of new microfluidic inventions can be rapidly expanded
across many application development projects.

We have also developed expertise conducting a
variety of laboratory experiments in our chips. Currently, all
of our systems use fluorescent chemical reagents and optical
detection instruments to read experimental results. We often
need to explore chemical strategies for labeling relevant
reagents that can reveal how different molecular interactions
take place. Another area of investigation addresses the fact
that in small dimensions, within which our products operate, the
amount of channel surface material relative to the amount of
liquid is many times higher than in a test tube or microwell
plate. Because of this, the surface material can exert a much
greater chemical influence on the biochemical reactions taking
place. We have created strategies to avoid the problems this can
cause, or benefit from it if possible.

We have also developed sipper chips, which enable
automated sample input into the chip, allowing for high
throughput experimentation. These sipper chips perform enzyme
reactions using part of the channel design as a tiny,
continuously operating electrophoresis machine. Thus, reactions
with one sample are going on in one area of the chip while
electrophoretic separation of the products of another sample is
taking place in a different part of the chip. Such an assembly
line approach yields highly reproducible data unmatched by
macroscopic formats. In general, our experience is that
microfabrication and microfluidics provide a rich tool set with
which to create innovative new applications.

Research and Development

We have made substantial investments in
lab-on-a-chip research and product development since our
inception. We explored fundamental issues of lab-on-a-chip
technology as early as possible in order to find solutions to
important technical challenges and seek patent protection for
our solutions. Today we are supplementing these core technology
research efforts with applied product development efforts in
several areas.



| |                    
| | -------------------
| | Technology Research

Our technology research activities fall into
several classes.

Chip Design.We are
increasing our understanding of the design rules guiding the
development of new chips. Using the principles of engineering,
we create patterns of interconnected channels that permit
execution of the various common steps of experimentation.
Designs from one chip can be used for other chips needing
similar fluidic functions for a different application.
Mathematics and computer models also help minimize the number of
iterations necessary to achieve new functional chip designs.

Chip Manufacturing.We continue to seek ways to improve
the yield and decrease the cost of manufacturing our chips. We
are exploring novel fabrication techniques and the use of new
materials that offer functional advantages, such as
manufacturing in quartz to take advantage of its superior
optical features. We have development programs in manufacturing
technology for chips made of plastic. Plastic devices
potentially offer cost advantages and can offer favorable
surface chemical features for some applications. A major area of
development is micromachining technology for precisely attaching
capillaries to our sipper chips to access reagents. In automated
experimentation, the number of capillaries and channels
determines the level of throughput. Accordingly, we are
developing high yield fabrication methods to enable us to
cost-effectively manufacture chips with many capillaries to
perform high throughput experimentation.

Engineering and Software.We use the skills of electrical
engineers, optical engineers, mechanical engineers, product
designers and software engineers to create new instrumentation
to run our chips. These instruments control fluid movement
inside the chip, present the reagents to the chip from
conventional fluid sources, and detect the results of
biochemical or cell-based experiments with optical methods.
Software

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engineers write computer programs that control
the sources of fluid motion, communicate between different
instrument components and interpret signals from the detection
system. Currently we develop these incidental software programs
for our automated systems. This software has no separate utility
outside of its function of running the Caliper instrument. We
collaborate with Agilent to develop software for the
Agilent 2100 Bioanalyzer.


Systems Integration.When developing commercial LabChip
products, we ensure that we incorporate all the features
necessary for performing a specific experiment and configure the
assay so that it offers tangible benefits to users. By carefully
characterizing the problem, as well as the microfluidic
solution, we are able to define precise product specifications.
For instance, in each application, we determine how to
manipulate flow conditions and how to control surface
interactions in order to create novel functions and/or suppress
undesirable effects. The resulting complete solution includes
the LabChip device, the instrument interface, computer software
and reagents needed for each total microfluidic application.



| |                    
| | -------------------
| | Product Development

Our product development efforts are currently
focused principally on new applications and capabilities for our
existing instruments and the development of new instrument
platforms.

Extensions of Existing Product Lines.For our automated instrument systems,
we are expanding the menu of applications to include assays that
measure many important activities of cells and proteins.
Currently in development is a protein assay for the
AMS 90 SE. In our drug discovery screening line, we
are developing line extensions that are particularly well suited
for the evaluation of kinases, one of the largest focus areas of
drug discovery efforts today. Our recently introduced products
include a new 12-sipper LabChip device and an
on-chip mobility shift assay (available on an
early release basis), both well suited to kinase
testing. Caliper is also developing kinase profiling and
selectivity screening kits. These kits will allow us to offer
plug-and-play products to customers in the drug
discovery market. For the Agilent 2100 Bioanalyzer, we intend to
continue enhancing the existing menu of applications. We are
also working with Agilent to develop new products.

LibraryCard System.Calipers microfluidic technology
has the potential to reduce reagent, compound and sample
consumption to remarkably small volumes in a wide variety of
biochemical tests. To enable the full potential of small volume
usage on the chip, we have developed a system to reduce the
volume of samples being tested to nanoliter scale. In the
LibraryCard system, samples or reagents to be tested are spotted
down on specially prepared glass plates; 10,000 different
samples or reagents can be accommodated. The spots are dried and
the cards are stored until use with the Caliper microfluidic
system. Each spot contains a few tenths of a nanogram of
material, incredibly small amounts, but enough for testing in
Caliper chips. Because chemical reagents are typically stable in
dry formats, this technology has the additional benefit of
enabling drug discovery screening and related testing in
non-centralized locations. We are hoping to commercialize the
technology through partnerships with other companies.

Genetic Analysis on a LabChip Device.Until the second half of 2002, we were
developing a LabChip device for single nucleotide polymorphism
(SNP) analysis that we intended to commercialize
directly. More recently, we have decided to commercialize this
product through corporate partnerships. PCR, or polymerase chain
reaction, is a technique for rapidly producing many copies of a
section of DNA. Like all experimentation processes, this
application is a combination of various fluid manipulations,
biochemical reactions and detection. We are developing an
integrated PCR application that is designed to perform the steps
of reagent assembly, amplification and readout in rapid, serial
fashion inside the channels of a microfluidic chip. We believe
that our genetic analysis system will offer the advantages of
nanoliter-scale processing of valuable reagents, automated
reagent assembly and computer-controlled heating and mixing for
high-quality data production. Though our nanoliter-scale genetic
analysis system is still in development, we are capable of
routinely doing 16-hour unattended runs involving thousands of
2-nanoliter reactions with starting material down to single
copies of genomic DNA. Compared to conventional methods, which
take about 60 minutes, we can do a complete reaction in about 9
minutes. This underscores the benefits that can be achieved by
integrating and automating multiple complex experimental steps
on a single chip.

15



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Our research and development expenses for the
years ended December 31, 2002, 2001 and 2000 were
approximately $43.3 million, $38.3 million and
$33.5 million, respectively. We expect research and
development spending to decrease in the future as we slow the
pace of discretionary spending on research programs, complete
certain research initiatives and continue to focus and
prioritize ongoing research programs. As of December 31,
2002, we had 113 employees engaged in research and development,
including 63 with advanced degrees.

Manufacturing

We manufacture all of our chips, automated
instrument systems and a variety of consumables in-house.
Caliper is ISO 9001 compliant for the development, manufacture
and distribution of its chips and reagent systems. ISO, the
International Standards Organization, sets international
standards for quality in product design, manufacturing and
distribution. We rely upon Agilent to manufacture the Agilent
2100 Bioanalyzer and, on an OEM basis, the Caliper 1000
Analyzer. We contract with third parties to supply raw
materials, component parts and sub-assemblies used in our chips,
reagents and instrument systems. We intend to continue to invest
in our infrastructure for the manufacture and distribution of
our chips and to continue to work with third parties for
outsourcing opportunities for non-chip based products. For a
discussion of the methods we use to manufacture our chips see
 Technology and Research and Development.

Suppliers

Key components of our chips, instruments and
reagent-based products are obtained from a number of
single-source or limited-source suppliers. We rely on a
privately held company for the supply of proprietary dyes used
in many of our LabChip products. Furthermore, we depend on a
foreign single-source supplier for the manufacture of glass
stock used in the manufacture of certain types of our chips. The
majority of our key components for our chip and instrument
products are readily available from our suppliers to meet
production requirements. The only component requiring any
significant lead time to acquire is our proprietary glass stock,
as our supplier requires a minimum order to cover an entire
production run. We anticipate that inventories of this
proprietary material, at current production levels, will be
sufficient for the next 18 months.

Although we have established licensing
arrangements and supply agreements with these suppliers, as well
as other single- or limited-source suppliers, there can be no
assurances that these companies would not in some way be
adversely affected in the future and be unable to meet our
critical supply needs. In the event that the supply of
components from these suppliers and other single-source or
limited-source suppliers were interrupted, we may not be able to
manufacture, or manufacture in a timely fashion or in
significant quantities, our products, which would delay our
ability to deliver products to our customers.



| |                     
| | --------------------
| | Commodity Price Risk

Some of the raw materials we use are subject to
price volatility caused by supply conditions, economic variables
and other unpredictable factors. Historically we have not
experienced significant supply or price constraints and we do
not expect our financial position, profitability and liquidity
to be affected materially by the supply-level fluctuations.

Competition

Although we believe that we are currently one of
only a few companies selling and delivering, directly or in
collaboration with corporate partners, commercial microfluidic
lab-on-a-chip products to customers, we expect to encounter
intense competition from a number of companies that offer
products for laboratory experimentation. We anticipate that our
competitors will come primarily from the following three sectors:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies providing conventional products for
    applications similar to ours, but based on established
    technologies, and incremental improvements to these products;
|
| |  | companies developing their own microfluidics or
    lab-on-a-chip technologies; and                                                                                       

16



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| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies developing new non-chip technologies
    that can be used in applications similar to the ones that can be
    served by our technology.

In order to compete against vendors of
conventional products, we will need to demonstrate the
advantages of our LabChip products over alternative
well-established technologies and products. We will also need to
demonstrate the potential economic value of our LabChip products
relative to these conventional technologies and products. Some
of the companies that provide these products include the Applied
Biosystems division of Applera, Agilent, Amersham Biosciences,
Beckman Coulter, Bio-Rad Laboratories, Molecular Devices,
PerkinElmer and Tecan.

We will also need to compete effectively with
companies developing their own microfluidics or lab-on-a-chip
technologies and products, such as Fluidigm, Gyros, HandyLab,
Micronics, Microfluidic Systems and Nanostream. Other companies
known to have initiated microfluidic programs include Motorola,
3M, Applied Biosystems, Amersham Biosciences, Cepheid and
Hitachi. Microfluidic technologies have undergone and are
expected to continue to undergo rapid and significant change.
Our future success will depend in large part on our ability to
establish and maintain a competitive position in these and
future technologies, which we may not be able to do. Rapid
technological development may result in our products or
technologies becoming obsolete. Products offered by us could be
made obsolete either by less expensive or more effective
products based on similar or other technologies.

In addition, there is the possibility that we may
experience competition from Agilent after May 2003. Under the
terms of our agreement, upon termination we will grant to
Agilent a non-exclusive, royalty-bearing license to our LabChip
technologies as then currently developed. Under the terms of
this license, Agilent will be able to develop, make and sell
products in the field of our collaboration with Agilent.

In many instances, our competitors have or will
have substantially greater financial, technical, research and
other resources and larger, more established marketing, sales,
distribution and service organizations than we do. Moreover,
competitors may have greater name recognition than we do, and
may offer discounts as a competitive tactic. We cannot assure
you that our competitors will not succeed in developing or
marketing technologies or products that are more effective or
commercially attractive than our products, or that would render
our technologies and products obsolete. Also, we may not have
the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in
the future. Our success will depend in large part on our ability
to maintain a competitive position with our technologies.

Intellectual Property

We seek patent protection on our lab-on-a-chip
technologies. As of March 7, 2003, we owned or held
licenses to 167 issued U.S. patents and 162 pending
U.S. patent applications, some of which derive from a
common parent application. The issued U.S. patents expire
between 2012 and 2021. Foreign counterparts of many of these
patents and applications have been filed and/or issued in one or
more other countries, resulting in a total of more than 696
issued patents and pending patent applications in the United
States and foreign countries. These patents and applications are
directed to various technological areas which we believe are
valuable to our business, including:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | control of movement of fluid and other material
    through interconnected microchannels;
|
| |  | continuous flow high throughput screening assay
    methods and systems;                 
|
| |  | analytical and control instrumentation;                                                  
|
| |  | analytical system architecture;                                                          
|
| |  | chip-based assay chemistries and methods;                                                
|
| |  | chip compatible sample accession;                                                        
|
| |  | software for control of microfluidic based
    systems and data analysis; and            
|
| |  | chip manufacturing processes.                                                            

17



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We also rely upon copyright protection, trade
secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain our competitive
position. Our success will depend in part on our ability to
obtain patent protection for our products and processes, to
preserve our copyrights and trade secrets, to operate without
infringing the proprietary rights of third parties and to
acquire licenses related to enabling technology or products used
with our lab-on-a-chip technology.

We are party to various exclusive and
non-exclusive license agreements with third parties which give
us rights to use certain technologies. For example, we have
licenses in the fields we are currently operating in from
UT-Battelle, LLC, relating to patents covering inventions by
Dr. J. Michael Ramsey, and from the Trustees of the
University of Pennsylvania covering microfluidic applications
and chip structures. A failure to maintain some or all of the
rights to these technologies could seriously harm our business.

Environmental Matters

We continuously assess the compliance of our
operations with applicable federal, state and local
environmental laws and regulations. Our policy is to record
liabilities for environmental matters when loss amounts are
probable and reasonably determinable. Our manufacturing site
utilizes chemicals and other potentially hazardous materials and
generates both hazardous and non-hazardous waste, the
transportation, treatment, storage and disposal of which are
regulated by various governmental agencies. We have engaged
environmental consultants on a regular basis to assist with our
compliance efforts. We believe we are currently in compliance
with all applicable environmental permits and are aware of our
responsibilities under applicable environmental laws. Any
expenditures necessitated by changes in law and permitting
requirements cannot be predicted at this time, although such
costs are not expected to be material to our financial position
or results of operations.

Market Data

We use market and industry data throughout this
Annual Report on Form 10-K and the documents incorporated
by reference herein, which we have obtained from market
research, publicly available information and industry
publications. These sources generally state that the information
that they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such
information are not guaranteed. The market and industry data is
often based on industry surveys and the preparers
experience in the industry. Similarly, although we believe that
the surveys and market research that others have performed are
reliable, we have not independently verified this information.
In particular, market share information has been coordinated and
prepared for us by third party research companies at our
request, based on market segments that we defined and for which
we have paid customary fees. Therefore, such data, including the
market category delineations that form the basis for such data,
are not necessarily representative of results that would have
been obtained from an independent source.

Employees

As of December 31, 2002, we had a total of
251 employees, including 113 in research and development, 62 in
manufacturing, 27 in sales and marketing and 49 in
administration and finance. None of our employees is represented
by a collective bargaining agreement, nor have we experienced
any work stoppage. We consider our relations with our employees
to be good.

Executive Officers of the Registrant

Michael R. Knapp, Ph.D.,who co-founded Caliper, assumed the
duties of Chief Executive Officer in July 2002 and became a
Director of Caliper in September 2002. Prior to that,
Dr. Knapp served as our Vice President of Science and
Technology from September 1995 through June 2002. From November
1994 through August 1995, Dr. Knapp was engaged in
activities related to forming Caliper, including securing our
core technology license and procuring financing. From October
1988 to October 1994, Dr. Knapp served as President and
Scientific Director at Molecular Tool, Inc., a genetics
technology company he co-founded in 1988. Previously,
Dr. Knapp was on the staff of the Center for Neurobiology
and Behavior at Columbia

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University and was a Scientific Director of
Genetica SARL, an affiliate of Rhone Poulenc SA in Paris,
France. Dr. Knapp holds a B.S. in Biology from Trinity
College (Hartford) and a Ph.D. in Medical Microbiology from
Stanford University.


Daniel L. Kisner, M.D.,served as our President and Chief
Executive Officer from February 1999 through June 2002 before
being elected Chairman of the Board on July 1, 2002.
Dr. Kisner has served as a Director since March 1999. From
May 1994 to January 1999, Dr. Kisner served as President
and Chief Operating Officer of Isis Pharmaceuticals, Inc., a
biotechnology company. From February 1993 to May 1994,
Dr. Kisner served as Executive Vice President and Chief
Operating Officer of Isis Pharmaceuticals, Inc. From March 1991
to February 1993, he served as Executive Vice President of Isis
Pharmaceuticals and was responsible for business and product
development, and manufacturing. From December 1988 to March
1991, Dr. Kisner served as Division Vice President of
Pharmaceutical Development for Abbott Laboratories.
Dr. Kisner has held a tenured position in the Division of
Oncology at the University of Texas, San Antonio School of
Medicine and is certified by the American Board of Internal
Medicine and certified in Medical Oncology. Dr. Kisner
holds a B.A. from Rutgers University and a M.D. from Georgetown
University.

James L. Knighton,became President and Chief Financial
Officer in July 2002. Mr. Knighton joined Caliper serving
as our Vice President and Chief Financial Officer in September
1999 and was later promoted to Executive Vice President in April
2001. From October 1998 to September 1999, Mr. Knighton
served as Senior Vice President and Chief Financial Officer of
SUGEN, Inc., a publicly held biotechnology company acquired by
Pharmacia. From July 1997 to October 1998, Mr. Knighton
served as Vice President of Investor Relations and Corporate
Communications at Chiron Corporation, a biotechnology company.
From 1985 to 1994, Mr. Knighton served in various
operations, planning and R&D functions at E. I. DuPont de
Nemours Inc., a global, diversified chemical and life science
company. Mr. Knighton holds a B.S. in Biology from the
University of Notre Dame, an M.S. in Genetics from the
University of Pennsylvania and a M.B.A. from the Wharton School
at the University of Pennsylvania.

Anthony T. Hendrickson,was named Vice President of Finance in
September 2002 in addition to serving as our Corporate
Controller and Chief Accounting Officer since April 2000. From
April 1997 to April 2000, Mr. Hendrickson was the Corporate
Controller and Chief Accounting Officer for Sequus
Pharmaceuticals, Inc., a biotechnology company. From April 1995
to March 1997, Mr. Hendrickson was the Director of Finance
and Administration of a U.S. operating division of Lanier
Worldwide, Inc. that specialized in electronic imaging. From
1993 to April 1995, Mr. Hendrickson was a Senior Manager
for KPMG LLP, a public accounting firm. Mr. Hendrickson is
a Certified Public Accountant and holds a B.A. in Accounting and
Finance from the University of Cincinnati and an M.B.A. from The
Ohio State University.

Bruce E. MacMillanhas served as our Vice President,
General Counsel and Corporate Secretary since May 2002. From
April 1999 to December 1999 he was Vice President, General
Counsel and Corporate Secretary for SUGEN, Inc., a publicly held
biotechnology company acquired by Pharmacia. From January 1991
to April 1999 Mr. MacMillan served as Associate General
Counsel for Raychem Corporation, an electronics and
telecommunications component company. In his last position at
Raychem, he was the principal legal officer responsible for the
companys worldwide electronics division. Prior to that, he
was the principal legal officer for Raychems worldwide
telecommunications business. As part of his responsibilities,
Mr. MacMillan was also General Counsel of Ericsson-Raynet,
a joint venture between Telefonaktiebolaget L.M. Ericsson and
Raychem from 1995 to 1996. Prior to that he was in private
practice for 10 years. Mr. MacMillan holds both an M.B.A.
and a B.A. from the University of California at Berkeley and
received a J.D. from the University of California, Hastings
College of Law.

Michael Merion, Ph.D.,has served as our Vice President of
Sales and Marketing since August 2001. From November 1993 to
July 2001, Dr. Merion was Vice President of Marketing for
Dionex Corporation, a diagnostic instrument company, where he
was responsible for worldwide marketing of all of Dionex
products and new business development. From September 1984 to
October 1993, Dr. Merion held various positions in sales,
product management and program management for Waters
Corporation, a diagnostic instrument company. Dr. Merion
holds a B.A. in Biology from Rutgers University and a Ph.D. in
Biochemistry also from Rutgers University.

19



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William M. Wright III,was named Vice President of
Partnership Relations in October 2002 after previously serving
as our Vice President of Operations since joining the company in
September 1998. From November 1995 to May 1998, Mr. Wright
served as Vice President of Operations of Biocircuits
Corporation, a medical diagnostic company, where he was
responsible for instrument and immunoassay cartridge
manufacturing. From 1984 to 1995, Mr. Wright was Vice
President of Site Operations with Dade International Inc.,
formerly a division of Baxter International, Inc., a medical
products manufacturing company, while there he assisted in the
start-up and launch of the Baxter International Paramax
Analytical Clinical Chemistry Business. Mr. Wright holds a
B.S. in Industrial Technology from California State University
at Long Beach.






|        |           
|------- | ----------
|Item 2. | Properties

Our principal research and development,
manufacturing and administrative facilities are currently
located in three buildings totaling approximately 110,000 square
feet of leased space in Mountain View, California. The leases
for this space will expire in 2007 and 2008. We have no other
properties or facilities in the United States. Our wholly-owned
subsidiary, Caliper Europe GmbH, engaged in marketing and sales
activities in Europe, has approximately 1,700 square feet of
leased office space in Waldems, Germany as of January 2002. The
lease for this space will expire in 2005. We believe that our
current facilities, based on our long term strategic facilities
plan, are adequate for our needs through the fourth quarter of
2004, and we are currently assessing the need for additional
facilities primarily for LabChip manufacturing to meet our
future needs. If we are unable to locate additional facilities,
we will be required to delay our planned expansion. Any
facilities that we are able to locate and lease may be on terms
that are expensive to us, especially since we are located in the
Silicon Valley in California where supply of such facilities can
fluctuate from year to year.






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

Commencing on June 7, 2001, Caliper and
three of its officers and directors (David V. Milligan, Daniel
L. Kisner and James L. Knighton) were named as defendants in
three securities class action lawsuits filed in the United
States District Court for the Southern District of New York. The
cases have been consolidated under the caption In re Caliper
Technologies Corp. Initial Public Offering Securities
Litigation, 01 Civ. 5072 (SAS) (GBD). Similar
complaints were filed in the same Court against hundreds of
other public companies that conducted IPOs of their common stock
since the late 1990s (the IPO Lawsuits). On
August 8, 2001, the IPO Lawsuits were consolidated for
pretrial purposes before United States Judge Shira Scheindlin of
the Southern District of New York. Together, those cases are
denominated In re Initial Public Offering Securities
Litigation, 21 MC 92 (SAS). On April 19,
2002, a Consolidated Amended Complaint was filed alleging claims
against Caliper and the individual defendants under
Sections 11 and 15 of the Securities Act of 1933, and under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as well as Rule 10b-5 promulgated thereunder. The
Consolidated Amended Complaint also names certain underwriters
of Calipers December 1999 initial public offering of
common stock. The Complaint alleges that these underwriters
charged excessive, undisclosed commissions to investors and
entered into improper agreements with investors relating to
aftermarket transactions. The Complaint seeks an unspecified
amount of money damages. Caliper and the other issuers named as
defendants in the IPO Lawsuits moved on July 15, 2002, to
dismiss all claims on multiple grounds. By Stipulation and Order
dated October 9, 2002, the claims against
Messrs. Milligan, Kisner and Knighton were dismissed
without prejudice. On February 19, 2003, the Court granted
Calipers motion to dismiss all claims against it.
Plaintiffs were not given the right to replead the claims
against Caliper; the time to appeal the dismissal has not yet
expired.

On April 16, 2002, Caliper filed a lawsuit
against Molecular Devices Corporation in the United States
District Court for the Northern District of California. In that
case, Caliper Technologies Corp. v. Molecular Devices
Corporation, No. C-02-1837 (N.D. Cal.), Caliper asserts
that Molecular Devices Corp.s IMAP and Reagent Assay Kits
infringe one or more claims of U.S. Patent No. 6,287,774,
which Caliper owns. Calipers complaint seeks both
injunctive relief precluding further infringement of the patent
and damages. The answer to the complaint was filed on
May 8, 2002 and asserts a counterclaim seeking a
declaratory judgment that the patent is not infringed and is
invalid. Caliper believes the counterclaim to be without merit.
In late 2002, Caliper successfully moved the court to add a
newly-issued patent, U.S. Patent No. 6,472,141 to the
lawsuit,

20



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##### Table of Contents



alleging that the same accused devices infringe
one or more of the claims of that patent. The answer to
Calipers first amended complaint was filed on
December 17, 2002, and asserts a counterclaim seeking a
declaratory judgment that both Caliper patents are invalid and
not infringed. Caliper believes the amended counterclaim to be
without merit. On January 28, 2003, Caliper filed a motion
for preliminary injunction, which is scheduled to be heard by
the court in May 2003. In that motion, Caliper has asked the
court to preliminarily enjoin Molecular Devices from making,
using, selling, and offering to sell its infringing IMAP kits
for kinase assays. Discovery is underway, and no trial date has
been set by the Court.







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

No matters were submitted to a vote of our
security holders during the quarter ended December 31, 2002.




PART II






Item 5.Market
for Registrants Common Stock and Related Stockholder
Matters


Market for Registrants Common
Equity

Our common stock has been quoted on the Nasdaq
National Market under the symbol CALP since our
initial public offering in December 1999. Prior to that time,
there was no public market for our common stock. The following
table shows the high and low sales prices per share of our
common stock as reported on the Nasdaq National Market for the
periods indicated:

|             |                |      |   |       |  |  |   |       | 
|------------ | -------------- | ---- | - | ----- |  |  | - | ----- | 
|             |                | High |   | Low  
|             |                |      |   |      
|Fiscal 2002: |                |      |   |       |  |  |   |      
|             | First Quarter  |      | $ | 18.07 |  |  | $ | 10.97 | 
|             | Second Quarter |      | $ | 12.58 |  |  | $ | 6.00  | 
|             | Third Quarter  |      | $ | 6.80  |  |  | $ | 3.90  | 
|             | Fourth Quarter |      | $ | 4.51  |  |  | $ | 2.96  | 
|Fiscal 2001: |                |      |   |       |  |  |   |      
|             | First Quarter  |      | $ | 45.81 |  |  | $ | 13.00 | 
|             | Second Quarter |      | $ | 30.09 |  |  | $ | 13.25 | 
|             | Third Quarter  |      | $ | 20.63 |  |  | $ | 9.07  | 
|             | Fourth Quarter |      | $ | 15.98 |  |  | $ | 8.51  | 

As of December 31, 2002, there were
approximately 190 holders of record of our common stock. We have
never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in
the operation and expansion of our business. Although we have no
restrictions, we do not anticipate paying any cash dividends in
the foreseeable future.

21



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##### Table of Contents






Item 6.Selected
Financial Data

The statements of operations data for each of the
years ended December 31, 2002, 2001 and 2000, and the
balance sheet data as of December 31, 2002 and 2001, have
been derived from our audited financial statements included
elsewhere in this Annual Report on Form 10-K which have
been audited by Ernst & Young LLP, independent auditors. The
statements of operations data for the years ended
December 31, 1999 and 1998, and the balance sheet data as
of December 31, 2000, 1999 and 1998 have been derived from
our audited financial statements not included in this Annual
Report on Form 10-K. Our historical results are not
necessarily indicative of results to be expected for any future
period. The data presented below should be read with our
financial statements, including the notes, and with
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this Annual Report on Form 10-K.

|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |       |        | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------ | ----- | ------ | 
|                                                                                   |                                                         |                                      
|                                                                                   |                                                         | Year Ended December 31,              
|                                                                                   |                                                         |                                      
|                                                                                   |                                                         | 2002                                  |         | 2001   |        | 2000 |         | 1999   |        | 1998
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |     
|                                                                                   |                                                         |                                      
|                                                                                   |                                                         | (In thousands, except per share data)
|Statements of Operations Data:                                                     |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Revenue:                                                                           |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                   | Product revenue                                         |                                       | $       | 10,378 |        |      | $       | 8,799  |        |      | $       | 3,201  |        |   | $       | 1,211  |        |   | $      |      |       
|                                                                                   | Related party revenue                                   |                                       |         | 6,155  |        |      |         | 3,912  |        |      |         |       |        |   |         |       |        |   |        |      |       
|                                                                                   | License fees and contract revenue                       |                                       |         | 9,300  |        |      |         | 16,877 |        |      |         | 15,363 |        |   |         | 10,876 |        |   |        | 8,155 |       
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                   |                                                         | Total revenue                         |         |        | 25,833 |      |         |        | 29,588 |      |         |        | 18,564 |   |         |        | 12,087 |   |        |       | 8,155  | 
|Costs and expenses:                                                                |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                   | Cost of product revenue                                 |                                       |         | 7,906  |        |      |         | 4,784  |        |      |         | 2,519  |        |   |         | 921    |        |   |        |      |       
|                                                                                   | Cost of product revenue  related party                 |                                       |         | 3,021  |        |      |         | 2,103  |        |      |         |       |        |   |         |       |        |   |        |      |       
|                                                                                   | Research and development                                |                                       |         | 43,317 |        |      |         | 38,263 |        |      |         | 33,478 |        |   |         | 17,494 |        |   |        | 9,584 |       
|                                                                                   | Selling, general and administrative                     |                                       |         | 17,534 |        |      |         | 15,545 |        |      |         | 9,787  |        |   |         | 5,312  |        |   |        | 2,932 |       
|                                                                                   | Amortization of deferred stock compensation,
    net(1) |                                       |         | 378    |        |      |         | 2,540  |        |      |         | 4,545  |        |   |         | 3,885  |        |   |        |      |       
|                                                                                   | Restructuring charges                                   |                                       |         | 314    |        |      |         |       |        |      |         |       |        |   |         |       |        |   |        |      |       
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                   |                                                         | Total costs and expenses              |         |        | 72,470 |      |         |        | 63,235 |      |         |        | 50,329 |   |         |        | 27,612 |   |        |       | 12,516 | 
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Operating loss                                                                     |                                                         |                                       | (46,637 | )      |        |      | (33,647 | )      |        |      | (31,765 | )      |        |   | (15,525 | )      |        |   | (4,361 | )    
|Interest income, net                                                               |                                                         |                                       | 6,975   |        |        |      | 11,418  |        |        |      | 7,468   |        |        |   | 1,152   |        |        |   | 1,386  |      
|Other expense, net                                                                 |                                                         |                                       | (1,302  | )      |        |      | (1,448  | )      |        |      |        |        |        |   |        |        |        |   |       |      
|Litigation settlement and reimbursement                                            |                                                         |                                       |        |        |        |      | 27,500  |        |        |      | 13,274  |        |        |   |        |        |        |   |       |      
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Income (loss) before cumulative effect of change
    in accounting principle(3)    |                                                         |                                       | (40,964 | )      |        |      | 3,823   |        |        |      | (11,023 | )      |        |   | (14,373 | )      |        |   | (2,975 | )    
|Cumulative effect of a change in accounting
    principle                          |                                                         |                                       |        |        |        |      |        |        |        |      | (2,294  | )      |        |   |        |        |        |   |       |      
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss)                                                                  |                                                         |                                       | (40,964 | )      |        |      | 3,823   |        |        |      | (13,317 | )      |        |   | (14,373 | )      |        |   | (2,975 | )    
|Accretion on redeemable convertible preferred
    stock(2)                         |                                                         |                                       |        |        |        |      |        |        |        |      |        |        |        |   | (2,328  | )      |        |   | (2,174 | )    
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss) attributable to common
    stockholders                          |                                                         | $                                     | (40,964 | )      |        | $    | 3,823   |        |        | $    | (13,317 | )      |        | $ | (16,701 | )      |        | $ | (5,149 | )    
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss) per common share, basic:                                         |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss) before cumulative effect of a
    change in accounting principle |                                                         | $                                     | (1.68   | )      |        | $    | 0.16    |        |        | $    | (0.50   | )      |        | $ | (4.56   | )      |        | $ | (2.39  | )    
|Cumulative effect of a change in accounting
    principle                          |                                                         |                                       |        |        |        |      |        |        |        | $    | (0.11   | )      |        |   |        |        |        |   |       |      
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss) per share, basic                                                 |                                                         | $                                     | (1.68   | )      |        | $    | 0.16    |        |        | $    | (0.61   | )      |        | $ | (4.56   | )      |        | $ | (2.39  | )    
|                                                                                   |                                                         |                                       |         |        |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        |      

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|                                                                                                         |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ----- | -
|                                                                                                         |  |                                      
|                                                                                                         |  | Year Ended December 31,              
|                                                                                                         |  |                                      
|                                                                                                         |  | 2002                                  |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                                                                                         |  |                                       |        |      |  |      |        |      |  |     
|                                                                                                         |  |                                      
|                                                                                                         |  | (In thousands, except per share data)
|Shares used in computing net income
    (loss) per common share, basic                                   |  |                                       | 24,403 |      |  |      | 23,997 |      |  |      | 21,853  |   |  |   | 3,663   |   |  |   | 2,157 |  
|Net income (loss) per common share, diluted:                                                             |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|Net income (loss) before cumulative effect of a
    change in accounting principle                       |  | $                                     | (1.68  | )    |  | $    | 0.15   |      |  | $    | (0.50   | ) |  | $ | (4.56   | ) |  | $ | (2.39 | )
|Cumulative effect of a change in accounting
    principle                                                |  |                                       |       |      |  |      |       |      |  | $    | (0.11   | ) |  |   |        |   |  |   |      |  
|                                                                                                         |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|Net income (loss) per share, diluted                                                                     |  | $                                     | (1.68  | )    |  | $    | 0.15   |      |  | $    | (0.61   | ) |  | $ | (4.56   | ) |  | $ | (2.39 | )
|                                                                                                         |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|Shares used in computing net income (loss) per
    common share, diluted                                 |  |                                       | 24,403 |      |  |      | 25,634 |      |  |      | 21,853  |   |  |   | 3,663   |   |  |   | 2,157 |  
|Pro forma amounts assuming the change in
    accounting principle was applied retroactively (unaudited): |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|Net income (loss)                                                                                        |  |                                       |        |      |  |      |        |      |  | $    | (11,023 | ) |  | $ | (14,267 | ) |  |   |       |  
|Net income (loss) per share, basic and diluted                                                           |  |                                       |        |      |  |      |        |      |  | $    | (0.50   | ) |  | $ | (0.92   | ) |  |   |       |  
|                                                                                                         |  |                                       |        |      |  |      |        |      |  |      |         |   |  |   |         |   |  |   |       |  
|Shares used in computing pro forma net income
    (loss) per share, basic and diluted                    |  |                                       |        |      |  |      |        |      |  |      | 21,853  |   |  |   | 15,578  |   |  |   |       |  

|                                                 |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  
|------------------------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | -
|                                                 |  |               
|                                                 |  | December 31,  
|                                                 |  |               
|                                                 |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                 |  |                |         |      |  |      |         |      |  |     
|                                                 |  |               
|                                                 |  | (In thousands)
|Balance Sheet Data:                              |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         |  
|Cash, cash equivalents and marketable securities |  | $              | 154,323 |      |  | $    | 166,176 |      |  | $    | 191,699 |  |  | $ | 100,216 |  |  | $ | 31,052  |  
|Working capital                                  |  |                | 155,583 |      |  |      | 195,310 |      |  |      | 187,475 |  |  |   | 95,234  |  |  |   | 21,604  |  
|Total assets                                     |  |                | 179,878 |      |  |      | 222,543 |      |  |      | 212,514 |  |  |   | 108,847 |  |  |   | 35,730  |  
|Long-term obligations, less current portion      |  |                | 1,986   |      |  |      | 3,749   |      |  |      | 3,534   |  |  |   | 3,906   |  |  |   | 2,008   |  
|Redeemable convertible preferred stock           |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   | 48,716  |  
|Total stockholders equity (deficit)             |  |                | 167,558 |      |  |      | 206,564 |      |  |      | 196,457 |  |  |   | 97,863  |  |  |   | (17,654 | )



---

|    |  |                                                                                 |  |                          |      |      |  |      |       |      |  |   |       |  |  |   |       | 
|--- |  | ------------------------------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|    |  |                                                                                 |  |                         
|    |  |                                                                                 |  | Years Ended December 31,
|    |  |                                                                                 |  |                         
|    |  |                                                                                 |  | 2002                     |      | 2001 |  | 2000 |       | 1999
|    |  |                                                                                 |  |                          |      |      |  |      |       |     
|(1) |  | Amortization of deferred stock compensation, net,
    related to the following: |  |                          |      |      |  |      |       |      |  |   |       |  |  |   |       | 
|    |  | Research and development                                                        |  | $                        | (315 | )    |  | $    | 610   |      |  | $ | 1,601 |  |  | $ | 1,094 | 
|    |  | Selling, general and administrative                                             |  |                          | 693  |      |  |      | 1,930 |      |  |   | 2,944 |  |  |   | 2,791 | 
|    |  |                                                                                 |  |                          |      |      |  |      |       |      |  |   |       |  |  |   |       | 
|    |  | Total                                                                           |  | $                        | 378  |      |  | $    | 2,540 |      |  | $ | 4,545 |  |  | $ | 3,885 | 
|    |  |                                                                                 |  |                          |      |      |  |      |       |      |  |   |       |  |  |   |       | 



|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Accretion on redeemable convertible preferred
    stock ceased upon conversion of all of the outstanding preferred
    stock to common stock at the close of our initial public
    offering in December 1999.
|   
|(3) | See Note 2 of notes to our financial statements
    for an explanation of the cumulative effect of a change in
    accounting principle related to revenue recognition.                                       

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion and analysis should
be read with Selected Financial Data and our
financial statements and notes included elsewhere in this Annual
Report on Form 10-K. The discussion in this Annual Report
on Form 10-K contains forward-looking statements that
involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary
statements made in this Annual Report on Form 10-K should
be read as applying to all related forward-looking statements
wherever they appear in this Annual Report on Form 10-K.
Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to these
differences include those discussed in  Factors
Affecting Operating Results below as well as those
discussed elsewhere.

The following discussion and analysis is based
upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States.

Overview

Caliper is a leader in microfluidic lab-on-a-chip
technologies that miniaturize, integrate and automate many
laboratory processes. The company develops, manufactures and
sells our proprietary LabChip systems to pharmaceutical and
other companies. We believe our LabChip systems have the
potential to assemble the power, and reduce the scale, of
laboratories full of equipment and people. We utilize two
distribution channels for our products. In some cases, we sell
instruments and chips directly to end users. In other instances
we sell products to commercial partners, who in turn sell these
products to end users.

2002 Highlights.During the year, Caliper had a number of achievements that we
believe better position the company for the future. These
included:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Together with our commercial partner, Agilent
    Technologies, Inc. (Agilent), we introduced a new
    RNA 6000 Pico LabChip kit for the 2100 Bioanalyzer, a
    microfluidic benchtop system. The menu of applications for the
    system now numbers nine and includes LabChip kits for RNA, DNA,
    proteins and cells.                                                                                                                                                                                                                                    
|
| |  | Again with Agilent, we enhanced the Cell
    Fluorescence LabChip kit, also for the 2100 Bioanalyzer, by
    incorporating cell staining into the chip.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | We established a research collaboration with
    Ambion, Inc., an established leader in RNA-based research
    products, to develop a microfluidic RNA amplification system.                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | We launched the AMS 90 SE, our
    automated instrument platform for DNA separations, allowing
    scientists to analyze large volumes of DNA fragments quickly and
    efficiently. This system, which we sell directly to end-users,
    is targeted to those laboratories that analyze 100 or more DNA
    samples per day.                                                                                                                                                                                                                                    
|
| |  | We introduced on an early release
    basis, the Calcium Flux LabChip device for use with the
    Caliper 250 Drug Discovery system. In this application,
    scientists investigating new chemical compounds can measure
    changes in intracellular calcium levels. Intracellular calcium
    levels are often used in pharmaceutical research and development
    as a means of studying interactions between potential drugs and
    particular receptors on a cells surface that can be
    targets for pharmaceutical intervention in disease processes.
|
| |  | We saw increased usage of the Caliper 250 by
    customers doing production screening of pharmaceutical compound
    libraries. We believe this is an important indication that
    customers are integrating our system into their protocols.                                                                                                                                                                                                                                                                                                                    
|
| |  | We expanded our intellectual property portfolio.
    Caliper was granted 51 U.S. patents, bringing our
    U.S. patent count to 127 at December 31, 2002. We also
    filed 65 new U.S. patent applications, increasing the
    total number of U.S. patents in prosecution to 214 at
    year-end.                                                                                                                                                                                                                                                               
|
| |  | We improved yields across all LabChip types,
    while increasing the number and variety of chips manufactured.                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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In addition to these achievements, there were
changes in a number of areas that either had a direct financial
impact in 2002 or have the potential to do so in the future.
These included:

Conversion of Technology Access
Partners.From Calipers
inception in July 1995 through September 2001, our operating
activities were primarily devoted to research, development and
commercialization of technologies involving the manipulation of
very small amounts of fluid, which are referred to as
microfluidic technologies. During this period our
revenues were principally from contract services and, to a
lesser extent, from product sales. With the introduction of the
Caliper 250 Drug Discovery system in September 2001, we
transitioned to a commercial products business from a technology
access model.

Within the context of our planned discontinuation
of our Technology Access Program (TAP), we initiated
the renegotiation of our agreements with Amgen, Eli Lilly and
Millennium Pharmaceuticals. Under the amended agreements with
our TAP customers, Caliper agreed to convert technology access
and subscription fees still outstanding to credits available
towards the purchase of products and services that could be
utilized by the customer no later than March 2003. In 2002, we
recognized $3.1 million in revenue from these converted
agreements based on purchases by our former TAP customers of
instruments, chips, support services and custom solutions
directly from Caliper. As of December 31, 2002, a total of
$138,000 of revenue remains deferred related to just one former
TAP customer. We expect to recognize this deferred revenue in
the first quarter of 2003 as this customer purchases products or
services. This ongoing revenue from former TAP customers
reflects the continued transition from a technology
collaboration-based company to a more scalable products-based
company. However, it is still too soon to know whether these
former TAP customers will continue to purchase our products and
services at historic levels now that their converted TAP fees
have been fully utilized, or whether we will be able to replace
this revenue with revenue from sales to new customers.

Related Party.Entities upon which we can exercise significant influence, but
not control, are accounted for under the equity method of
accounting. Whether or not we exercise significant influence
with respect to a company depends on an evaluation of several
factors including, among others, representation on the
companys board of directors and ownership level, generally
between 20% to 50% interest in the voting securities of the
company, including rights associated with our holding in common
shares of the company.

In May 2001, we formed Amphora Discovery Corp.
(Amphora) later transferring certain intangibles to
Amphora in September of that year. Also in September 2001,
Amphora completed a private placement of securities with
third-party investors that reduced our ownership to 28%. In
December 2002, Amphora completed a second placement of
securities with third-party investors raising additional capital
that further reduced our ownership to approximately 13%. Our
investment in Amphora continues to be accounted for under the
equity method of accounting. We initially received the right to
appoint two representatives to Amphoras six-member board
of directors. On March 17, 2003, one of Calipers two
representatives, Dr. Michael Knapp, resigned from
Amphoras board of directors. Due to the subsequent
reduction in our percentage ownership, our right to appoint
representatives to Amphoras Board declined to one. As
Calipers investment in Amphora has no basis for accounting
purposes and, because Caliper does not guarantee any debt or
have commitments to fund losses, Caliper has not recorded its
proportionate share of Amphoras operating losses in its
financial statements since the completion of Amphoras
first financing. Future investments by Amphoras
third-party investors would further reduce our ownership
interest. Caliper does not intend to make future equity
investments in Amphora.

Since its inception and through December 31,
2002, Amphora has purchased 21 Caliper 250 Drug Discovery
systems and $2.2 million in datapoints. In 2002 alone, we
sold to Amphora products and services totaling $6.2 million
and recorded it as a related-party revenues in the financial
statements. Of the $6.2 million in total sales,
$3.3 million related to drug discovery system products.
Under the equity method of accounting, we deferred 28% of the
gross profit of these sales, or $333,000, that reflected our
retained ownership interest in the products sold to Amphora in
2002. All drug discovery system sales to Amphora occurred prior
to Amphoras December 2002 third-party financing. Future
system sales will be deferred at our then retained ownership
interest level, which is currently approximately 13%. In 2002,
we recognized a total of $177,000 of this deferred gross profit
as revenue of which $121,000 related to drug discovery system
products sold in 2001

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and $56,000 related to products sold in 2002. We
expect to recognize the remaining $499,000 as revenue ratably
over the next 36 months as Amphora records depreciation on
its Caliper 250 systems.


Commercial Collaboration with Agilent
Technologies, Inc.In May 1998, we
established a broad relationship with Agilent Technologies, Inc.
(Agilent) to create a line of commercial research
products based on our microfluidic LabChip technologies. In
September 1999, Agilent introduced our first LabChip system for
use by individual researchers. Subsequently, Agilent and Caliper
have expanded the application menu for this product and engaged
in other new product development activities.

Under the collaboration agreement, Agilent funds
our research and development expenditures related to the
collaboration, reimburses us for our costs of supplying chips
and reagents to Agilent and pays us a share of the gross margin
earned on all components of LabChip systems they sell. We record
revenue from development and support activities under our
collaboration agreement in the period in which the costs are
incurred. We report direct costs associated with this contract
as research and development expense. We recognize revenue
related to the reimbursement of costs for the supply of chips
and reagents to Agilent upon shipment and we recognize the
related costs as components of cost of sales. We recognize as
revenue our share of gross margin on components of the systems
sold by Agilent upon shipment to the end user.

In May 2002, we notified Agilent of our election
to terminate the agreement between the companies, effective as
of May 2003. If we do not enter into a new agreement before that
time, then under the existing agreement, the parties
relationship would change, including as follows:



| |   |                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we could cease to receive development funding for
    new products;                                                                                                                                                                                                           
|
| |  | we will grant Agilent a non-exclusive,
    royalty-bearing license to use the lab-on-a-chip technologies
    that we have developed up to that time in order to develop, make
    and sell products in substantially the same field that applied
    during the collaboration;
|
| |  | upon request by Agilent, we will also transfer
    chip manufacturing know-how over a limited period of time; and                                                                                                                                                             
|
| |  | we will receive royalties on Agilents sales
    of systems that employ our patented technologies.                                                                                                                                                                            

After the collaboration agreement terminates in
May 2003, our gross margin share for existing products will
remain the same until November 2004. In November 2004,
our gross margin share for chips and reagents will decrease, and
in May 2006 our gross margin share for chips and reagents
will decrease again. Our gross margin share for existing
instruments will also decrease in the same time periods,
although at somewhat different rates. Upon termination of the
agreement in May 2003, Agilent will have a non-exclusive
license in the field of the collaboration to Calipers then
existing LabChip technology to develop, manufacture and sell new
products in that field. Agilent will be required to pay
royalties to Caliper based on its net revenue from sales of such
products at the established royalty rates set forth in the
termination provisions of our collaboration agreement.

Beginning in November 2003, Caliper will have the
right to market and sell collaboration products, with reciprocal
supply arrangements with Agilent. Our principal motivation in
terminating the formal agreement with Agilent was to give us
more flexibility in commercializing new products with other
commercial partners. Termination of the agreement will also
provide Caliper with greater ability to market and sell existing
products in the field of the collaboration directly to end-user
customers, in part utilizing the reciprocal supply arrangements
set forth in the termination provisions of the agreement. Both
parties will either operate under the existing termination
provisions of the collaboration agreement or establish new
terms, as yet to be determined. Given the success of the Agilent
2100 Bioanalyzer products and the changing relationship between
Caliper and Agilent, we are actively working to expand the
number and scope of our commercial partnerships.

Increasing the Number and Scope of Commercial
Partnerships.During 2002, we expanded
our Business Development activities in order to pursue
additional commercial partnerships. A core element of our
business strategy is to broaden our network of commercial
partners, accessing new applications and new markets. We believe
that this will allow us to more effectively leverage the
commercial potential of microfluidics in ways

26



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##### Table of Contents



that would be difficult to achieve, from both a
research investment and infrastructure perspective, for a young
company. This strategy allows us to combine our proprietary
technical expertise with a partner who has complementary
capabilities. These types of collaborations diminish our risk
and reduce our costs while leveraging larger, established
partners strengths to tap new markets. As we create new
relationships of this type, we expect the financial implications
for us to be modest in the early years  primarily
product development funding  until product revenues
are generated, beginning generally in the second or third year
of a relationship.


Planned Entry into Molecular
Diagnostics.In December 2001, we
entered into an agreement with Bacterial BarCodes, Inc.
(BBCI) to co-distribute molecular diagnostic systems
based on our microfluidic LabChip technology and BBCIs
proprietary molecular identification and DNA fingerprinting
technology known as rep-PCR (repetitive sequence-based
polymerase chain reaction). As part of this collaboration, we
developed the Caliper 1000 Analyzer system in 2002. The
Caliper 1000, which is manufactured by Agilent on an OEM
basis, is being used with BBCIs proprietary rep-PCR
products to generate DNA fingerprints of bacteria for microbial
typing and identification applications. The combined Caliper/
BBCI system is in the final stages of field-testing. Customer
response at the testing sites has been positive, and we
anticipate a product rollout in 2003. BBCI initially has
targeted laboratories involved in epidemiology testing, such as
reference laboratories and facilities in large hospitals. A
clinical product, requiring regulatory approval, is also planned
for which BBCI will manage the required submissions to the Food
and Drug Administration. Under our agreement, Caliper will
provide chips and analysis reagents to BBCI. BBCI will sell a
combined assay kit that includes our chips and their rep-PCR DNA
fingerprinting reagents and protocols, plus software to access
BBCIs database of bacterial DNA fingerprints. We will
market and sell the Caliper 1000 Analyzer designed to run
these chips either directly or through distribution channel
partners.

Intellectual
Property.Key to our business strategy
has also been the development of an extensive intellectual
property portfolio. Consistent with this strategy, we have
protected our patent portfolio as appropriate, this included
litigation with Aclara Biosciences (Aclara). In
January 2001, we announced a comprehensive settlement agreement
with Aclara on all pending litigation between the two companies.
As a result, Aclara agreed to pay us $37.5 million over a
three-year period in a combination of stock, cash and committed
minimum royalties. As of December 31, 2002, we have
collected $35 million of this settlement with the remaining
$2.5 million for minimum royalties payable in 2003.

During the fourth quarter of 2002, we entered
into an amendment and restatement of our existing license
agreements with UT-Battelle, LLC under which we had obtained an
exclusive license to the patents covering the inventions of
Dr. J. Michael Ramsey. Although we have minimum royalty
obligations under this license agreement, its earned royalty
payments exceeded the required minimum royalty for 2002. Royalty
payments were $81,000 in 2002. We anticipate that its earned
royalty obligation in future years will continue to exceed the
minimum required royalty. We also have an exclusive license from
the Trustees of the University of Pennsylvania to certain
patents relating to microfluidic applications and chip
structures. We anticipate that during the next several years the
minimum royalty obligation under this license will exceed the
earned royalty obligation. The minimum royalty obligation under
this license rises over time, but never exceeds $200,000 per
year.

Reduction in Force.In July 2002, due to the broader economic slowdown and a widely
reported reduction in research and development spending by
biopharmaceutical companies that we believed was affecting
Calipers sales to customers, we began a detailed strategic
review of our business. This process included evaluating each of
our products and programs for commercial opportunity, time to
market and resource requirements. As a result of that review, in
September 2002, we conducted a reduction in force that resulted
in a downsizing of our employee work force by 28 people, or
approximately 10%. The reduction was primarily in our research
and development staff where we changed the focus of our product
development and technology research to align more with the
changing needs of our customers. We recognized a charge of
$314,000 in 2002 for severance payments and related benefits all
of which were paid by the end of the 2002 calendar year. We
expect to realize approximately $2 million in annualized
savings from this employee downsizing action. The strategic
review also served as the basis of our 2003 budget planning
process and

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continues to be utilized to allocate resources
within Caliper. We anticipate making further expense reductions
to better align our discretionary spending activities with
revenue growth.


Stock Option
Exchange.In October 2002, we
commenced a voluntary stock option exchange program for regular
employees of the company. This program seeks to align employee
and stockholder interests while sustaining high levels of
employee performance through what has been a lengthy stagnant
economic period. A considerable number of our employees
option exercise prices are significantly higher than the current
market price of Caliper common stock, and the program is
intended to address this situation. Our board and management
believe that this program will help motivate and retain our
employees. Under the program, eligible employees had the
opportunity to exchange certain unexercised stock options for
new options to be granted at least six months and one day
following the cancellation of the exchanged options. The
unexercised stock options that were tendered for exchange under
the stock option exchange program was for 1,511,331 shares.
The new options will be exercisable for an equal number of
shares as the exchanged options. The exercise price of the new
options will be equal to the most recent closing share price of
Caliper common stock at the time of the new option grants, which
is expected to be on or about May 20, 2003. The offer of
the option exchange commenced on October 16, 2002, and
expired on November 19, 2002.

Looking Ahead.Since
our inception, Caliper has incurred significant losses and, as
of December 31, 2002, we had an accumulated deficit of
$85.6 million. Our losses have resulted principally from
costs incurred in research and development, manufacturing
scale-up, product research and commercialization and from
general and administrative costs associated with our operations.
We expect to continue to incur substantial research and
development, product commercialization, manufacturing scale-up
and general and administrative costs. As a result, we will need
to generate significantly higher revenue to achieve
profitability.

As we look to the future, our primary corporate
focus remains unchanged. During 2003, we intend to: create
market traction in our direct product sales; add new commercial
partners; and continue improving the quality of our existing
products. There are a number of milestones that will provide
evidence of our sustained progress in these areas. For the
Caliper 250 Drug Discovery system, we intend to expand the
number of applications available to customers. It is also our
intention to expand our customer base, as well as to increase
usage by existing customers. We also plan to initiate multiple
new commercial partnerships, and advance those currently in
existence. This includes launching the Caliper 1000 Analyzer and
increasing revenues from the Agilent collaboration.

Critical Accounting Policies

Financial Reporting Release No. 60, which
was recently released by the Securities and Exchange Commission,
recommends all companies include a discussion of critical
accounting policies or methods used in the preparation of
financial statements. See Note 2 to our audited financial
statements included elsewhere in this document for a summary of
the significant accounting policies and methods used in the
preparation of the financial statements. The following is a
brief discussion of the more significant accounting policies and
methods used by Caliper.

Our financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements
requires management to make estimates and assumptions that
affect the reported amounts of revenue and expenses, and assets
and liabilities during the periods reported. Estimates are used
when accounting for certain items such as warranty expense,
sales and marketing programs, employee compensation programs,
depreciation and amortization periods, taxes, inventory values,
and valuations of investments and intangible assets. We base our
estimates on historical experience, where applicable, and other
assumptions that we believe are reasonable under the
circumstances. Actual results may differ from our estimates due
to changing conditions or the validity of our assumptions. We
believe that the following critical accounting policies affect
our more significant judgments and estimates used in the
preparation of our financial statements.

Revenue Recognition.We recognize instrument, LabChip
products, datapoint and service support revenues on shipment or
when the related services are performed, as applicable, net of
credits and adjustments for discounts. In instances where we
have customers who have requested acceptance provisions, no
revenue is

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recognized until such customer acceptance has
been obtained. In connection with our adoption of the provisions
of Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, we have changed our
method of accounting effective January 2000 to recognize all
customer support and service fees over the term of the related
agreement.


Customer and Accounts Receivables.We currently have an allowance for
doubtful accounts of $119,000 as of December 31, 2002 based
on the aging of our accounts receivable balances and our
historical experience of defaults and write-offs. If the
financial condition of our customers were to further
deteriorate, we will need to add to this allowance for doubtful
accounts the estimated losses resulting from the inability of
our customers to make required payments.

Inventory Write-Offs.We make inventory commitment and
purchase decisions based upon sales forecasts. To mitigate the
component supply constraints that have existed in the past and
to fill orders with non-standard configurations, we build
inventory levels for certain items with long lead times and
enter into certain longer-term commitments for certain items. We
permanently write off 100% of the cost of inventory that we
specifically identify and consider obsolete or excessive to
fulfill future sales estimates. We define obsolete inventory as
inventory that will no longer be used in the manufacturing
process. Excess inventory is generally defined as inventory in
excess of projected usage, and is determined using our best
estimate of future demand at the time, based upon information
then available to us. In making these assessments, we are
required to make judgments as to the future demand for current
or committed inventory levels. We use a twelve-month demand
forecast and, in addition to the demand forecast, we also
consider: (1) parts and subassemblies that can be used in
alternative finished products, (2) parts and subassemblies
that are unlikely to be engineered out of our products, and
(3) known design changes which would reduce our ability to
use the inventory as planned. Significant differences between
our estimates and judgments regarding future volume and mix of
customer demand for our products and actual volume and demand
mix may result in additional write-offs in the future.

Depreciation.When
recording depreciation expense associated with our production
and microfluidic equipment, we use estimated useful lives based
on the utility and service life of the equipment. As a result of
changes in technology and industry conditions, we periodically
evaluate the useful lives of our production and microfluidic
equipment. These evaluations could result in a change in useful
lives in future periods.

Warranty Expense.At
the time revenue is recognized, we establish an accrual for
estimated warranty expenses associated with our sales, recorded
as a component of cost of revenue. Our standard warranty period
extends 12 months from the date of sale on the automated
drug discovery systems and 3 months on chips. Our warranty
accrual represents our best estimate of the amounts necessary to
settle future and existing claims on products sold as of the
balance sheet date. While we believe that our warranty accrual
is adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially
from what actually transpire in the future. If our actual
warranty costs are greater than the accrual, costs of revenue
will increase in the future.

Related Party.We
have an ownership interest of approximately 13% in one entity,
Amphora, for which we apply the equity method of accounting. Our
investment in Amphora has no basis for accounting purposes and,
because we do not guarantee debt or have commitments to fund any
of Amphoras losses, we have not recorded any proportionate
share of Amphoras operating losses in our financial
statements since the completion of Amphoras financing.
Amphora is a major customer representing approximately 24% of
our total revenue in 2002. Our investment in Amphora has no
basis for accounting purposes and we do not guarantee debt or
have any commitments to fund Amphoras losses. All
significant accounts and transactions with Amphora are disclosed
as related party transactions. In 2002, we sold a total of
$6.2 million in Caliper 250 Drug Discovery system products,
LabChip products, datapoints and assay development services to
Amphora, recording the sales as related party revenue in our
financial statements. Under the equity accounting method,
Caliper recorded $3.3 million in related party product
sales and deferred 28% of the gross profit, or $333,000 that
reflects Calipers retained ownership interest in the
products sold to Amphora in 2002. The remaining
$2.9 million of revenue recognized in 2002 consisted of
$1.7 million in datapoints, $900,000 in assay development
services and deferred gross profit revenue from Caliper 250
Drug Discovery system product

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sales in 2002 and 2001. In 2002, we recognized a
total of $177,000 of this deferred gross profit as revenue of
which $121,000 related to drug discovery system products sold to
Amphora in 2001 and $56,000 related to products sold in 2002. We
expect to recognize the remaining $499,000 as revenue ratably
over the next 36 months through September 2005 as Amphora
records depreciation on its Caliper 250 Drug Discovery systems.
As all automated drug discovery system sales to Amphora occurred
prior to Amphoras December 2002 third party financing, all
future drug discovery system sales will be deferred at our then
retained ownership interest level which is approximately 13%
currently.


We have no guarantees of balance sheet debt of
third parties and we have no debt obligations that contain
provisions requiring accelerated payment in the event of
specified levels of declines in liquidity or profitability. We
do not have any special purpose entities in place.

Derivatives.In
connection with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 133, we recognize
derivative financial instruments in the financial statements at
fair value regardless of the purpose or intent for holding the
instrument. We recognize changes in the fair value of derivative
financial instruments either periodically in income or in
stockholders equity as a component of comprehensive income
(loss) depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
is designated as a fair value hedge or cash flow hedge. For
derivative instruments that are designated and qualify as fair
value hedge (i.e., hedging the exposure to changes in the fair
value of an asset or a liability or an identified portion
thereof that is attributable to a particular risk), we recognize
the gain or loss on the derivative instrument as well as the
offsetting loss or gain on the hedged item attributable to the
hedged risk in current earnings during the period of the change
in fair values. We entered into a settlement agreement with
Aclara in March 2001, the terms of which provided that if were
to sell any of the 900,000 shares of Aclaras common stock
received in the settlement between 18 and 24 months from
the effective date of the settlement agreement, and the then
fair value of Aclaras stock is less than $36.11 per
share, Aclara agreed to pay us in cash a dollar amount equal to
the difference between the aggregate fair value of the Aclara
stock at the date the shares are disposed and
$32.5 million. If the then fair value of the Aclara stock
was greater than $36.11 per share, we would have received no
additional consideration from Aclara. We were restricted from
selling our shares of Aclara for 18 months following the
effective date of the settlement agreement. If we were to sell
the shares of Aclara stock at any time after 24 months from
the effective date of the settlement agreement, Aclara would
have no obligation to provide any additional consideration to
us. Aclara executed a fully-funded $32.5 million standby
letter of credit in favor of Caliper to secure its performance
under this potential obligation. In effect, Aclara had
guaranteed the aggregate settlement amount of
$32.5 million, so long as we were to sell our Aclara stock
within a specified period of time.

We accounted for this arrangement by initially
recording $4.3 million in Aclara stock at fair market
value, with a note receivable with a corresponding face value of
$28.2 million for the fully funded letter of credit which
was reduced by the initial fair value ($2.7 million) of an
embedded derivative. The embedded derivative was designated as a
fair value hedge of the Aclara stock. The mark-to-market change
in the fair value of the Aclara stock was recorded in earnings
in the other income or expense line on the statement of
operations and offset by the gains or losses in the fair value
of the derivative reported in the same other income or expense
line. The ineffective portion of the embedded derivative was
also recorded in the other income or expense line on the
statement of operations. On October 15, 2002 we received
$32.5 million in cash from Aclara and surrendered the
900,000 shares of Aclara common stock effectively
completing the settlement transaction. As of December 31,
2002, we have no derivative financial instruments.

Stock Options.We
have elected to continue to follow Accounting Principles Board
Opinion No. 25 Accounting for Stock-Based
Compensation (APB 25) to account for
employee stock options because the alternative fair value method
of accounting prescribed by SFAS No. 123 requires the
use of option valuation models that were not developed or use in
valuing employee stock options. Under APB 25, no
compensation expense is recognized because the exercise price of
our employee stock options equals the market price of the
underlying stock on the date of grant. Deferred compensation, if
recorded, is amortized using the graded vesting method.
Statement of Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based
Compensation (SFAS 123) requires the
disclosure of pro forma information regarding net

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loss and net loss per share as if we had
accounted for its stock options under the fair value method. See
Summary of Significant Accounting Policies note to
the financial statements for further discussion.


We account for stock option grants to
non-employees in accordance with the Emerging Issues Task Force
Consensus No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services, which requires the options subject to vesting to
be periodically re-valued and expensed over their vesting
periods.

Deferred Tax Assets.We have deferred tax assets related to
net operating losses generated in the United States. Our
accounting policy is to record valuation allowances when it is
more likely than not that a tax benefit will not be realized. At
December 31, 2002, we had deferred tax assets related to
net operating losses of $33.2 million and a valuation
allowance of $33.2 million to equally offset those assets
as our lack of earnings history and the uncertainty of realizing
these net operating losses significantly limits our ability to
realize this tax asset.

Results of Operations



| |                                           
| | ------------------------------------------
| | Years Ended December 31, 2002 and
    2001

Revenue. Revenue
decreased 13% to $25.8 million in 2002 from
$29.6 million in 2001. Of the $3.8 million decrease,
we had increased growth of $3.8 million from increased
product sales to commercial customers, including Amphora, a
related party, and from our collaboration with Agilent offset by
a decrease of $7.6 million in license and contract fees
from an anticipated decline related to the discontinuation in
2001 of our Technology Access Program.

Related party revenue increased to
$6.2 million in 2002 as compared to $3.9 million in
2001. This 59% increase resulted from sales to Amphora of
$3.6 million in Caliper 250 Drug Discovery system products,
$1.7 million in datapoints and $900,000 in assay
development services in 2002 as compared to $3.0 million in
Caliper 250 Drug Discovery system products, $500,000 in minimum
datapoints revenues and $364,000 in assay development services
in 2001. Based on the December 2002 restructured relationship
with Amphora, we expect in 2003 that Amphora will purchase only
one Caliper 250 instrument and make approximately
$1.6 million in minimum datapoint payments to us. Product
revenue from unrelated customers increased 18% to
$10.4 million in 2002 as compared to $8.8 million in
2001. This increase of $1.6 million is mainly from product
volume growth under our commercial collaboration with Agilent,
with sales of our Caliper 250 Drug Discovery systems up only
modestly. Product revenue increased 52% in 2002 under our
commercial collaboration with Agilent driven by the Agilent 2100
Bioanalyzer unit sales increase of 27% and LabChip kit growth of
83% over the same period in 2001. In 2003, we expect continued
unit growth in the Agilent 2100 Bioanalyzer product line. We
estimate Bioanalyzer instrument sales to grow by 20% to 30%,
while the number of LabChip kits sold are expected to increase
by 50% to 60%. Product revenues from sales of our drug discovery
system products increased 7% in 2002 driven by increased
datapoint revenues of $385,000 as compared to none in 2001
offset by Caliper 250 Drug Discovery systems product sales
declining 4% in 2002 as compared to 2001. Additionally, product
revenues in 2002 from sales of the AMS 90 were essentially
unchanged as compared to 2001 while product revenues from the
Caliper 42 system declined 70% in 2002.

It has been widely reported that the sluggish
economic environment, coupled with pharmaceutical
industry-specific factors, has dampened research spending for
many companies. As such, continuing market acceptance of our
products will depend on our ability to demonstrate the
advantages and potential economic value of our drug discovery
systems in the context of decreased capital spending by our
customers.

License fees and contract revenues decreased 45%
to $9.3 million in 2002 compared to $16.9 million in
2001. The decrease of $7.6 million resulted mainly from the
$2.5 million received in licensing fees in 2002 for the
Ramsey family of patents to Aclara as opposed to
$5.0 million in 2001, a $4.3 million decline in our
Technology Access Program contract revenue, and a $540,000
decline in government contracted research offset by a
$1.1 million increase in product support services on
Calipers commercialized AMS 90 and Applications Developer
Program services. The decline in our Technology Access Program
revenue in 2002 was a result of our conversion from a fee-based
technology access program model in September 2001 to a

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commercial drug discovery products business.
Also, contract fee revenues under our collaboration with Agilent
declined 23% to $4.6 million in 2002 as we concluded several
development programs related to the Agilent 2100 Bioanalyzer
product line. Development program contract fees under our
collaboration with Agilent could cease at any time after the
termination of the formal agreement in May 2003. However, we
anticipate that some product development contract fees will
continue as we are working steadily with Agilent to develop new
products.


Cost of Product Revenue.Cost of product revenue represents
manufacturing costs incurred in the microfluidic chip and
instrument production process, including component materials,
assembly labor and overhead, packaging and delivery cost. Cost
of products sold was $3.0 million in 2002 for the related
party sales to Amphora as compared to $2.1 million in 2001.
Of this $900,000 increase, $444,000 related to increased cost
for warranty repairs and service costs driven by the increased
number of our products in operation at Amphora, $248,000 related
to higher component costs with the remainder driven by product
mix due to increased LabChip product volume offset by a 10%
decline in the number of drug discovery systems purchased in
2002 as compared to 2001. As a result, profit margins for
product sales to Amphora were 43% in 2002 as compared to 41% for
each of the same periods in 2001. Profit margins were positively
impacted by a $1.2 million increase in datapoint revenue in
2002 as compared to 2001 offset by the added volume discounts
earned by Amphora due to its higher accumulated instrument
purchases during the course of the year. The profit margins on
product sales to Amphora will continue to vary due to the volume
of products purchased with their corresponding commercial volume
discounts earned and due to datapoint revenue that has minimal
associated costs to Caliper. Cost of all other products sold
were $7.9 million for 2002 compared to $4.8 million in
2001. Product costs increased during 2002 by $3.1 million. Of
this amount, $663,000 was largely as a result of component
replacement cost under our product warranty provisions driven by
the increased number of our products in the market. As we only
began to commercially market our products in September 2001,
there were no warranty costs incurred in 2001. Although warranty
costs are common in our business and affect our profit margins
variably during the year, we do not anticipate component
replacements such as those that occurred throughout 2002 to
continue at these levels indefinitely. Additionally in 2002, we
wrote-off $701,000 in excess or obsolete inventory materials.
Profit margins from product sales to unrelated customers
declined overall to 24% in 2002 as compared to 46% in 2001. In
addition to the warranty and inventory costs already noted,
profit margins were also adversely impacted in 2002 by the
increased volume of Agilent 2100 Bioanalyzer systems sold, which
carry lower margins, and lower sales of Calipers own
products. Product mix will affect future profit margins as
Caliper earns a higher return from its own products sold as
opposed to sharing gross margin revenues on collaboration
products with Agilent. Datapoint revenue will also affect profit
margins from unrelated customers as it has minimal associated
costs to Caliper.

Research and Development
Expenses. Research and development
expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers
for chip development, material costs for prototype and test
units, legal expenses resulting from intellectual property
prosecution and litigation, and other expenses related to the
design, development, testing, and enhancement of our products.
We expense our research and development costs as they are
incurred. Research and development expenses increased to
$43.3 million during 2002 from $38.3 million in 2001.
The increase of $5.0 million was primarily attributable to
continued growth of research and development activities,
consisting of $2.7 million related to increased personnel
and services to support our expanded next generation drug
discovery system and microfluidic chip development, partner
collaboration and product scale-up, $199,000 for supplies
required to assemble, build and test prototype LabChip systems,
$699,000 for costs related to intellectual property matters and
$1.4 million due to expansion in research facilities,
equipment and activities.

Our research and development focus has been on
product development in the areas of new applications,
microfluidic instruments with expanded capabilities, our
LibraryCard system and genomic analysis systems. In the future,
we intend to focus for our LabChip technology development
efforts on a narrow range of applications based on customer
demand. We also will continue to make investments intended to
advance and refine our manufacturing processes in order to
improve the functionality and reliability of our chips and
instruments. We expect to continue our efforts in these areas of
research and development even though the outcomes of these
projects are inherently uncertain. We will also continue to
revise our research and

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development focus and priorities to match the
economic climate and the research and development spending by
biopharmaceutical companies that we believe will affect the
demand for our microfluidic products. We expect research and
development spending to decline in 2003 as compared to 2002 as a
result of our downsizing in September 2002 and reduced
discretionary spending with our research and product development
efforts, only expanding in subsequent years based on customer
demand, market conditions and our commercial growth.


Selling, General and Administrative
Expenses. Selling, general and
administrative expenses consist primarily of salaries and
related expenses for executive, sales and marketing, finance and
other administrative personnel, recruiting expenses,
professional fees, and other corporate expenses including
business development and general legal activities. Selling,
general and administrative expenses increased to
$17.5 million during 2002 from $15.5 million in 2001. The
increase of $2.0 million was due primarily to an increase
of $795,000 related to employment costs for sales and marketing
mostly due to our first full year of a commercial marketing and
sales function, $213,000 for general legal fees related to
expanded commercial initiatives, $467,000 in increase insurance
and license fees to support our commercially marketed products
and expanded operating facilities, $487,000 for market research,
advertising and services to support our commercialized products
and $801,000 for expanded facility operating costs offset by a
$828,000 decline in outside consulting services. We expect
selling, general and administrative expenses to moderate over
the next several years increasing only to support demonstrated
business growth or for activities required to further
commercialize our products.

Amortization of Deferred Stock
Compensation. Deferred stock
compensation represents the difference, at the date of grant,
between the deemed fair value of our common stock for accounting
purposes and the exercise price of options. During 1998 and
1999, we recorded deferred stock compensation totaling
$13.2 million. This amount is being amortized over the
respective vesting periods of the individual stock options using
the graded vesting method. We recorded amortization of deferred
compensation, net of $378,000 in 2002 as compared to
$2.5 million in 2001. The 2002 deferred stock compensation,
net consisted of $1.4 million, offset by a reversal of
$1.0 million in 2002 of stock compensation expense
recognized in previous periods resulting from forfeited options
from the approximate 10% reduction in force and other employee
terminations. We expect to record amortization expense for
deferred compensation of $542,500 during 2003 and $94,500 during
2004. The amount of deferred compensation expense to be recorded
in future periods may further decrease if unvested options for
which deferred compensation has been recorded are subsequently
canceled.

Restructuring
Charges. Restructuring charges
represent the severance and related benefits paid to terminated
employees as a result of the reduction in force conducted in
September 2002. Due to the broader economic slowdown and reduced
research and development spending by biopharmaceutical companies
that we believed was affecting our sales to customers, we began
in July 2002 a detailed strategic review in which we evaluated
each of our products and programs for commercial opportunity,
time to market and resource requirements. In September 2002, to
better align our organizational structure with these depressed
market conditions and customer demand, we conducted a reduction
in force that resulted in a downsizing of our employee work
force by 28 employees, or approximately 10%, concluding 2002
with 251 employees. Of the employees affected by the reduction
in force, 75% were in research and development with the
remaining divided equally between manufacturing and
administrative functions. We recorded a charge of $314,000 for
this reduction in force completing all the restructuring
activity by December 31, 2002. We had no restructuring
charges in prior periods.

Interest Income (Expense),
Net. Interest income (expense), net
consists of income from our cash and investments offset by
expenses related to our financing obligations. Interest income,
net was $7.0 million in 2002 as compared to
$11.4 million in 2001. The decrease primarily resulted from
lower cash, cash equivalents and marketable securities balances
ratably during the months of 2002 as compared to the same
monthly periods in 2001 and, to a lesser extent, the declining
interest rate yields in 2002 as compared to last year.

Litigation settlement and
reimbursement. There were no
litigation settlements, reimbursement of fees or expenses in
2002. In January 2001, we recognized $27.5 million in a
litigation settlement resulting from a

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comprehensive settlement agreement with Aclara
for the dismissal of all suits and countersuits between the two
companies.


Income Taxes. As of
December 31, 2002, we had federal and California net
operating loss carryforwards of approximately $64.8 million
and $5.9 million, respectively. We also had federal and
California research and other development tax credit
carryforwards of approximately $2.8 million and
$2.4 million, respectively. The net operating loss and
credit carryforwards will expire at various dates beginning on
2004 through 2022, if not utilized. Utilization of the net
operating losses and credits may be substantially limited due to
the change in ownership provisions of the Internal Revenue Code
of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits
before utilization.

As of December 31, 2002 and 2001 we had
deferred tax assets of approximately $33.2 million and
$15.8 million, respectively. The net deferred tax asset has
been fully offset by a valuation allowance. The net valuation
allowance increased by $17.4 million during the year ended
December 31, 2002. The net valuation allowance decreased by
$871,000 during the year ended December 31, 2001. Deferred
tax assets relate primarily to net operating loss carryforwards,
research credit carryforwards, and capitalized research and
development costs.



| |                                           
| | ------------------------------------------
| | Years Ended December 31, 2001 and
    2000

Revenue. Revenue
increased 59% to $29.6 million in 2001 from
$18.6 million in 2000. Of the $11.0 million increase,
$9.5 million was derived from increased product sales to
commercial customers, including Amphora, a related party, and
from our collaboration with Agilent.

Related party revenue was $3.9 million for
2001 resulting from sales of $3.0 million in Caliper 250
Drug Discovery system products, $500,000 in datapoints and
$364,000 in assay development services to Amphora in 2001
subsequent to Amphoras third-party financing. There were
no related party revenues in 2000. Product revenue from
unrelated customers increased 175% to $8.8 million in 2001,
compared to $3.2 million in 2000. This increase of
$5.6 million is from product volume growth under our
commercial collaboration with Agilent, and from sales of our
Caliper 250 Drug Discovery system launched in September 2001 and
the AMS 90 and Applications Developer Program, both of which
were introduced in March 2001. Product revenue increased 111% in
2001 under our commercial collaboration with Agilent driven by
the Agilent 2100 Bioanalyzer unit sales increase of 158% over
the same period in 2000. Product revenues from sales of our drug
discovery systems increased 250% in 2001 driven by the
commercial launch of the Caliper 250 Drug Discovery system, the
AMS 90 and the Caliper 42 system. Additionally, we experienced
this increase in part due to our conversion from a fee-based
technology access program model to a commercial drug discovery
products business and the associated change in revenue
recognition methods.

License fees and contract revenues increased 10%
to $16.9 million in 2001 compared to $15.4 million in
2000. The increase of $1.5 million resulted mainly from the
$5.0 million licensing fee for the Ramsey family of patents
to Aclara in connection with our litigation settlement with
Aclara, and a $371,000 increase in product support services on
Calipers newly commercialized AMS 90 and Applications
Developer Program services offset by a $3.0 million decline
in our Technology Access Program contract revenue. We
experienced this 39% decline in our Technology Access Program
revenue in 2001 as a result of our conversion from a fee-based
technology access program model to a commercial drug discovery
products business. Also, contract fee revenues under our
collaboration with Agilent declined 12% principally from a one
time $735,000 research and development reimbursement in 2000.
Excluding this one time reimbursement, contract fees in 2001
under the collaboration with Agilent were essentially unchanged
from 2000.

Cost of Product
Revenue. Cost of products sold was
$2.1 million for the related party sales to Amphora for
2001. The profit margins on product sales to Amphora vary due to
the volume of products purchased and the corresponding
commercial volume discounts earned and due to datapoint revenue
that has minimal associated costs to Caliper. Cost of all other
products sold were $4.8 million for 2001 compared to
$2.5 million in 2000. The improved profit margins from
product sales to unrelated customers in 2001 compared to 2000
was primarily due to the increased volume of Agilent 2100
Bioanalyzer systems sold and sales of Calipers own
products.

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Research and Development
Expenses. Research and development
expenses increased to $38.3 million during 2001 from
$33.5 million in 2000. The increase of $4.8 million
was primarily attributable to continued growth of research and
development activities, including $7.7 million related to
increased personnel and services to support our expanded next
generation drug discovery system and microfluidic chip
development, partner collaboration and product scale-up,
$2.6 million for supplies required to assemble, build and
test prototype LabChip systems and $3.0 million due to
expansion in research facilities and activities, offset by a
reduction of $8.6 million for costs related to intellectual
property matters, primarily legal fees due to the settlement
with Aclara.

General and Administrative
Expenses. General and administrative
expenses increased to $15.5 million during 2001 from
$9.8 million in 2000. The increase of $5.8 million was
due primarily to $3.0 million related to employment costs
for marketing, general and administrative personnel,
$1.3 million for general legal fees related to expanded
commercial initiatives, $947,000 for market research and
services to support our initial product launches and $558,000
for expanded operating facilities.

Amortization of Deferred Stock Compensation.We recorded amortization of deferred
compensation of $2.5 million for 2001, $4.5 million
for 2000 and $3.9 million for 1999.

Interest Income (Expense),
Net. Net interest income increased to
$11.4 million in 2001 from net interest income of
$7.5 million in 2000. This increase primarily resulted from
interest on proceeds of the $104.9 million raised in August
2000 from the sale of 2,300,000 shares of common stock in a
private placement offset in part by generally declining interest
rate yields in 2001.

Litigation settlement and
reimbursement. In January 2001, we
recognized $27.5 million in a litigation settlement
resulting from a comprehensive settlement agreement with Aclara
for the dismissal of all suits and countersuits between the two
companies. In 2000, we received $13.3 million in a
litigation settlement resulting from a settlement agreement with
a former patent attorney and his former law firm. Of the
$13.3 million recognized in 2000, $12.0 million was a
settlement with Bertram Rowland and the law firm of Flehr,
Hohbach, Test, Albritton and Herbert LLP in a breach of
fiduciary duty and trade secret misappropriation case. The
remainder relates to reimbursement of litigation fees and
expenses from one of our collaborators.

Liquidity and Capital Resources

We have financed our operations from inception
primarily through equity sales, product sales and services,
contract and milestone payments to us under our collaboration
and Technology Access Program agreements, the $32.5 million
received from the comprehensive settlement agreement with
Aclara, and equipment financing under sale-leaseback
arrangements. As of December 31, 2002, we had received net
proceeds of $229.8 million from issuances of common and
preferred stock which primarily includes $104.9 million
raised in August 2000 from the sale of 2,300,000 shares of
common stock in a private placement and $75.9 million raised
from our initial public offering in December 1999. From
inception through December 31, 2002 we had received
$97.8 million from collaborations, product sales and
services, Technology Access Program customers and government
grants and had financed equipment purchases and leasehold
improvements totaling approximately $12.3 million. We have
used leases and loans to finance capital expenditures under
sales-leaseback arrangements. As of December 31, 2002, we
had $4.4 million in capitalized lease obligations. These
obligations are secured by the equipment financed, bear interest
at a weighted-average fixed rate of approximately 11.1%, and are
due in monthly installments through June 2005. Under the terms
of one equipment sale-leaseback agreement, the financed
equipment may be purchased by us at a fair value at the end of
the financing term. Other equipment sale-leaseback agreements
require a balloon payment at the end of each loan term.

As of December 31, 2002, we had
$154.3 million in cash, cash equivalents and marketable
securities, as compared to $166.2 million as of
December 31, 2001. We used $10.4 million for
operations in 2002. This consisted of working capital changes of
$23.9 million offset by the net loss for the period of
$41.0 million and by non-cash charges of $6.6 million
related to amortization of deferred stock compensation, stock
options issued to non-employees, and depreciation and
amortization expense. As of December 31, 2001, we had
$166.2 million in cash, cash equivalents and marketable
securities, as compared to $191.7 million as of

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December 31, 2000. We used
$22.6 million for operations in 2001. This consisted of
working capital changes of $32.6 million offset by the net
income for the period of $3.8 million and by non-cash
charges of $6.2 million related to amortization of deferred
stock compensation, stock options issued to non-employees, and
depreciation and amortization expense.


Net cash provided by investing activities was
$15.7 million for 2002, consisting primarily of
$190.1 million of proceeds from sales and maturities of
marketable securities offset in part by $5.8 million of
capital expenditures and of $168.7 million of purchases of
available-for-sale investments. We received $250,000 from
financing activities for 2002, which consisted principally of
$1.6 million raised in the issuance of common stock due to
employee stock option exercises and employee stock purchase plan
purchases and $822,000 from equipment sale-leaseback
arrangements, offset in part by repayments of equipment
sale-leaseback arrangements of $2.2 million. Net cash used
in investing activities was $5.9 million for 2001,
consisting primarily of $7.2 million of capital
expenditures and of $188.5 million of purchases of
available-for-sale investments, offset in part by proceeds from
sales and maturities of available for sale investments. We
received $3.0 million from financing activities for 2001,
which consisted principally of $2.3 million raised in the
issuance of common stock due to employee stock option exercises
and employee stock purchase plan purchases and $2.5 million
from equipment sale-leaseback arrangements, offset in part by
repayments of equipment sale-leaseback arrangements of
$2.0 million.

Through June 30, 2002, we drew down $822,000
of the $1.8 million remaining balance of the
$3.0 million equipment sale-leaseback credit line which
existed as of December 31, 2001 at a weighted-average
interest rate of 11.9%. The drawdown period under this
$3.0 million equipment sale-leaseback credit line expired
on June 30, 2002. As of December 31, 2002, we drew
down approximately $2.0 million in total under a new line
at a weighted average interest rate of 11.7% and had $965,000
unused that expired under this arrangement on July 1, 2002.
We did not renew this sale-leaseback arrangement and have no
similar financing credit line in place as of December 31,
2002. As of December 31, 2002, we had $4.9 million in
capitalized lease obligations outstanding compared to
$5.8 million at December 31, 2001. We had commitments
under non-cancelable operating leases, reduced by minimum
sublease income in the case of operating leases, of
$32.5 million to be paid through 2008. The following is a
table of our commitments:

|                          |            |                                            |   |                   |        |  |   |       |       | 
|------------------------- | ---------- | ------------------------------------------ | - | ----------------- | ------ |  | - | ----- | ----- | 
|                          |            |                                            |   | Obligations Under
|                          |            | Operating                                  |   | Sale-Leaseback   
|                          |            | Leases                                     |   | Arrangements     
|                          |            |                                            |   |                  
|                          |            |                                           
|                          |            | (In thousands)                            
|Years ending December 31: |            |                                            |   |                   |        |  |   |      
|                          | 2003       |                                            | $ | 5,367             |        |  | $ | 2,806 |      
|                          | 2004       |                                            |   | 5,520             |        |  |   | 1,750 |      
|                          | 2005       |                                            |   | 5,624             |        |  |   | 385   |      
|                          | 2006       |                                            |   | 5,768             |        |  |   |      |      
|                          | Thereafter |                                            |   | 10,240            |        |  |   |      |      
|                          |            |                                            |   |                   |        |  |   |      
|                          |            | Total minimum lease and principal payments |   | $                 | 32,519 |  |   | $     | 4,941 | 
|                          |            |                                            |   |                   |        |  |   |      

As of December 31, 2002, we also had a
non-cancelable purchase commitment in the amount of
approximately $450,000 with our foreign supplier for the
purchase of our proprietary glass stock used in the manufacture
of certain types of our chips. We have minimum royalty
obligations under separate license agreements with UT-Battelle,
LLC and the Trustees of the University of Pennsylvania. Royalty
payments to UT-Battelle were $81,000 in 2002 and are expected to
exceed the required minimum royalty amount in 2003 and through
the remainder of the license. We anticipate that during the next
several years of the license with the Trustees of the University
of Pennsylvania that the minimum royalty obligation under this
license will exceed the earned royalty obligation. The minimum
royalty obligation under this license rises over time, but never
exceeds $200,000 per year.

Based on our long term strategic plan, we believe
that our current cash balances, together with the revenue to be
derived from our commercial partners and from the commercial
sale of our microfluidic

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products and services will be sufficient to fund
our operations at least through the next 24 months. Our
future capital requirements will depend on many factors,
including, among others;




| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | continued market acceptance of our microfluidic
    products;                                                     
|
| |  | continued scientific progress in our microfluidic
    research and product development programs;                  
|
| |  | the magnitude and scope of our research and
    product development programs;                                     
|
| |  | our ability to maintain existing, and establish
    additional, corporate partnerships and licensing arrangements;
|
| |  | the time and costs involved in expanding and
    maintaining our manufacturing facilities;                        
|
| |  | the costs involved in preparing, filing,
    prosecuting, maintaining, defending and enforcing patent claims;     
|
| |  | the potential need to develop, acquire or license
    new technologies and products; and                          
|
| |  | other factors not within our control.                                                                             

Actual capital expenditures could vary
considerably, however, depending on opportunities that arise
over the course of the 2003 and 2004 period. In addition, we
intend to seek additional funding through new OEM collaborations
and commercial partnerships or additional capital sale-leaseback
transactions. During or after this period, if cash generated by
operations is insufficient to satisfy our liquidity
requirements, we may need to reduce our research and development
efforts, or sell additional equity or debt securities or obtain
additional credit arrangements. The sale of additional equity or
convertible debt securities may result in additional dilution to
our stockholders. Additional financing may not be available on
terms acceptable to us or at all. The inability to obtain
additional financing may force delays in research and product
development activities and, ultimately, cause us to cease
operations.

Impact of Inflation

The effect of inflation and changing prices on
our operations was not significant during the periods presented.

Related Party Transactions

In May 2001, we formed Amphora, later
transferring certain intangibles in September of that year. In
September 2001, Amphora completed a private placement of
securities with third party investors raising $25 million
which reduced our ownership to 28%. In connection with this
September 2001 financing, we received the right to appoint two
representatives to Amphoras six-member board of directors.
These two members were Michael R. Knapp, then our Vice President
of Corporate Development, and James L. Knighton, then our
Executive Vice President and Chief Financial Officer.
Mr. Knighton resigned from Amphoras board of
directors in February 2002 and was replaced by Daniel L. Kisner,
Calipers Board Chairman, in May 2002. Mr. Knighton
also served as Amphoras acting Chief Financial Officer
from September 2001 until January 2002. In connection with the
formation of Amphora, Dr. Knapp and Mr. Knighton
received 900,000 and 450,000 shares of restricted common
stock, respectively, at a share value of $0.10 per share.
Dr. Knapp and Mr. Knighton paid $0.01 per share of the
purchase price in cash, with the remainder of the purchase price
paid by the cancellation of all amounts owed by Amphora to
Dr. Knapp and Mr. Knighton for services provided by them to
Amphora prior to the issuance of such common shares to them.
Initially, 100% of such shares were subject to a repurchase
option in favor of Amphora. 50% of such shares were released
from this repurchase option when Amphora completed its initial
third party financing in September 2001. The remaining 50% of
such shares will be ratably released from Amphoras
repurchase option over an eight-year period on a monthly basis
with respect to each of Dr. Knapp or Mr. Knighton for
so long as they serve on Amphoras board or remain
available to provide advisory services to Amphora pursuant to
existing consulting contracts. Additionally, Dr. Knapp
participated as a private investor in Amphoras initial
September 2001 financing, where he purchased 50,000 shares
of Amphoras preferred stock. Dr. Kisner did

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not receive any shares of restricted Amphora
common stock or options to buy Amphora common stock in
connection with his appointment to Amphoras board.


In December 2002, Amphora completed a second
private placement of securities with third party investors.
After the completion of this financing, Calipers ownership
in Amphora was reduced on a fully diluted basis to approximately
13% as of December 31, 2002 from 28% as of
December 31, 2001. Over time we expect that our ownership
in Amphora will be further diluted, as we have no plans to make
any future equity investments in Amphora. On March 17,
2003, one of Calipers two representatives,
Dr. Michael R. Knapp, resigned from Amphoras board of
directors. Due to the reduction in our percentage ownership of
Amphora, we now have the right to appoint only one member to
Amphoras board. Dr. Kisner continues to be a member
of Amphoras board of directors.

In September 2001, we entered into a LabChip
Solutions Agreement and an Intellectual Property Agreement with
Amphora. The LabChip Solutions Agreement provides for the
ongoing supply of our drug discovery systems and chips to
Amphora, and for the provision of related services by us to
Amphora. Under this agreement, Amphora agreed to purchase a
minimum of eleven Caliper 250 Drug Discovery systems by
December 31, 2001 and at least eleven additional
Caliper 250 Drug Discovery systems by December 31,
2002. Amphora also agreed to purchase datapoints at a fixed
amount of $2.0 million in the first year and a minimum of
$4.0 million to a maximum based on volume of
$6.0 million in the second year of the agreement. Under the
Intellectual Property Agreement, we granted Amphora certain
exclusive rights to use our drug discovery products in a
chemical genomics database business.

In connection with the completion of
Amphoras December 2002 financing, Caliper and Amphora
agreed to a renegotiation of Amphoras obligations under
the LabChip Solutions Agreement. Under the renegotiated
agreement, the Companies agreed to restructure the
$4 million minimum datapoint payment for 2002 as follows:
Amphora agreed to purchase a minimum of $1.8 million of
datapoints during the second year of the agreement beginning in
December 2002 and over time to make up to $2.2 million of
deferred payments to Caliper. These deferred payments are
contingent upon Amphoras future revenue generation,
datapoint production and other conditions and can be satisfied
by Amphora under three methods: i) quarterly payments to
Caliper based on Amphoras revenues; ii) commissions
earned by Amphora as they provide certain marketing assistance
to Caliper for Calipers instruments; and
iii) additional datapoint payments if Amphora exceeds the
certain minimum datapoint levels. We also agreed to defer to
December 31, 2003 Amphoras obligation to purchase the
one remaining Caliper 250 instrument of the 11 originally
scheduled to be purchased by Amphora before December 31,
2002. In consideration for our agreement to this restructuring,
Amphora issued to Caliper 2.5 million shares of Amphora
preferred stock. We ascribed a nominal value of $25,000 to these
shares as Amphora is a privately held research and development
company.

In 2002, we sold a total of $6.2 million in
Caliper 250 Drug Discovery system products, chips,
datapoints and assay development services to Amphora recording
the sale of products and services as related party revenue in
our financial statements. In 2001 by comparison, subsequent to
Amphoras initial financing in September 2001, we sold a
total of $3.9 million in Caliper 250 Drug Discovery system
products, chips, datapoints and assay development services. The
completion of Amphoras second financing in December 2002
did not have any impact on our method of accounting for sales to
Amphora.

In December 2002, Amphora assumed full service
responsibility for all of the 21 Caliper 250 Drug
Discovery instruments purchased from Caliper including
instruments still within their 12-month warranty period. In
return, Caliper provided a $55,000 warranty rebate on the
10 Caliper 250 Drug Discovery instruments purchased
earlier in 2002 and will provide a fixed discount on future
sales of instruments purchased without a warranty. Caliper has
no remaining warranty or service responsibility on instruments
purchased now or in the future by Amphora.

In September 2001, Amphora entered into a
three-year Sublease Agreement with Caliper for the rent of
approximately 5,700 square feet in one of Calipers
three Mountain View, CA leased buildings for Amphoras
research and development use. Amphora is obligated for monthly
rent based on local market rates with a 3% per annum escalation
and we, as landlord, are obligated to provide certain facilities
maintenance services. In December 2002, in connection with the
completion of Amphoras second financing, we agreed to an
early

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termination of this Sublease Agreement as of
March 31, 2003. In September 2001, we also entered into an
Administrative Services Agreement with Amphora for certain
financial accounting, purchasing and human resource services to
be provided by our personnel. We charged for these services
monthly at an hourly rate based on a cost plus mark-up basis
recording the corresponding payments from Amphora as part of our
overall employee costs. Amphora terminated this agreement at its
option in June 2002 when it achieved adequate staffing to
fulfill these functions.


Recent Accounting Pronouncements

In June 2002 the Financial Accounting Services
Board (FASB), issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The
standard addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).SFAS No. 146 states that a
liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair
value in the period in which the liability is incurred, except
for a liability for one-time termination benefits that are
incurred over a period of time. The standard will be effective
for exit or disposal activities initiated after
December 31, 2002. The provisions of Statement 146 are
required to be applied prospectively after the adoption date to
newly initiated exit activities, and may affect the timing of
recognition of future restructuring costs, as well as amounts
recognized.

In November 2002, the Financial Accounting
Standards Board (or FASB) issued Interpretation No. 45 (or
FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the
existing disclosure requirements for most guarantees, including
residual value guarantees issued in conjunction with operating
lease agreements. It also clarifies that at the time a company
issues a guarantee, the company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15,
2002. Our adoption of the recognition and measurement of
FIN 45 are not expected to have a material impact on our
results of operations and financial position. See the
Warranty Expense note in the Notes to Consolidated
Financial Statements of Part II, Item 8 of this
Form 10-K regarding our warranty-related disclosures.

In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting for
Stock-Based Compensation, Transition and Disclosure.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the
fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular
format. Additionally, SFAS 148 requires disclosure of the
pro forma effect in interim financial statements. The transition
and annual disclosure requirements of SFAS 148 are
effective for fiscal years ending after December 15, 2002.
We have included the required additional disclosures in
Note 1 to our condensed consolidated financial statements
and do not expect SFAS 148 to have an effect on our results
of operations or financial condition.

In January 2003, the FASB issued FASB
Interpretation No. 46, or FIN 46,
Consolidation of Variable Interest Entities.FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements,to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before
February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period.
We do not believe there will be a material effect upon our
financial condition or results of operations from the adoption
of the provisions of FIN 46.

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In January 2003, the Emerging Issues Task Force
published EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables, which requires companies to
determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. In applying EITF
Issue 00-21, revenue arrangements with multiple
deliverables should be divided into separate units of accounting
if the deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values. This
issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. We are
currently evaluating the impact the adoption of this issue will
have on our results of operations and/or financial position.

Factors Affecting Operating Results



| |                              
| | -----------------------------
| | Risks Related To Our Business



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Our LabChip Systems may not achieve market
    acceptance, which could cause our revenue to grow slowly or
    decline.

Many of our technologies are still in the early
stages of development, and our drug discovery systems
incorporating these technologies have only recently been made
commercially available. If our drug discovery systems do not
gain further market acceptance, we will be unable to generate
significant sales and our revenue will decline. The commercial
success of our drug discovery systems will depend upon capital
spending by our potential customers, and market acceptance of
the merits of our drug discovery systems by pharmaceutical and
biotechnology companies, academic research centers and other
companies that rely upon laboratory experimentation. Market
acceptance will depend on many factors, including:



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to demonstrate the advantages and
    potential economic value of our drug discovery systems over
    alternative well-established technologies and products;     
|
| |  | capital spending by our customers and potential
    customers, which has decreased as a result of the current
    economic conditions and other industry-specific factors; and
|
| |  | our ability to market our drug discovery systems.                                                                                                                             

Because the products comprising our drug
discovery systems have been in operation for a limited period of
time, their accuracy, reliability, ease of use and commercial
value have not been fully established. If the first customers do
not approve of our initial drug discovery systems because these
systems fail to generate the quantities and quality of data they
expect, are too difficult or costly to use, or are otherwise
deficient, market acceptance of these drug discovery systems
would suffer and further sales may be limited. We cannot assure
you that these customers efforts to put our drug discovery
systems into use will continue or will be expeditious or
effective. Potential customers for our drug discovery systems
may also wait for indications from our initial drug discovery
system customers that our drug discovery systems work
effectively and generate substantial benefits. Further,
non-acceptance by the market of our initial drug discovery
systems could undermine not only those systems but subsequent
drug discovery systems as well.



| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not successfully introduce new
    products and expand the range of applications for our drug
    discovery systems, we may experience a decline in revenue or
    slow revenue growth and may not achieve or maintain
    profitability.

We intend to continue developing lower cost drug
discovery systems with enhanced features that address existing
or emerging customer needs such as novel assay functionalities.
If we are unable to do so, our drug discovery systems may not
become widely used and we may experience a decline in revenue or
slow revenue growth and may not achieve or maintain
profitability.



| |                                                                             
| | ----------------------------------------------------------------------------
| | We must continue to develop applications for
    our drug discovery systems.

We currently have several assays in development
including assays that measure many important activities of cells
and proteins. We are developing line extensions that are
particularly well suited for the evaluation of kinases, one of
the largest focus areas of drug discovery efforts today. We are
creating new tools to make it

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easier for our customers to develop their own
custom assays in a microfluidic format. Caliper is also
developing kinase profiling and selectivity screening kits. If
we are not able to complete the development of these
applications and tools, or if we experience difficulties or
delays, we may lose our current customers and may not be able to
obtain new customers.




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We expect to incur future operating losses and
    may not achieve profitability.

We have experienced significant operating losses
each year since our inception and expect to incur substantial
additional operating losses for at least the next two years,
primarily as a result of a current sluggish economic climate,
dampened research spending for many companies affecting our
product sales and expected continuing expenses for manufacturing
capabilities, research and product development costs and general
and administrative costs. We may not achieve profitability in
future years. For example, we experienced net losses of
approximately $3.0 million in 1998, $14.4 million in
1999, $13.3 million in 2000, a net profit of
$3.8 million earned in 2001 followed by a net loss of
$41.0 million in 2002. Without our litigation settlement
and reimbursement of $27.5 million in 2001, we would have
also had a net loss in 2001. As of December 31, 2002, we
had an accumulated deficit of approximately $85.6 million.
Our losses have resulted principally from costs incurred in
research and development, product marketing and from general and
administrative costs associated with our operations. These costs
have exceeded our litigation settlement and reimbursement,
interest income and revenue which, to date, have been generated
principally from product sales, collaborative research and
development agreements, technology access fees, cash and
investment balances and, to a lesser extent, government grants.



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

Our quarterly operating results have fluctuated
significantly 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. For example, our revenues have varied
dramatically as a result of new customers joining our Technology
Access Program, the subsequent switching to a commercial
products business from a technology access model and product
shipments. 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 revenue 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.

If revenue declines in a quarter, whether due to
a delay in recognizing expected revenue or otherwise, our
earnings will decline because many of our expenses are
relatively fixed. In particular, research and development and
general and administrative expenses and amortization of deferred
stock compensation are not affected directly by variations in
revenue.



| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because a small number of customers and
    Agilent have accounted for, and are likely to continue to
    account for, a substantial portion of our revenue, our revenue
    could decline due to the loss of one of these customers or the
    termination of our agreement with Agilent.

Historically, we have had very few customers and
one commercial partner, Agilent, from which we have derived the
majority of our revenue and, if we were to lose any one of
these, our revenue would decrease substantially. In 2002,
Agilent represented 39% of total revenues and Amphora accounted
for 24% of total revenues with three of Calipers previous
Technology Access Program customers combined accounted for 12%
of total revenues. Agilent, our Technology Access Program
customers, Amphora and our initial licensing of the Ramsey
family of patents to Aclara in connection with our litigation
settlement with them, accounted for 93% of our total revenue for
the year ended December 31, 2001. Agilent and three
customers accounted for 90% of total revenue for the year ended
December 31, 2000. Although we anticipate that future sales
of the Agilent 2100 Bioanalyzer system will further expand our
revenue base, we expect that we will continue to rely on a few
customers and on Agilent for the majority of our revenues.

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| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are still early in the process of
    converting some customers from Technology Access Program
    agreements to purchasers of products and support services, and
    our revenue could be adversely impacted by this
    conversion.

The final year of our Technology Access Program
(TAP) agreements with Eli Lilly and Amgen concluded
in August 2002 and December 2002, respectively. In addition, the
third and final year of our Technology Access Program agreement
with Millennium which began on March 24, 2000 concludes in
the first quarter of 2003. It is too soon for us to know whether
these former TAP customers will continue to purchase our
products and support services at historic levels after they have
fully utilized the credits created from the conversion of
outstanding TAP subscription fees, or whether we will be able to
replace this revenue from the utilization of these credits with
revenue from the sale of products to new customers. If our
former TAP customers do not continue purchasing products and
support services at their historic levels, or if we are not able
to replace this revenue with sales to new customers, our overall
revenue will be adversely affected.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on Agilent to manufacture, market and
    distribute the Agilent 2100 Bioanalyzer. Our revenue from
    the Agilent 2100 Bioanalyzer and LabChip development
    funding is dependent on Agilents success and continued
    investment in this product line.

Agilent manufactures, markets and distributes the
Agilent 2100 Bioanalyzer under an agreement we entered into
in May 1998. Our ability to develop, manufacture and market
these products successfully depends significantly on
Agilents performance under this agreement. Sales of
innovative instrumentation such as the Agilent 2100
Bioanalyzer involve a long sales cycle, requiring customer
training and demonstration periods. Although sales of the
Agilent 2100 Bioanalyzer increased in 2002, we cannot
predict whether this trend will continue at its current pace, if
at all. If Agilent experiences manufacturing or distribution
difficulties, does not actively market the Agilent
2100 Bioanalyzer, our future revenue from the
Agilent 2100 Bioanalyzer may not be material. We also
anticipate research and development funding from Agilent to
decrease by approximately 30% on an annualized basis beginning
November 1, 2002. In addition, we have notified Agilent of
our election to terminate the agreement between the companies as
of May 2003, and Agilent may terminate the agreement at their
discretion at any time. If we do not negotiate a new agreement
with Agilent and the collaboration terminates in May 2003 as
provided under the current agreement, we could cease to receive
development funding from Agilent for new products. Furthermore,
the revenue we receive from Agilent for existing collaboration
products may grow more slowly or decline.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amphora Discovery Corp., a related party and
    key customer, is a development stage company and we have no
    assurance of its continued purchases of our products and
    services.

Amphora, which is independently managed and
funded, has a significant on-going relationship with Caliper.
After Amphoras December 2002 completion of a second
private placement of securities with third party investors, our
ownership in Amphora was reduced to approximately 13% from 28%
on a fully diluted basis. Over time we expect that our ownership
in Amphora will be further diluted, as we have no plans to make
any future equity investments in Amphora. Due to the reduction
in our percentage ownership of Amphora, we now have the right to
appoint only one member to Amphoras board. Amphora is
currently Calipers largest automated drug discovery
customer representing 24% of our total revenue for 2002. As a
development stage company, there can be no assurances that
Amphora will become commercially successful or that in the near
term its business strategy will not change. If Amphora reduces
its purchases of products and services or stops using
Calipers drug discovery systems, we could experience a
significant decline in revenues. In connection with the
completion of Amphoras December 2002 financing, Caliper
and Amphora agreed to a renegotiation of Amphoras
obligations under the LabChip Solutions Agreement. Under the
renegotiated agreement, the Companies agreed to restructure the
$4 million minimum datapoint payment for 2002 as follows:
Amphora agreed to purchase a minimum of $1.8 million of
datapoints during the second year of the agreement beginning in
December 2002 and over time to make up to $2.2 million of
deferred payments to Caliper. These deferred payments are
contingent upon Amphoras future revenue generation,
datapoint production and other conditions and can be satisfied
by Amphora under three methods: i) quarterly payments to
Caliper based on Amphoras revenues; ii) commissions
earned by Amphora as they provide certain

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marketing assistance to Caliper for
Calipers instruments; and iii) additional datapoint
payments if Amphora exceeds the certain minimum datapoint
levels. We also agreed to defer to December 31, 2003
Amphoras obligation to purchase the one remaining
Caliper 250 instrument of the 11 originally scheduled to be
purchased by Amphora before December 31, 2002. In
consideration for our agreement to this restructuring, Amphora
issued to Caliper 2.5 million shares of Amphora preferred
stock. We ascribed a nominal value of $25,000 to these shares as
Amphora is a privately held research and development company.




| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To the extent that Agilents sales of the
    Agilent 2100 Bioanalyzer and LabChip products are reduced
    for any reason, including competition from us or any of our
    future commercial partners, the future revenue we receive from
    Agilent would be reduced.

We receive revenue from Agilent based on a
formula for gross margin sharing on sales by Agilent of
instruments and chips developed under our collaboration
agreement. To the extent that Agilents sales of these
products after our agreement terminates is reduced for any
reason, including competition from us or any other commercial
partner of ours, then the revenue we would realized under the
terms of the Agilent agreement would be reduced. Further,
Agilent may decide for reasons wholly independent of competition
to reduce its sales efforts and/or pricing for these products.
If Agilent does so, our revenue may decline.



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Agilent determines that we may be violating
    a third-party patent, it may terminate sales of the
    Agilent 2100 Bioanalyzer, which will decrease our
    revenue.

Under our collaboration agreement with Agilent,
Agilent may elect at any time to stop developing, manufacturing
or distributing any product that it reasonably determines, on
the advice of counsel, poses a substantial risk of infringing a
third-party patent. For example, if a third-party claims that we
are violating its patent, then Agilent may terminate marketing
and selling of the Agilent 2100 Bioanalyzer system, which
Agilent began marketing in September 1999, which will decrease
our future revenue.



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

Third parties may assert infringement or other
intellectual property claims against us. We may have to pay
substantial damages, including treble damages, for past
infringement if it is ultimately determined that our products
infringe a third partys proprietary rights. Further, we
may be prohibited from selling our products before we obtain a
license, 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. We
are aware of third-party patents that may relate to our
technology or potential products. We have also been notified
that a third party has attempted to provoke an interference with
one issued U.S. patent that we have exclusively licensed to
determine the priority of inventions. Any public announcements
related to litigation or interference proceedings initiated or
threatened against us could cause our stock price to decline. In
2001, we settled intellectual property litigation with Aclara
concerning one family of Aclara patents. However, Aclara could
assert other patent infringement claims against us in the future
in alternative dispute resolution proceedings established under
our settlement agreement.



| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 the patent
infringement suit against Molecular Devices Corporation as
described under Part I  Item 3. Legal
Proceedings. These lawsuits could be expensive, take
significant time, and could 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 these
third parties to assert

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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.

In addition to patents, we rely on a combination
of trade secrets, copyright and trademark laws, 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 outside of
the United States. We also realize that our trade secrets may
become known through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual
property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior
to our technology and products without infringing on any of our
intellectual property rights or design around our proprietary
technologies. For further information on our intellectual
property and the difficulties in protecting it, see
Part I  Item 1. Business 
Intellectual Property.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Agilent may compete with us if our
    collaboration terminates after May 2003, which could reduce the
    potential revenue from our independent product sales.

We notified Agilent in May 2002 of our election
to terminate the agreement between the companies as of May 2003.
Under the terms of our agreement with Agilent, when our
agreement terminates in May 2003, we will grant to Agilent a
non-exclusive, royalty-bearing license to our LabChip
technologies as then developed for Agilent to develop, make and
sell products in the field of the collaboration. Consequently,
there is the possibility that we may experience competition from
Agilent after May 2003, which would reduce our ability to sell
products independently or through other commercial partners.



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have limited experience in manufacturing
    our products and may encounter manufacturing problems or delays,
    which could result in lost revenue.

Although Agilent manufactures the
Agilent 2100 Bioanalyzer, we manufacture the chips used in
this instrument and also currently manufacture instruments and
sipper chips for our drug discovery systems. We currently have
limited manufacturing capacity for our LabChip and automated
drug discovery system products and experience variability in
manufacturing yields for chips and automated drug discovery
products. If we fail to deliver chips and automated drug
discovery products in a timely manner, our relationships with
our customers could be seriously harmed, and revenue would
decline. We currently have one manufacturing location in
Mountain View, California. The actual number of chips we are
able to sell or use depends in part upon the manufacturing
yields for these chips. We have only recently begun to
manufacture significant numbers of sipper chips and are
continuing to develop our manufacturing procedures for these
chips. In order to offer sipper chips with more than four
capillaries for drug discovery applications, we will need to
continue to achieve consistently high yields in this process. We
have experienced difficulties in manufacturing both our chips
and instruments. We cannot assure you that manufacturing or
quality problems will not arise as we attempt to scale-up our
production of chips or that we can scale-up manufacturing in a
timely manner or at commercially reasonable costs. If we are
unable to consistently manufacture sipper chips or chips for the
Agilent 2100 Bioanalyzer on a timely basis because of these
or other factors, our product sales will decline. We

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are currently manufacturing drug discovery
instruments in-house and in limited volumes. If demand for our
drug discovery instruments increases significantly, we will
either need to expand our in-house manufacturing capabilities or
outsource to other manufacturers. Our ability to scale-up
manufacturing may be compromised by uncertainty regarding the
volume of chips for the Agilent 2100 Bioanalyzer that we
will need to supply to Agilent in the future. When our exclusive
collaboration with Agilent terminates in May 2003 pursuant to
the notice we have delivered to Agilent, Agilent will have the
option to manufacture chips itself rather than continue to
receive its supply of chips from Caliper. Accordingly, we will
face uncertainty regarding future demand for these chips from
our manufacturing operations.




| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on a single-source supplier
    for our glass and if we are unable to buy this component on a
    timely basis, we will not be able to deliver our products to
    customers.

We currently purchase a key component for our
chips from a single-source supplier located in Germany. Although
we keep surplus inventory in our Mountain View manufacturing
facility, if we are unable to replenish this component on a
timely basis, we will not be able to deliver our chips to our
customers, which would harm our business.



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

We are highly dependent on the principal members
of our management and scientific staff. The loss of services 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
business is located in Silicon Valley, California, where demand
for personnel with these skills is extremely high and is likely
to remain high despite the current economic climate. 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.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If a natural disaster strikes our
    manufacturing facility we would be unable to manufacture our
    products for a substantial amount of time and we would
    experience lost revenue.

We rely on a single manufacturing location to
produce our chips and drug discovery systems, and have no
alternative facilities. The facility and some pieces of
manufacturing equipment are difficult to replace and could
require substantial replacement lead-time. Our manufacturing
facility may be affected by natural disasters such as
earthquakes and floods. Earthquakes are of particular
significance since the manufacturing facility is located in
Mountain View, California, an earthquake-prone area. In the
event our existing manufacturing facility or equipment is
affected by man-made or natural disasters, we would be unable to
manufacture products for sale, meet customer demands or sales
projections. If our manufacturing operations were curtailed or
ceased, it would harm our business.



| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to raise additional capital or
    generate the significant capital necessary to expand our
    operations and invest in new products could reduce our ability
    to compete and result in lower revenue.

We anticipate that our existing capital resources
will enable us to maintain currently planned operations at least
through the year 2004. However, we premise this expectation on
our current operating plan, which may change as a result of many
factors. Consequently, we may need additional funding sooner
than anticipated. Our inability to raise needed capital would
seriously harm our business and product development efforts. In
addition, we may choose to raise additional capital due to
market conditions or strategic considerations even if we believe
we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through
the sale of equity or convertible debt securities, the issuance
of these securities could result in dilution to our stockholders.

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We currently have no credit facility or committed
sources of capital. To the extent operating and capital
resources are insufficient to meet future requirements, we will
have to raise additional funds to continue the development and
commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are
not available on attractive terms, we may be required to curtail
operations significantly or to obtain funds by entering into
financing, supply or collaboration agreements on unattractive
terms.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Potential acquisitions may have unexpected
    consequences or impose additional costs on us.

Our business is dependent upon growth in the
market for microfluidic products and our ability to enhance our
existing products and introduce new products on a timely basis.
One of the ways we may address the need to develop new products
is through acquisitions of complementary businesses and
technologies. From time to time, we may consider and evaluate
potential acquisitions or business combinations, which may
include a possible merger or consolidation of our business with
another entity. We may engage in discussions relating to these
types of transactions in the future. Acquisitions involve
numerous risks, including the following:



| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in integration of the operations,
    technologies, and products of the acquired companies;                                                      
|
| |  | the risk of diverting managements attention
    from normal daily operations of the business;                                                                
|
| |  | accounting consequences, including charges for
    in-process research and development expenses, resulting in
    variability in our quarterly earnings;      
|
| |  | potential difficulties in completing projects
    associated with purchased in-process research and development;                                              
|
| |  | risks of entering markets in which we have no or
    limited direct prior experience and where competitors in such
    markets have stronger market positions;
|
| |  | the potential loss of key employees of the
    acquired company; and                                                                                          
|
| |  | the assumption of unforeseen liabilities of the
    acquired company.                                                                                         

We cannot assure you that future acquisitions or
business combinations in which we are involved, if any, will be
successful and will not adversely affect our financial condition
or results of operations. Failure to manage growth effectively
and successfully integrate acquisitions we make could harm our
business and operating results.



| |                                             
| | --------------------------------------------
| | Risks Related to Owning Our Common
    Stock



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our stock price is extremely volatile, and you
    could lose a substantial portion of your investment.

Our stock has been trading on the Nasdaq National
Market only since mid-December 1999. We initially offered our
common stock to the public at $16.00 per share. Since then our
stock price has been extremely volatile and has ranged, through
March 20, 2003, from a high of approximately $202.00 per
share on March 2, 2000 to a low of $2.71 per share both on
January 28, 2003 and February 6, 2003. Our stock price
may drop substantially following an investment in our common
stock. We expect that our stock price will remain volatile as a
result of a number of factors, including:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | announcements by analysts regarding their
    assessment of Caliper and its prospects;                       
|
| |  | announcements by our competitors of complementary
    or competing products and technologies;                
|
| |  | announcements of our financial results,
    particularly if they differ from investors expectations;
    and
|
| |  | general market volatility for technology stocks.                                                             



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | We have been sued in the past, and are at risk
    of future securities class action litigation.

In the Spring and Summer of 2001, class action
lawsuits were filed against certain leading investment banks and
over 300 companies that did public offerings during the prior
several years, including lawsuits

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against Caliper and certain of its officers and
directors. See Part I  Item 3. Legal
Proceedings for a description of these lawsuits. Other
securities litigation could result in potential liability, cause
us to incur litigation costs and divert managements
attention and resources, any of which could harm our business.
In addition, announcements of future lawsuits of this or some
other nature, and announcements of events occurring during the
course of the current and any future lawsuits, could cause our
stock price to drop.




| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Concentration of ownership among our existing
    executive officers, directors and principal stockholders may
    prevent new investors from influencing significant corporate
    decisions.

As of December 31, 2002, our directors,
entities affiliated with our directors, our executive officers
and principal stockholders beneficially own, in the aggregate
approximately 31% of our outstanding common stock. These
stockholders as a group are able to substantially influence the
management and affairs of Caliper and, if acting together, would
be able to influence most matters requiring the approval by our
stockholders, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets
and any other significant corporate transaction. The
concentration of ownership may also delay or prevent a change of
control of Caliper at a premium price if these stockholders
oppose it.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. In addition, because we are
incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law. These
provisions may prohibit large stockholders, in particular those
owning 15% or more of the outstanding voting stock, from
consummating a merger or combination including us. These
provisions could limit the price that investors might be willing
to pay in the future for our common stock.






|    |                                                               
|--- | --------------------------------------------------------------
|7A. | Quantitative and Qualitative Disclosures
    About Market Risk

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. Some of the securities that we
invest in may have interest rate market risk. This means that a
change in prevailing interest rates may cause the principal
amount of the investment to fluctuate. For example, if we hold a
security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later
rises, the fair value of our investment will probably decline.
Declines of interest rates over time will reduce our interest
income from our investments. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents
and investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt
securities. All of these instruments are held other than for
trading purposes.

The table below presents our investment portfolio
by expected maturity and related weighted average interest rates
at December 31, 2002:

|                                          |            |                       |        |        |      |      |        |        |      |                   |        |        |      |   |         |         |      |   |         |         |  | 
|----------------------------------------- | ---------- | --------------------- | ------ | ------ | ---- | ---- | ------ | ------ | ---- | ----------------- | ------ | ------ | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  | 
|                                          |            |                       |        |        |      |      |        |        |      | Fair Value       
|                                          |            | 2003                  |        | 2004   |      | 2005 |        | Total  |      | December 31, 2002
|                                          |            |                       |        |        |      |      |        |        |      |                  
|Cash and money market funds:              |            |                       |        |        |      |      |        |        |      |                   |        |        |      |   |         |         |      |   |         |        
|                                          | Fixed rate |                       | $      | 16,184 |      |      |        |       |      |                   |        |       |      |   | $       | 16,184  |      |   | $       | 16,184  | 
|                                          |            | Average interest rate |        |        | 1.29 | %    |        |        |     |                   |        |        |     |   |         |         | 1.29 | % |         |         |  | 
|Available for sale marketable securities: |            |                       |        |        |      |      |        |        |      |                   |        |        |      |   |         |         |      |   |         |        
|                                          | Fixed rate |                       | $      | 40,397 |      |      | $      | 55,299 |      |                   | $      | 19,611 |      |   | $       | 115,307 |      |   | $       | 116,809 | 
|                                          |            | Average interest rate |        |        | 3.88 | %    |        |        | 4.47 | %                 |        |        | 4.85 | % |         |         | 4.32 | % |         |         |  | 
|Variable rate                             |            | $                     | 7,308  |        |      | $    | 6,249  |        |      | $                 | 7,758  |        |      | $ | 21,315  |         |      | $ | 21,330  |        
|                                          |            | Average interest rate |        |        | 1.70 | %    |        |        | 1.92 | %                 |        |        | 1.68 | % |         |         | 1.76 | % |         |         |  | 
|Total securities                          |            | $                     | 63,889 |        |      | $    | 61,548 |        |      | $                 | 27,369 |        |      | $ | 152,806 |         |      | $ | 154,323 |        
|                                          |            | Average interest rate |        |        | 2.97 | %    |        |        | 4.21 | %                 |        |        | 3.92 | % |         |         | 3.63 | % |         |         |  | 

47



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##### Table of Contents



Our equipment sale-leaseback financings,
amounting to $4.4 million as of December 31, 2002, are
all at fixed rates and therefore, have minimal exposure to
changes in interest rates.

We have operated primarily in the United States
and substantially all sales to date have been made in U.S.
dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.




Item 8.     Financial
Statements and Supplementary Data

The Report of Independent Auditors, Consolidated
Financial Statements and Notes to Consolidated Financial
Statements begin on page F-1 immediately following the
signature page and certifications in this report and are
incorporated here by reference, including the unaudited
quarterly information for the last two years in Note 18.




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

None.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

Information concerning our directors is
incorporated by reference to the section entitled Proposal
1  Election of Directors contained in our
definitive Proxy Statement with respect to our Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission not later than April 30, 2003 (the Proxy
Statement). Information concerning our Executive Officers
is set forth under Executive Officers of the
Registrant in Part I of this Annual Report on
Form 10-K and is incorporated herein by reference.
Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference to
the section entitled Section 16(a) Beneficial
Ownership Reporting Compliance contained in our Proxy
Statement.




Item 11.     Executive
Compensation

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Stockholders.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Stockholders.




Item 13.     Certain
Relationships and Related Transactions

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Stockholders.




Item 14.     Controls
and Procedures

Limitations on the Effectiveness of Controls.Our management, including the Chief
Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls and procedures or our internal
controls will provide absolute assurance that all errors will be
detected. 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. 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 Caliper 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

48



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##### Table of Contents



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.


Evaluation of Disclosure Controls and
Procedures.As of December 31,
2002, an evaluation was performed under the supervision and with
the participation of management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and
procedures. Based on that evaluation, our management, including
the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were
effective as of December 31, 2002. There have been no
significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to
December 31, 2002.

Consistent with Section 10A(i)(2) of the
Securities Exchange Act of 1934, as added by Section 202 of
the Sarbanes-Oxley Act of 2002, we are responsible for listing
the non-audit services approved by our Audit Committee to be
performed by Ernst & Young LLP, our independent
auditor. Non-audit services are defined as services other than
those provided in connection with an audit or a review of our
financial statements. The only non-audit services approved by
our Audit Committee to be performed by Ernst & Young
LLP are the preparation of tax returns, and tax advice in
preparing for and in connection with such filings.




PART IV




Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

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



| |                          
| | -------------------------
| | (1) Financial Statements:

|                                                                                                 |                                                                   |      |     |     | 
|------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | ---- | --- | --- | 
|                                                                                                 |                                                                   | Page
|                                                                                                 |                                                                   |     
|Report of Ernst & Young LLP, Independent
    Auditors                                            |                                                                   |      | F-2 |    
|Consolidated Balance Sheets at December 31,
    2002 and 2001                                    |                                                                   |      | F-3 |    
|Consolidated Statements of Operations 
    For the Years ended December 31, 2002, 2001 and 2000 |                                                                   |      | F-4 |    
|Consolidated Statement Stockholders                                                             |                                                                   |      |     |    
|                                                                                                 | Equity  For the Years ended
    December 31, 2002, 2001 and 2000 |      |     | F-5 | 
|Consolidated Statements of Cash flows 
    For the Years ended December 31, 2002, 2001 and 2000 |                                                                   |      | F-6 |    
|Notes to Consolidated Financial Statements                                                       |                                                                   |      | F-7 |    



| |                                   
| | ----------------------------------
| | (2) Financial Statement Schedules:

Schedule II, Valuation and Qualifying
Accounts is included on page F-37 of this report. All
other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.

49



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##### Table of Contents





| |                  
| | -----------------
| | (3)     Exhibits:

|               |                 |                         |  |                                                                                                                                                                            
|-------------- | --------------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |                 | Description of Document
|               |                 |                        
|               | 3.1(1)          |                         |  | Amended and Restated Certificate of Incorporation
    of Caliper.                                                                                                          
|               | 3.2(12)         |                         |  | Certificate of Designation Of Series A
    Junior Participating Preferred Stock.                                                                                           
|               | 3.3(2)          |                         |  | Bylaws of Caliper.                                                                                                                                                         
|               | 3.4             |                         |  | Amendment No. 1 to Bylaws of Caliper.                                                                                                                                      
|               | 4.1             |                         |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and
    3.4.                                                                                                                   
|               | 4.2(3)          |                         |  | Specimen Stock Certificate.                                                                                                                                                
|               | 4.3(12)         |                         |  | Rights Agreement, dated as of December 18,
    2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as
    Rights Agent.                                            
|               | 10.1(3)         |                         |  | Lease Agreement, dated December 1, 1998,
    between Caliper and 605 East Fairchild Associates, L.P.                                                                       
|               | 10.2(3)(4)      |                         |  | 1996 Equity Incentive Plan.                                                                                                                                                
|               | 10.3(3)(4)(17)  |                         |  | 1999 Equity Incentive Plan.                                                                                                                                                
|               | 10.4(3)(4)(17)  |                         |  | 1999 Employee Stock Purchase Plan.                                                                                                                                         
|               | 10.5(3)(4)      |                         |  | 1999 Non-Employee Directors Stock Option
    Plan.                                                                                                                        
|               | 10.6(3)(4)(17)  |                         |  | Employment Agreement, dated January 18,
    1999, between Caliper and Daniel L. Kisner, M.D.                                                                               
|               | 10.7(3)(4)(17)  |                         |  | Promissory Note, dated July 29, 1999,
    between Caliper and Daniel L. Kisner, M.D.                                                                                       
|               | 10.8(3)         |                         |  | Amended and Restated Investor Rights Agreement,
    dated May 7, 1998, among Caliper and certain stockholders
    of Caliper.                                              
|               | 10.9(3)(4)      |                         |  | Form of Indemnification Agreement entered into
    between Caliper and its directors and executive officers.                                                               
|               | 10.10(3)(5)     |                         |  | Collaboration Agreement, dated May 2, 1998,
    between Caliper and Hewlett-Packard Company (now Agilent).                                                                 
|               | 10.12(3)(5)     |                         |  | Technology Access Agreement, dated
    December 21, 1998, between Caliper and Amgen, Inc.                                                                                  
|               | 10.13(3)(5)     |                         |  | Technology Access Agreement, dated
    August 12, 1999, between Caliper and Eli Lilly and Company.                                                                         
|               | 10.15(3)(5)     |                         |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between Lockheed Martin Energy
    Research Corporation and Caliper, as amended (domestic).     
|               | 10.16(3)(5)     |                         |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between Lockheed Martin Energy
    Research Corporation and Caliper, as amended (international).
|               | 10.17(3)(4)     |                         |  | Consulting Agreement, dated April 30, 1997,
    between Caliper and Dr. David V. Milligan.                                                                                 
|               | 10.18(3)(4)(17) |                         |  | Employment Agreement, dated September 23,
    1999, between Caliper and James L. Knighton.                                                                                 
|               | 10.19(3)(4)     |                         |  | Consulting Agreement, dated May 1, 1997,
    between Caliper and Regis McKenna.                                                                                            
|               | 10.20(3)(4)(17) |                         |  | Promissory Note, dated March 25, 1997,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                     
|               | 10.21(3)(4)(17) |                         |  | Option Agreement, dated August 9, 1995,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                    
|               | 10.22(3)(4)(17) |                         |  | Amendment to Option Agreement, dated
    August 25, 1995, between Caliper, Michael R.
    Knapp, Ph.D., J. Michael Ramsey, Ph.D. and Avalon
    Medical Partners.          
|               | 10.23(3)(4)     |                         |  | The Corporate Plan for Retirement Select Plan
    Adoption Agreement and related Basic Plan Document.                                                                      
|               | 10.24(6)(17)    |                         |  | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated October 11,
    1996.                                                             

50



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|               |                 |                         |  |                                                                                                                                                                                                                                                                           
|-------------- | --------------- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |                 | Description of Document
|               |                 |                        
|               | 10.25(6)(17)    |                         |  | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated February 2,
    2000.                                                                                                                                                            
|               | 10.26(5)(7)     |                         |  | Technology Access and Applications Development
    Agreement, dated March 24, 2000, between Caliper and
    Millennium Pharmaceuticals, Inc.                                                                                                                              
|               | 10.27(8)        |                         |  | Lease Agreement, dated June 23, 2000 and
    effective July 5, 2000, between Caliper and Martin CBP
    Associates, L.P.                                                                                                                                                  
|               | 10.28(8)(17)    |                         |  | Promissory Note, dated July 17, 2000,
    between Caliper and Daniel L. Kisner, M.D.                                                                                                                                                                                      
|               | 10.29(4)(9)(17) |                         |  | Change of Control Sr. Mgmt Severance/ Equity
    Acceleration Plan.                                                                                                                                                                                                       
|               | 10.30(5)(10)    |                         |  | Cross-License Agreement, dated March 12,
    2001 by and among Aclara Biosciences, Inc. and Caliper.                                                                                                                                                                      
|               | 10.31(10)       |                         |  | Common Stock Issuance Agreement, dated
    March 22, 2001.                                                                                                                                                                                                                
|               | 10.32(5)(10)    |                         |  | Settlement Agreement and Mutual General Release,
    dated March 12, 2001 by and among Aclara Biosciences, Inc.
    and Caliper.                                                                                                                                          
|               | 10.33(5)(11)    |                         |  | LabChip Solutions Agreement, dated as of
    September 21, 2001, by and between Amphora Discovery Corp.
    and Caliper.                                                                                                                                                  
|               | 10.34(4)(11)    |                         |  | Consulting Agreement, entered into as of the 8th
    day of October 2001 by and between Amphora Discovery Corp., and
    Michael R. Knapp.                                                                                                                                
|               | 10.35(4)(11)    |                         |  | Restricted Stock Purchase Agreement, entered into
    as of October 8, 2001, by and between Amphora Discovery
    Corp. and Michael R. Knapp.                                                                                                                             
|               | 10.36(4)(11)    |                         |  | Consulting Agreement, entered into as of the 14th
    day of October 2001 by and between Amphora Discovery Corp., and
    James L. Knighton.                                                                                                                              
|               | 10.37(4)(11)    |                         |  | Restricted Stock Purchase Agreement, entered into
    as of October 14, 2001, by and between Amphora Discovery
    Corp. and James L. Knighton.                                                                                                                           
|               | 10.38(5)(11)    |                         |  | Technology Access Agreement Amendment, dated
    August 20, 2001, by and between Caliper and Eli Lilly and
    Company, amending Technology Access Agreement dated
    August 12, 1999.                                                                                   
|               | 10.39(13)(17)   |                         |  | 2001 Non-Statutory Stock Option Plan.                                                                                                                                                                                                                                     
|               | 10.40(14)(17)   |                         |  | Separation Agreement, dated August 9, 2001,
    between Caliper and Calvin Y.H. Chow.                                                                                                                                                                                     
|               | 10.41(5)(14)    |                         |  | Technology Access Agreement Amendment, dated
    December 14, 2001, by and between Caliper and Amgen, Inc.,
    amending Technology Access Agreement dated December 21,
    1998.                                                                                         
|               | 10.42(14)       |                         |  | Amendment No. 2 to Technology Access
    Agreement, dated December 18, 2001, by and between Caliper
    and Amgen, Inc., amending Technology Access Agreement dated
    December 21, 1998.                                                                                
|               | 10.43(5)(14)    |                         |  | Technology Access and Applications Development
    Agreement Amendment, dated December 19, 2001, by and
    between Caliper and Millennium Pharmaceuticals, Inc., amending
    Technology Access and Applications Development Agreement dated
    March 24, 2000.         
|               | 10.44(14)       |                         |  | Amendment No. 2 to Technology Access and
    Applications Development Agreement, dated February 28,
    2002, by and between Caliper and Millennium Pharmaceuticals,
    Inc., amending Technology Access and Applications Development
    Agreement dated March 24, 2000.
|               | 10.45(15)(17)   |                         |  | Offer Letter, dated April 24, 2002, between
    Caliper and Bruce E. MacMillan.                                                                                                                                                                                           
|               | 10.46(15)(17)   |                         |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Michael R. Knapp                                                                                                                                                                                      
|               | 10.47(15)(17)   |                         |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and James L. Knighton                                                                                                                                                                                     
|               | 10.48(16)(17)   |                         |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Dr. Daniel Kisner                                                                                                                                                                                     

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|               |               |                         |  |                                                                                                                                                                                                                        
|-------------- | ------------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |               | Description of Document
|               |               |                        
|               | 10.49(16)(17) |                         |  | Separation Agreement, dated July 29, 2002,
    between Caliper and J. Wallace Parce                                                                                                                                    
|               | 10.50(17)     |                         |  | Offer Letter and Addendum, dated
    November 13, 2001, between Caliper and Susan A. Evans                                                                                                                             
|               | 10.51(17)     |                         |  | Separation Agreement, dated November 1,
    2002, between Caliper and Susan A. Evans                                                                                                                                   
|               | 10.52(18)     |                         |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between UT-Battelle, LLC, the
    successor to Lockheed Martin Energy Research Corporation, and
    Caliper, as amended on November 1, 2002.
|               | 10.53(18)     |                         |  | Modification of LabChip Solutions Agreement,
    dated as of December 12, 2002, by and between Amphora
    Discovery Corp. and Caliper.                                                                                
|               | 23.1          |                         |  | Consent of Ernst & Young LLP, independent
    auditors.                                                                                                                                                                
|               | 24.1          |                         |  | Power of Attorney (reference is made to the
    signature page of this report).                                                                                                                                        
|               | 99.1          |                         |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                        
|               | 99.2          |                         |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                        



---



| |     |                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Previously filed as Exhibit 3.3 to our
    Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.                 
|
| | (2) | Previously filed as Exhibit 3.4 to our
    Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.                 
|
| | (3) | Previously filed as the like-numbered Exhibit to
    our Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.   
|
| | (4) | Management contract or compensatory plan or
    arrangement.                                                                                                                                           
|
| | (5) | Confidential treatment has been granted for a
    portion of this exhibit.                                                                                                                             
|
| | (6) | Filed as the like-numbered exhibit to Annual
    Report of Form 10-K for the year ended December 31,
    1999 and incorporated by reference herein.                                                    
|
| | (7) | Previously filed as Exhibit 10.26 to
    Form 10-Q for the quarterly period ended March 31,
    2000 and incorporated by reference herein.                                                             
|
| | (8) | Previously filed as the like-numbered Exhibit to
    our Registration Statement on Form S-1, as amended, File
    No. 333-45942, filed on September 15, 2000, and
    incorporated by reference herein.
|
| | (9) | Previously filed as the like-numbered Exhibit to
    Form 10-K/A for the year ended December 31, 2000 and
    incorporated by reference herein.                                                        



|     |                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended March 31,
    2001 and incorporated by reference herein.                  
|    
|(11) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2001 and incorporated by reference herein.              
|    
|(12) | Previously filed as Exhibit 99.1 to Current
    Report on Form 8-K filed December 19, 2001 and
    incorporated by reference herein.                                    
|    
|(13) | Previously filed as Exhibit 99.1 to our
    Registration Statement on Form S-8, File
    No. 333-76636, filed January 11, 2002 and incorporated
    by reference herein.
|    
|(14) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2001 and
    incorporated by reference herein.                           
|    
|(15) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2002
    and incorporated by reference herein.                   
|    
|(16) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2002 and incorporated by reference herein.              

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|     |                                                                                                                                                                    
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(17) | Designates a management contract or compensatory
    plan or arrangement required to be filed as an exhibit to this
    form pursuant to Item 15(c) of this report.
|    
|(18) | Confidential treatment has been requested for a
    portion of this exhibit.                                                                                       

(b) Reports on Form 8-K

On December 17, 2002, we filed a Current
Report regarding the restructuring of our contractual
relationship with Amphora Discovery Corp.

53



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 28, 2003.



| |                           
| | --------------------------
| | CALIPER TECHNOLOGIES CORP.
|
| | By: /s/ MICHAEL R. KNAPP  
| |                           
| | Michael R. Knapp, Ph.D.   
| | Chief Executive Officer   




POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each
person whose signature appears below constitutes and appoints
Michael R. Knapp, Ph.D., and James L. Knighton, and each or any
one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to
this Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                                 |  |                                                                                        |  |                |  | 
|------------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                 |  |                                                                                        |  |               
|Signatures                                       |  | Title                                                                                  |  | Date          
|                                                 |  |                                                                                        |  |               
|/s/ MICHAEL R. KNAPPMichael R. Knapp, Ph.D.      |  | Chief Executive Officer and Director (principal
    executive officer)                 |  | March 28, 2003
|                                                
|/s/ JAMES L. KNIGHTONJames L. Knighton           |  | President and Chief Financial Officer (principal
    financial officer)                |  | March 28, 2003
|                                                
|/s/ ANTHONY T. HENDRICKSONAnthony T. Hendrickson |  | Vice President Finance
    and Corporate Controller
    (principal accounting officer) |  | March 28, 2003
|                                                
|/s/ DANIEL L. KISNERDaniel L. Kisner, M.D.       |  | Chairman of the
    Board of Directors                                                 |  | March 28, 2003
|                                                
|/s/ DAVID V. MILLIGANDavid V. Milligan, Ph.D.    |  | Vice Chairman of the
    Board of Directors                                            |  | March 28, 2003
|                                                
|/s/ ROBERT C. BISHOPRobert C. Bishop, Ph.D.      |  | Director                                                                               |  | March 28, 2003

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|                                            |  |          |  |                |  | 
|------------------------------------------- |  | -------- |  | -------------- |  | 
|                                            |  |          |  |               
|Signatures                                  |  | Title    |  | Date          
|                                            |  |          |  |               
|                                           
|/s/ ANTHONY B. EVNINAnthony B. Evnin, Ph.D. |  | Director |  | March 28, 2003
|                                           
|/s/ REGIS P. MCKENNARegis P. McKenna        |  | Director |  | March 28, 2003
|                                           
|/s/ ROBERT T. NELSENRobert T. Nelsen        |  | Director |  | March 28, 2003

55



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CERTIFICATIONS

I, Michael R. Knapp, Ph.D., certify that:

1.     I have reviewed
this annual report on Form 10-K of Caliper Technologies
Corp.;

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

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

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



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

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



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

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



| |                        
| | -----------------------
| | /s/ MICHAEL R. KNAPP   
| |                        
| | Michael R. Knapp, Ph.D.
| | Chief Executive Officer

Date: March 28, 2003

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I, James L. Knighton, certify that:

1.     I have reviewed
this annual report on Form 10-K of Caliper Technologies
Corp.;

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

3.     Based on my
knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

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



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

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



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

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



| |                                          
| | -----------------------------------------
| | /s/ JAMES L. KNIGHTON                    
| |                                          
| | James L. Knighton                        
| | President and Chief Financial
    Officer

Date:     March 28,
2003

57



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

INDEX TO FINANCIAL STATEMENTS

|                                                      |  |      |     | 
|----------------------------------------------------- |  | ---- | --- | 
|                                                      |  | Page
|                                                      |  |     
|Report of Ernst & Young LLP, Independent
    Auditors |  |      | F-2 | 
|Consolidated Balance Sheets                           |  |      | F-3 | 
|Consolidated Statements of Operations                 |  |      | F-4 | 
|Consolidated Statement of Stockholders
    Equity    |  |      | F-5 | 
|Consolidated Statements of Cash Flows                 |  |      | F-6 | 
|Notes to Consolidated Financial Statements            |  |      | F-7 | 

F-1



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Caliper Technologies Corp.


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

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Caliper Technologies Corp. at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Also in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Palo Alto, California

January 28, 2003


F-2



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

CONSOLIDATED BALANCE SHEETS

|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |         |         | 
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                  |                                                                                                                                                                               |                           
|                                                  |                                                                                                                                                                               | December 31,              
|                                                  |                                                                                                                                                                               |                           
|                                                  |                                                                                                                                                                               | 2002                       |         | 2001   
|                                                  |                                                                                                                                                                               |                            |         |        
|                                                  |                                                                                                                                                                               |                           
|                                                  |                                                                                                                                                                               | (In thousands, except     
|                                                  |                                                                                                                                                                               | share and per share data) 
|ASSETS                                           
|Current assets:                                   |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  | Cash and cash equivalents                                                                                                                                                     |                            | $       | 16,184  |         |   | $       | 10,655  |        
|                                                  | Marketable securities                                                                                                                                                         |                            |         | 138,139 |         |   |         | 155,521 |        
|                                                  | Accounts receivable, net of allowance for
    doubtful accounts of $119,000 at December 31, 2002                                                                              |                            |         | 1,754   |         |   |         | 1,130   |        
|                                                  | Accounts receivable  related party                                                                                                                                           |                            |         | 115     |         |   |         | 1,179   |        
|                                                  | Inventories                                                                                                                                                                   |                            |         | 5,964   |         |   |         | 3,411   |        
|                                                  | Prepaid expenses and other current assets                                                                                                                                     |                            |         | 1,508   |         |   |         | 2,311   |        
|                                                  | Investment in Aclara common stock                                                                                                                                             |                            |         |        |         |   |         | 4,563   |        
|                                                  | Other receivable                                                                                                                                                              |                            |         |        |         |   |         | 26,949  |        
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  |                                                                                                                                                                               | Total current assets       |         |         | 163,664 |   |         |         | 205,719 | 
|Security deposits                                 |                                                                                                                                                                               |                            | 3,000   |         |         |   | 3,200   |        
|Property and equipment, net                       |                                                                                                                                                                               |                            | 12,545  |         |         |   | 12,581  |        
|Notes receivable from officers                    |                                                                                                                                                                               |                            | 215     |         |         |   | 475     |        
|Other assets, net                                 |                                                                                                                                                                               |                            | 454     |         |         |   | 568     |        
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  |                                                                                                                                                                               | Total assets               |         | $       | 179,878 |   |         | $       | 222,543 | 
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY         
|Current liabilities:                              |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  | Accounts payable                                                                                                                                                              |                            | $       | 1,227   |         |   | $       | 1,808   |        
|                                                  | Accrued compensation                                                                                                                                                          |                            |         | 2,458   |         |   |         | 3,135   |        
|                                                  | Other accrued liabilities                                                                                                                                                     |                            |         | 1,110   |         |   |         | 357     |        
|                                                  | Deferred revenue                                                                                                                                                              |                            |         | 874     |         |   |         | 3,082   |        
|                                                  | Current portion of sale-leaseback arrangements                                                                                                                                |                            |         | 2,412   |         |   |         | 2,027   |        
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  |                                                                                                                                                                               | Total current liabilities  |         |         | 8,081   |   |         |         | 10,409  | 
|Noncurrent portion of sale-leaseback arrangements |                                                                                                                                                                               |                            | 1,986   |         |         |   | 3,749   |        
|Deferred revenue                                  |                                                                                                                                                                               |                            | 267     |         |         |   | 221     |        
|Other noncurrent liabilities                      |                                                                                                                                                                               |                            | 1,986   |         |         |   | 1,600   |        
|Commitments and contingencies                     |                                                                                                                                                                               |                            |         |         |         |   |         |        
|Stockholders equity:                             |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  | Preferred stock, $0.001 par value; 5,000,000
    shares authorized in 2002 and 2001; no shares issued and
    outstanding in 2002 and 2001                                    |                            |         |        |         |   |         |        |        
|                                                  | Common stock, $0.001 par value; 70,000,000 shares
    authorized in 2002 and 2001; 24,694,451 and 24,200,097 shares
    issued and outstanding in 2002 and 2001, respectively |                            |         | 25      |         |   |         | 24      |        
|                                                  | Additional paid-in capital                                                                                                                                                    |                            |         | 252,219 |         |   |         | 251,357 |        
|                                                  | Deferred stock compensation                                                                                                                                                   |                            |         | (637    | )       |   |         | (2,232  | )      
|                                                  | Accumulated deficit                                                                                                                                                           |                            |         | (85,566 | )       |   |         | (44,602 | )      
|                                                  | Accumulated other comprehensive income                                                                                                                                        |                            |         | 1,517   |         |   |         | 2,017   |        
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  |                                                                                                                                                                               | Total stockholders equity |         |         | 167,558 |   |         |         | 206,564 | 
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        
|                                                  |                                                                                                                                                                               | $                          | 179,878 |         |         | $ | 222,543 |        
|                                                  |                                                                                                                                                                               |                            |         |         |         |   |         |        

See accompanying notes.

F-3



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |        |        | 
|-------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                         |                                                         |                                      
|                                                                                                         |                                                         | Years Ended December 31,             
|                                                                                                         |                                                         |                                      
|                                                                                                         |                                                         | 2002                                  |         | 2001   |        | 2000
|                                                                                                         |                                                         |                                       |         |        |        |     
|                                                                                                         |                                                         |                                      
|                                                                                                         |                                                         | (In thousands, except per share data)
|Revenue:                                                                                                 |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                         | Product revenue                                         |                                       | $       | 10,378 |        |      | $       | 8,799  |        |   | $       | 3,201  |       
|                                                                                                         | Related party revenue                                   |                                       |         | 6,155  |        |      |         | 3,912  |        |   |         |       |       
|                                                                                                         | License fees and contract revenue                       |                                       |         | 9,300  |        |      |         | 16,877 |        |   |         | 15,363 |       
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                         |                                                         | Total revenue                         |         |        | 25,833 |      |         |        | 29,588 |   |         |        | 18,564 | 
|Costs and expenses:                                                                                      |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                         | Cost of product revenue                                 |                                       |         | 7,906  |        |      |         | 4,784  |        |   |         | 2,519  |       
|                                                                                                         | Cost of product revenue  related party                 |                                       |         | 3,021  |        |      |         | 2,103  |        |   |         |       |       
|                                                                                                         | Research and development                                |                                       |         | 43,317 |        |      |         | 38,263 |        |   |         | 33,478 |       
|                                                                                                         | Selling, general and administrative                     |                                       |         | 17,534 |        |      |         | 15,545 |        |   |         | 9,787  |       
|                                                                                                         | Amortization of deferred stock compensation,
    net(1) |                                       |         | 378    |        |      |         | 2,540  |        |   |         | 4,545  |       
|                                                                                                         | Restructuring charges                                   |                                       |         | 314    |        |      |         |       |        |   |         |       |       
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|                                                                                                         |                                                         | Total costs and expenses              |         |        | 72,470 |      |         |        | 63,235 |   |         |        | 50,329 | 
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Operating loss                                                                                           |                                                         |                                       | (46,637 | )      |        |      | (33,647 | )      |        |   | (31,765 | )     
|                                                                                                         | Interest income                                         |                                       |         | 7,617  |        |      |         | 12,047 |        |   |         | 8,088  |       
|                                                                                                         | Interest expense                                        |                                       |         | (642   | )      |      |         | (629   | )      |   |         | (620   | )     
|                                                                                                         | Other expense, net                                      |                                       |         | (1,302 | )      |      |         | (1,448 | )      |   |         |       |       
|                                                                                                         | Litigation settlement and reimbursement                 |                                       |         |       |        |      |         | 27,500 |        |   |         | 13,274 |       
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Income (loss) before cumulative effect of a
    change in accounting principle                           |                                                         |                                       | (40,964 | )      |        |      | 3,823   |        |        |   | (11,023 | )     
|Cumulative effect of a change in accounting
    principle                                                |                                                         |                                       |        |        |        |      |        |        |        |   | (2,294  | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Net income (loss)                                                                                        |                                                         | $                                     | (40,964 | )      |        | $    | 3,823   |        |        | $ | (13,317 | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Net income (loss) per share, basic:                                                                      |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Income (loss) before cumulative effect of a
    change in accounting principle                           |                                                         | $                                     | (1.68   | )      |        | $    | 0.16    |        |        | $ | (0.50   | )     
|Cumulative effect of a change in accounting
    principle                                                |                                                         |                                       |        |        |        |      |        |        |        |   | (0.11   | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Net income (loss) per share, basic                                                                       |                                                         | $                                     | (1.68   | )      |        | $    | 0.16    |        |        | $ | (0.61   | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Shares used in computing net income (loss) per
    common share, basic                                   |                                                         |                                       | 24,403  |        |        |      | 23,997  |        |        |   | 21,853  |       
|Net income (loss) per share, diluted:                                                                    |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Income (loss) before cumulative effect of a
    change in accounting principle                           |                                                         | $                                     | (1.68   | )      |        | $    | 0.15    |        |        | $ | (0.50   | )     
|Cumulative effect of a change in accounting
    principle                                                |                                                         |                                       |        |        |        |      |        |        |        |   | (0.11   | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Net income (loss) per share, diluted                                                                     |                                                         | $                                     | (1.68   | )      |        | $    | 0.15    |        |        | $ | (0.61   | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Shares used in computing net income (loss) per
    share, diluted                                        |                                                         |                                       | 24,403  |        |        |      | 25,634  |        |        |   | 21,853  |       
|Pro forma amounts assuming the change in
    accounting principle was applied retroactively (unaudited): |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Net loss                                                                                                 |                                                         |                                       |         |        |        |      |         |        |        | $ | (11,023 | )     
|Net loss per share, basic and diluted                                                                    |                                                         |                                       |         |        |        |      |         |        |        | $ | (0.50   | )     
|                                                                                                         |                                                         |                                       |         |        |        |      |         |        |        |   |         |       
|Shares used in computing pro forma net loss per
    share, basic and diluted (unaudited)                 |                                                         |                                       |         |        |        |      |         |        |        |   | 21,853  |       



---



|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Amortization of deferred stock compensation, net,
    related to the following:

|                                    |       |   |      |     |  |   |       |       |  |   |       |       | 
|----------------------------------- | ----- | - | ---- | --- |  | - | ----- | ----- |  | - | ----- | ----- | 
|Research and development            |       | $ | (315 | )   |  | $ | 610   |       |  | $ | 1,601 |      
|Selling, general and administrative |       |   | 693  |     |  |   | 1,930 |       |  |   | 2,944 |      
|                                    |       |   |      |     |  |   |       |       |  |   |       |      
|                                    | Total |   | $    | 378 |  |   | $     | 2,540 |  |   | $     | 4,545 | 
|                                    |       |   |      |     |  |   |       |       |  |   |       |      

See accompanying notes.

F-4



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ---------- |  | ----------- | -- | ------------ |  | ------------- | ------- | ------------- |  | ------ | ------ | - |  | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                                                                                                    |  |                              
|                                                                                                                    |  | Stockholders Equity         
|                                                                                                                    |  |                              
|                                                                                                                    |  |                               |            |            |  | Accumulated |    |             
|                                                                                                                    |  | Common Stock                  |            | Additional |  | Deferred    |    |              |  | Other         |         | Total        
|                                                                                                                    |  |                               |            | Paid-In    |  | Stock       |    | Accumulated  |  | Comprehensive |         | Stockholders
|                                                                                                                    |  | Shares                        |            | Amount     |  | Capital     |    | Compensation |  | Deficit       |         | Income/(Loss) |  | Equity
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |       
|                                                                                                                    |  |                              
|                                                                                                                    |  | (In thousands, except shares)
|Balances at December 31, 1999                                                                                       |  |                               | 21,002,095 |            |  | $           | 21 |              |  | $             | 142,401 |               |  | $      | (9,317 | ) |  | $ | (35,109 | ) |  | $ | (133  | ) |  | $ | 97,863  |  
|Net loss                                                                                                            |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   | (13,317 | ) |  |   |      |   |  |   | (13,317 | )
|Change in unrealized gain on available-for-sale
    securities                                                      |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   | 761   |   |  |   | 761     |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Comprehensive loss                                                                                                  |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | (12,556 | )
|Issuance of shares of common stock in a private
    placement offering, net of offering costs of $200               |  |                               | 2,300,000  |            |  |             | 2  |              |  |               | 104,679 |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 104,681 |  
|Issuance of common stock upon exercise of stock
    options and in connection with the employee stock purchase plan |  |                               | 306,154    |            |  |             |   |              |  |               | 1,463   |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 1,463   |  
|Issuance of common stock upon exercise of warrants                                                                  |  |                               | 72,514     |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   |        |  
|Issuance of common stock for services                                                                               |  |                               | 7,692      |            |  |             |   |              |  |               | 207     |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 207     |  
|Amortization of deferred stock compensation                                                                         |  |                               |           |            |  |             |   |              |  |               |        |               |  |        | 4,545  |   |  |   |        |   |  |   |      |   |  |   | 4,545   |  
|Stock options issued to non-employees                                                                               |  |                               |           |            |  |             |   |              |  |               | 254     |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 254     |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Balances at December 31, 2000                                                                                       |  |                               | 23,688,455 |            |  | $           | 23 |              |  | $             | 249,004 |               |  | $      | (4,772 | ) |  | $ | (48,426 | ) |  | $ | 628   |   |  | $ | 196,457 |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Net income (loss)                                                                                                   |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   | 3,823   |   |  |   |      |   |  |   | 3,823   |  
|Change in unrealized gain on available-for-sale
    securities                                                      |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   | 1,389 |   |  |   | 1,389   |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Comprehensive income                                                                                                |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 5,212   |  
|Issuance of common stock upon exercise of stock
    options and in connection with the employee stock purchase plan |  |                               | 511,642    |            |  |             | 1  |              |  |               | 2,273   |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 2,274   |  
|Amortization of deferred stock compensation                                                                         |  |                               |           |            |  |             |   |              |  |               |        |               |  |        | 2,540  |   |  |   |        |   |  |   |      |   |  |   | 2,540   |  
|Stock options issued to non-employees                                                                               |  |                               |           |            |  |             |   |              |  |               | 80      |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 80      |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Balances at December 31, 2001                                                                                       |  |                               | 24,200,097 |            |  | $           | 24 |              |  | $             | 251,357 |               |  | $      | (2,232 | ) |  | $ | (44,602 | ) |  | $ | 2,017 |   |  | $ | 206,564 |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Net income (loss)                                                                                                   |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   | (40,964 | ) |  |   |      |   |  |   | (40,964 | )
|Change in unrealized gain on available-for-sale
    securities                                                      |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   | (500  | ) |  |   | (500    | )
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Comprehensive loss                                                                                                  |  |                               |           |            |  |             |   |              |  |               |        |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | (41,464 | )
|Issuance of common stock upon exercise of stock
    options and in connection with the employee stock purchase plan |  |                               | 494,354    |            |  |             | 1  |              |  |               | 1,627   |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 1,628   |  
|Amortization of deferred stock compensation                                                                         |  |                               |           |            |  |             |   |              |  |               |        |               |  |        | 1,388  |   |  |   |        |   |  |   |      |   |  |   | 1,388   |  
|Reversal of deferred stock compensation
    amortization due to forfeited options                                   |  |                               |           |            |  |             |   |              |  |               | (1,217  | )             |  |        | 207    |   |  |   |        |   |  |   |      |   |  |   | (1,010  | )
|Stock options issued to non-employees                                                                               |  |                               |           |            |  |             |   |              |  |               | 452     |               |  |        |       |   |  |   |        |   |  |   |      |   |  |   | 452     |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  
|Balances at December 31, 2002                                                                                       |  |                               | 24,694,451 |            |  | $           | 25 |              |  | $             | 252,219 |               |  | $      | (637   | ) |  | $ | (85,566 | ) |  | $ | 1,517 |   |  | $ | 167,558 |  
|                                                                                                                    |  |                               |            |            |  |             |    |              |  |               |         |               |  |        |        |   |  |   |         |   |  |   |       |   |  |   |         |  

See accompanying notes.

F-5



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |       |        |          |  
|---------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------- | ----- | ------ | ------- | -------- | ------- | ------ | ------- | -------- | ----- | ------ | -------- | -
|                                                                                         |                                                                   |                                               
|                                                                                         |                                                                   | Years Ended December 31,                      
|                                                                                         |                                                                   |                                               
|                                                                                         |                                                                   | 2002                                           |                                                         | 2001  |        | 2000   
|                                                                                         |                                                                   |                                                |                                                         |       |        |        
|                                                                                         |                                                                   |                                               
|                                                                                         |                                                                   | (In thousands)                                
|Operating activities                                                                     |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Net income (loss)                                                                        |                                                                   | $                                              | (40,964                                                 | )     |        | $       | 3,823    |         |        | $       | (13,317  | )    
|Adjustments to reconcile net income
    (loss) to net cash used in operating activities: |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|                                                                                         | Gain on settlement of litigation and non-cash
    license revenue |                                                |                                                         |      |        |         |          | (32,500 | )      |         |          |      |       
|                                                                                         | Cumulative effect of a change in accounting
    principle         |                                                |                                                         |      |        |         |          |        |        |         |          | 2,294 |       
|                                                                                         | Depreciation and amortization                                     |                                                |                                                         | 5,795 |        |         |          | 3,693   |        |         |          | 2,155 |       
|                                                                                         | Amortization of deferred stock compensation, net                  |                                                |                                                         | 378   |        |         |          | 2,540   |        |         |          | 4,545 |       
|                                                                                         | Issuance of common and preferred stock for
    services           |                                                |                                                         |      |        |         |          |        |        |         |          | 207   |       
|                                                                                         | Stock options issued to non-employees                             |                                                |                                                         | 452   |        |         |          | 80      |        |         |          | 254   |       
|                                                                                         | Changes in operating assets and liabilities:                      |                                                |                                                         |       |        |         |          |         |        |         |          |       |       
|                                                                                         |                                                                   | Accounts receivable and other receivable       |                                                         |       | 27,389 |         |          |         | 1,715  |         |          |       | (2,969 | )       
|                                                                                         |                                                                   | Inventories                                    |                                                         |       | (2,553 | )       |          |         | (1,205 | )       |          |       | (1,919 | )       
|                                                                                         |                                                                   | Prepaid expenses and other current assets      |                                                         |       | 803    |         |          |         | (86    | )       |          |       | (483   | )       
|                                                                                         |                                                                   | Security deposits and other assets             |                                                         |       | 314    |         |          |         | (134   | )       |          |       | (3,182 | )       
|                                                                                         |                                                                   | Notes receivable from officers                 |                                                         |       | 260    |         |          |         | 140    |         |          |       | 10     |         
|                                                                                         |                                                                   | Accounts payable and other accrued liabilities |                                                         |       | 172    |         |          |         | (2,146 | )       |          |       | 1,979  |         
|                                                                                         |                                                                   | Accrued compensation                           |                                                         |       | (677   | )       |          |         | 1,189  |         |          |       | 864    |         
|                                                                                         |                                                                   | Deferred revenue                               |                                                         |       | (2,162 | )       |          |         | (654   | )       |          |       | (547   | )       
|                                                                                         |                                                                   | Other noncurrent liabilities                   |                                                         |       | 386    |         |          |         | 962    |         |          |       | 403    |         
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|                                                                                         |                                                                   |                                                | Net cash used in operating activities                   |       |        | (10,407 | )        |         |        | (22,583 | )        |       |        | (9,706   | )
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Investing activities                                                                     |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Purchases of marketable securities                                                       |                                                                   |                                                | (168,689                                                | )     |        |         | (188,539 | )       |        |         | (184,078 | )    
|Proceeds from sales of marketable securities                                             |                                                                   |                                                | 114,116                                                 |       |        |         | 104,829  |         |        |         | 32,910   |      
|Proceeds from maturities of marketable securities                                        |                                                                   |                                                | 76,018                                                  |       |        |         | 84,983   |         |        |         | 51,968   |      
|Purchases of property and equipment                                                      |                                                                   |                                                | (5,759                                                  | )     |        |         | (7,173   | )       |        |         | (5,794   | )    
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|                                                                                         |                                                                   |                                                | Net cash provided by (used in) investing
    activities |       |        | 15,686  |          |         |        | (5,900  | )        |       |        | (104,994 | )
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Financing activities                                                                     |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Proceeds under sale-leaseback arrangements                                               |                                                                   |                                                | 822                                                     |       |        |         | 2,531    |         |        |         | 1,745    |      
|Payments of obligations under sale-leaseback
    arrangements                            |                                                                   |                                                | (2,200                                                  | )     |        |         | (1,960   | )       |        |         | (1,665   | )    
|Proceeds from issuance of common stock                                                   |                                                                   |                                                | 1,628                                                   |       |        |         | 2,273    |         |        |         | 106,142  |      
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|                                                                                         |                                                                   |                                                | Net cash provided by financing activities               |       |        | 250     |          |         |        | 2,844   |          |       |        | 106,222  |  
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Net increase (decrease) in cash and cash
    equivalents                                 |                                                                   |                                                | 5,529                                                   |       |        |         | (25,639  | )       |        |         | (8,478   | )    
|Cash and cash equivalents at beginning of year                                           |                                                                   |                                                | 10,655                                                  |       |        |         | 36,294   |         |        |         | 44,772   |      
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Cash and cash equivalents at end of year                                                 |                                                                   | $                                              | 16,184                                                  |       |        | $       | 10,655   |         |        | $       | 36,294   |      
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Supplemental disclosure of cash flow
    information                                     |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Interest paid                                                                            |                                                                   | $                                              | 642                                                     |       |        | $       | 629      |         |        | $       | 620      |      
|                                                                                         |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Supplemental disclosure of significant
    non-cash investing activities                 |                                                                   |                                                |                                                         |       |        |         |          |         |        |         |          |      
|Other receivable                                                                         |                                                                   | $                                              |                                                        |       |        | $       | 26,949   |         |        | $       |         |      
|Investment in common stock                                                               |                                                                   | $                                              |                                                        |       |        | $       | 4,563    |         |        | $       |         |      
|Other assets                                                                             |                                                                   | $                                              |                                                        |       |        | $       | 988      |         |        | $       |         |      

See accompanying notes.

F-6



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                           
|-- | ------------------------------------------
|1. | Organization and Basis of
    Presentation

Caliper Technologies Corp. (Caliper)
was incorporated in the state of Delaware on July 26, 1995.
Caliper develops lab-on-a-chip technologies and manufactures
LabChip and automated drug discovery systems. These systems
perform laboratory experiments for use in the pharmaceutical
industry and other industries.



| |                        
| | -----------------------
| | Initial Public Offering

In December 1999, Caliper completed an initial
public offering of 4,500,000 shares of its common stock to the
public, at a per share price of $16.00. In conjunction with the
initial public offering, Calipers underwriters exercised
an option to purchase an additional 675,000 shares of
common stock at a price of $16.00 per share to cover
over-allotments. Caliper received net proceeds from the offering
of approximately $75.9 million. Upon the closing of the
initial public offering, each of the outstanding
11,703,692 shares of redeemable convertible preferred stock
and 829,142 shares of convertible preferred stock was
automatically converted into one share of common stock.



| |            
| | -----------
| | Stock Split

In October 1999, Calipers board of
directors approved a 1-for-1.56 reverse stock split. The reverse
stock split became effective in December 1999. The accompanying
financial statements have been adjusted retroactively to reflect
the reverse split of all outstanding common and convertible
preferred stock.



| |                                     
| | ------------------------------------
| | Financial Statement
    Presentation

The financial statements of Caliper include the
accounts of Calipers wholly owned subsidiary, Caliper
Europe GmbH formed on January 22, 2002. Investments in
affiliates or interests in which Caliper has an equity interest
of 50% or less and has significant influence are generally
accounted for using the equity method with all accounts and
transactions disclosed as related party transactions. All
significant intercompany accounts and transactions have been
eliminated in consolidation.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.



| |                                               
| | ----------------------------------------------
| | Cash Equivalents and Marketable
    Securities

Caliper considers all highly liquid investments
with maturities of three months or less from the date of
purchase to be cash equivalents. Management determines the
appropriate classification of its investment securities at the
time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified Calipers
marketable securities as available-for-sale securities in the
accompanying financial statements. Available-for-sale securities
are carried at fair value based on quoted market prices, with
unrealized gains and losses reported in a separate component of
stockholders equity. Realized gains and losses and
declines in value, if any, judged to be other than temporary on
available-for-sale securities are reported in other income or
expense. The cost of securities sold is based on the specific
identification method.

Caliper invests its excess cash in
U.S. government and agency securities, debt instruments of
financial institutions and corporations, and money market funds
with strong credit ratings. Caliper has established guidelines
regarding diversification of its investments and their
maturities should maintain safety and liquidity.

F-7



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Caliper does not generally invest in the common
stock of corporations, partnerships or special purpose entities.
As of December 31, 2001, however, Caliper had investments
in common stock totaling $4.6 million from investments in
Aclara Biosciences, Inc. and Amphora Discovery Corp. As a result
of a settlement agreement between the Aclara Biosciences, Inc.
and Caliper entered into in January 2001, Caliper had an
investment of 900,000 shares in Aclara common stock. On
October 15, 2002, Caliper received $32.5 million in
cash from Aclara and surrendered the 900,000 shares of Aclara
common stock effectively completing the settlement transaction
As of December 31, 2002, Caliper has investments in the
preferred and common stock of Amphora Discovery Corp.



| |                                     
| | ------------------------------------
| | Customer and Accounts
    Receivable

Customer and accounts receivable are stated at
amounts owed to the company, net of related reserves. No
collateral is required on these receivables. No sales made by
Caliper include any return rights or privileges. Caliper has
historically not experienced significant credit losses in
connection with its customer receivables. Accounts receivable,
net of allowances at December 31, 2002 was
$1.9 million substantially all of which were current and
due in less than 35 days. Of this $1.9 million, Amphora, a
related party, had a customer account balance of $115,000
related to minimum datapoint payments owed to Caliper as of
December 2002. Caliper has only five international customers and
requires all their purchases to be denominated and paid in
U.S. dollars. Caliper recorded an allowance for doubtful
accounts totaling $119,000 in 2002 based on analysis of aged
receivables and will continue to analyze accounts receivable,
historical bad debts, customer concentrations, changes in
customer credit-worthiness subsequent to sales being made,
current economic trends and changes in its customer payment
terms when evaluating the necessity and or adequacy in future
periods for an allowance for doubtful accounts.



| |            
| | -----------
| | Inventories

Inventory consists primarily of glass, quartz and
reagents used in the manufacture of Calipers chips as well
as electronic components, devices and accessories from original
equipment manufacturers used in the manufacture of
Calipers microfluidic instruments. Inventories are stated
at the lower of standard cost (which approximates actual cost on
a first-in first-out basis) or market, reflect appropriate
reserves for potential obsolete, slow-moving or otherwise
impaired material, and include appropriate elements of material,
labor and indirect costs.



| |                       
| | ----------------------
| | Property and Equipment

Additions to property and equipment are recorded
at cost. Major replacements and improvements are capitalized
while general repairs and maintenance are expensed as incurred.
Depreciation commences once the assets have been placed in
service and is computed using the straight-line method over the
shorter of the financing period or the estimated useful lives of
the assets, which primarily range from three to seven years.
Furniture and equipment acquired under equipment sale and lease
back arrangements are amortized over the shorter of the useful
lives or the financing period, generally four years. Leasehold
improvements are amortized over the shorter of the estimated
useful life of the assets or lease term, generally four to seven
years.



| |                                    
| | -----------------------------------
| | Impairment of Long-lived
    Assets

Caliper reviews long-lived assets and
identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If indicators of impairment exist,
recoverability of assets to be held and used is assessed by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the
asset. Recoverability measurement and estimating of undiscounted
cash flows is done at the lowest possible level for which there
are identifiable assets. If the aggregate undiscounted cash
flows are less than the carrying value of the asset, the

F-8



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

resulting impairment charge to be recorded is
calculated based on the amount by which the carrying amount of
assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. To date, Caliper has not incurred
any impairment losses.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The carrying amounts reflected in the
consolidated balance sheets for cash and cash equivalents,
accounts receivable, notes receivable, other current assets,
accounts payable, and other accrued expenses, approximate fair
value due to their short-term maturities. Calipers
available for sale marketable securities are carried at fair
value based on quoted market prices, consistent with the
requirements of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Caliper does not engage in interest
rate swaps, foreign currency forward contracts or options on
non-marketable instruments. Calipers only long-term debt
is the long-term portions to the sale-leaseback agreement.

The fair value of Calipers cash, cash
equivalents and marketable securities are subject to change as a
result of potential changes in market interest rates. The
potential change in fair value for interest rate sensitive
instruments has been assessed on a hypothetical 100 basis point
adverse movement across all maturities. Caliper estimates that
such hypothetical adverse 100 basis point movement would
not have materially impacted net income or materially affected
the fair value of interest rate sensitive instruments.



| |                    
| | -------------------
| | Revenue Recognition

Caliper recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectibility is probable.
Revenue is recognized on product sales when goods are shipped
under Calipers standard terms of FOB origin.
Revenues on shipments subject to customer acceptance provisions
are recognized only upon customer acceptance, provided all other
revenue recognition criteria are met. Revenue from licensing
agreements is deferred and recognized over the term of the
agreement, or in certain circumstances, when milestones are met.
Revenue recognized is not subject to repayment. Cash received
that is related to future performance under such contracts is
deferred and recognized as revenue when earned Revenue is earned
from Calipers collaboration agreement with Agilent,
Automated Drug Discovery systems, chips and datapoints,
AMS 90, Applications Developer Program, Technology Access
Program agreements, licensing and royalty agreements and
government grants.



| |                        
| | -----------------------
| | Collaboration Agreement

Revenue from development and support activities
under Calipers collaboration agreement with Agilent is
recorded in the period in which the costs are incurred. Direct
costs associated with this contract are reported as research and
development expense. Revenue related to the reimbursement of
costs for the supply of chips and reagents to Calipers
collaboration partner is recognized upon shipment. Caliper has
no continuing obligations at the time these sales are made and
Calipers collaboration partner has no return privileges.
Further, Calipers transfer of this title to the chips and
reagents are not contingent on the collaboration partners
resale of these items to third parties. Calipers share of
gross margin on components of the LabChip system sold by the
collaboration partner is recognized as product revenue upon
shipment by the collaboration partner to the end user. The
instruments, chips and reagents as sold, are useable by
Calipers collaboration partner and their customers without
additional support from Caliper.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Automated Drug Discovery Systems Products,
    Automated Microfluidics Systems 90 SE and Applications
    Developer Program

Product revenue is recognized upon the shipment
and transfer of title to customers and is recorded net of
discounts and allowances. Revenues on shipments subject to
customer acceptance provisions are recognized only upon customer
acceptance, provided all other revenue recognition criteria are
met. Service revenue is

F-9



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recognized ratably over the contract service
term. Customers are able to purchase instruments, chips, support
services and custom assay solutions directly from Caliper.
Customer purchases of instruments and chips are delivered under
standardized terms of FOB origin with the customer
assuming the risks and rewards of product ownership at the time
of shipping from Calipers warehouse with no return rights
or privileges. Caliper offers discounts based on the volume of
products and services purchased. Caliper publishes a catalog of
its commercially available chips and drug discovery system
products and the prices for each product configuration.

In certain cases, customers will be charged on a
datapoint pricing basis for their usage of chips. A datapoint is
generated each time a Caliper instrument system introduces a
sample into a chip through a sipper in order to perform a
particular LabChip assay. Datapoints are these test-results that
Calipers customers record when they use Calipers
instruments. Caliper records datapoint revenues in the period
that Calipers customers attain these datapoints and
communicate such use to Caliper. Datapoint rates are
contractually negotiated between Caliper and its customers.
Caliper has contracted for minimum datapoint fees from Amphora,
a related party, and two additional customers in 2002. Under
minimum datapoint fee arrangements, datapoints revenues are
recorded in the period the minimum applies. Caliper has no
performance obligations with respect to these minimum fees

Customers are shipped instruments and chips based
upon purchase orders received. Two customers, however, have
requested drug discovery system acceptance provisions. One of
these customers is Amphora, a related party, where
Amphoras personnel review a system validation test at
Calipers facility prior to shipment and prior to the
transfer of title to the instrument by Caliper to Amphora.

The second customer is an unrelated customer and
has requested a factory acceptance test in their purchase
contract with Caliper where they require validation tests before
acceptance. Caliper does not recognize revenue on the sale of
any product until all acceptance tests are completed and
approved by the customer. Caliper believes that once the general
market acceptance of drug discovery systems is better
established, acceptance test of these kinds will no longer be
requested by customers. No sales made by Caliper include any
return rights or privileges.

Caliper has made no provision for sales returns
and other allowances. Although Caliper has been commercially
selling its instruments only since September 2001, Caliper has
been developing these instruments since 1999. Many of the buyers
of Calipers instruments are the same companies with whom
Caliper was collaborating to develop these instruments between
1999 and September 2001. As such, these customers are very
familiar with Calipers equipment, and returns are
therefore unlikely.



| |                                     
| | ------------------------------------
| | Technology Access Program Agreements

Caliper had entered into multi-year Technology
Access Program agreements that included: (1) access to
existing technology; (2) a multi-year subscription for
technology developed during the subscription period;
(3) development and support services; and (4) access
to prototype LabChip systems developed during the subscription
period. Caliper allocates the total arrangement fees to each
element based on fair value. Fair value was based on renewal
rates for subscriptions, prices established by Calipers
management having the relevant authority for development and
support services and the price at which a program participant
had the ability to purchase unspecified quantities of a specific
prototype product.

Prior to January 1, 2000, Caliper recognized
non-refundable license fees under its Technology Access Programs
as revenues upon transfer of the license to third parties and
when no further performance obligations existed. Effective
January 1, 2000, Caliper changed its method of accounting
for non-refundable license fees to recognize such fees ratably
over the term of the committed related Technology Access Program
agreement. Caliper believes the change in accounting principle
is preferable based on guidance provided in SEC Staff Accounting
Bulletin No. 101  Revenue Recognition in
Financial Statements (SAB 101). The $2.3 mil-

F-10



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

lion cumulative effect of the change in
accounting principle was reported as a charge in 2000. The
cumulative effect was initially recorded as deferred revenue and
was recognized as revenue over the remaining contractual terms
of the Technology Access Program agreements commencing
January 1, 2000. During the year ended December 31,
2000, the impact of the change in accounting was to increase net
loss by $1.25 million, or ($0.06) per share, comprised of
the $2.3 million cumulative effect of the change as
described above ($0.11 per share), less $1.3 million of the
related deferred revenue which was recognized as revenue during
the year ended December 31, 2000 ($0.06 per share) and
$250,000 ($0.01 per share) recorded as deferred revenue as of
December 31, 2000 that would have been recognized as
revenue had SAB 101 not been adopted. During the year ended
December 31, 2001, Caliper recorded $800,000 ($0.03 per
share) of the related deferred revenue as revenue. The remaining
$194,000 of the related deferred revenue was recognized as
revenue in 2002.

Product revenue was recognized upon transfer of
title to the customer. Subscription fees were recognized ratably
over the subscription period. When payment of the subscription
fee was contingent upon reaching a milestone, revenue was
deferred until the milestone was met. Support and development
services revenue was recognized in the periods the costs were
incurred. In December 2001, the last of the agreements with
Calipers Technology Access Program customers was amended
and converted into a commercial agreement. There are no further
technology access fees or subscription fees recognized with
products and services purchased by former Technology Access
Program customers after December 2001. Revenue is recognized for
all former Technology Access Program customers upon shipment and
transfer of title to the product to the customer or when the
assay development service has been provided by Caliper. Under
the amended agreements with its Technology Access Program
customers, Caliper agreed to convert technology access and
subscription fees still outstanding and available to credits
towards the purchase of products and services that can be
utilized by the customer no later than March 2003. As of
December 31, 2002, a total of $138,000 of this revenue was
deferred. Caliper expects to recognize this deferred revenue
through March 2003 as products and services are purchased by
Calipers former Technology Access Program customers.



| |                      
| | ---------------------
| | Licensing and Royalty

Revenue from Calipers up-front license fees
is recognized when the earnings process is complete and no
further obligations exist. If further obligations exist, the
up-front license fee is recognized ratably over the obligation
period. Royalties from licenses are based on third-party sales
and recorded as earned in accordance with contract terms, when
third-party results are reliably measured and collectibility is
assured. The impact of the adoption of SAB 101 in 2000 is
discussed above.



| |                  
| | -----------------
| | Government Grants

Calipers grant from the National Institute
of Standards and Technology (NIST) provided for the
reimbursement of qualified expenses for research and development
as defined under the terms of the grant agreement. Revenue under
grant agreements was recognized when the related research
expenses were incurred The NIST grant was a three-year grant
that concluded in December 2001.



| |                              
| | -----------------------------
| | Annual Maintenance Agreements

Caliper does not include with the initial product
purchase any element of a maintenance contract. No upgrades or
operational support is included in such purchases. All the
customer is entitled to receive is service in accordance with
Calipers standard warranty, which is to provide
replacement of defective goods. Caliper, to date, has not
focused on selling additional maintenance contracts and in fact
has only sold two such contracts regarding early prototype
instruments. This contract provided access to upgrades to
Calipers product, if and when available, and operational
support. In the future, Caliper expects to offer maintenance
agreements to customer for access to instrument system upgrades
and overall instrument maintenance after the expiration of

F-11



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the 1 year limited warranty period. Revenue
with respect to these maintenance contracts will be initially
deferred and recognized ratably over the term of the contract.



| |         
| | --------
| | Software

Caliper has developed software that is embedded
in Calipers instruments as a component to operate and run
the instrument. Caliper does not sell or otherwise market the
software separately and does not derive any independent revenues
from the sale of software. The software has no separate utility
outside of its function of running the Caliper instrument.
Calipers customers are purchasing the instrument in order
to be able to conduct scientific research, and the software is
incidental to the overall cost of the instruments
development and marketing effort. Caliper does not provide
post-sale software support, except for functional defects in the
software as contemplated in Calipers warranty on its
instruments.



| |                  
| | -----------------
| | Segment Reporting

Caliper currently operates in one business
segment, that being the development and commercialization of
novel products from microfluidic technology. Caliper is managed
and operated as one business. The entire business is
comprehensively managed by a single management team that reports
to the Chief Executive Officer. Caliper does not operate
separate lines of business or separate business entities with
respect to its products or product candidates. Accordingly,
Caliper does not accumulate discrete financial information with
respect to separate product areas and does not have separately
reportable segments as defined by Statement of Financial
Accounting Standards (SFAS) No. 131,
Disclosure about Segments of an Enterprise and Related
Information.



| |                              
| | -----------------------------
| | Foreign Currency Transactions

Foreign currency transactions are translated into
U.S. dollars at prevailing rates. Gains or losses resulting
from foreign currency transactions are included in current
period income or loss as incurred. Currently, all material
transactions of Caliper are denominated in U.S. dollars,
and Caliper has not entered into any material transactions that
are denominated in foreign currencies.



| |                         
| | ------------------------
| | Research and Development

Caliper charges research and development costs to
expense as incurred. Research and development costs consist
primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development,
material cost of prototypes and test units, legal expenses
resulting from intellectual property prosecution and litigation,
and other expenses related to the design, development, testing
and enhancement of Calipers products.



| |                 
| | ----------------
| | Warranty Expense

At the time revenue is recognized, the Company
establishes an accrual for estimated warranty expenses
associated with sales, recorded as a component of cost of
revenue. Caliper offers a one-year limited warranty on the
automated drug discovery systems and a 90-day warranty on chips,
which is included in the sales price of many of its products.
These warranties are the only post-sale obligation Caliper has
to its customers. Provision is made for estimated future
warranty costs at the time of sale. As the majority of
Calipers drug discovery system parts are from original
equipment manufacturers which provide one-year warranties
already on these parts, Caliper has a warranty provision of
$265,000 as of December 31, 2002 and $85,000 as of
December 31, 2001 based on Calipers repair and
warranty claims history and on the limited service cost to
travel to the customer and maintain Calipers products
under warranty. Caliper periodically assesses the adequacy of
its recorded warranty liabilities and adjusts amounts as
necessary.

F-12



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Changes in Calipers warranty obligation
during the year ended December 31, 2002 are as follows:

|                                    |  |   |         | 
|----------------------------------- |  | - | ------- | 
|Balance, December 31, 2001.         |  | $ | 85,000  | 
|Warranties issued during the period |  |   | 854,000 | 
|Settlements made during the period  |  |   | 674,000 | 
|                                    |  |   |         | 
|Balance, December 31, 2002.         |  | $ | 265,000 | 
|                                    |  |   |         | 



| |                                         
| | ----------------------------------------
| | Shipping and Handling Fees and
    Costs

Shipping and handling fees billed to customers
for product shipments are recorded in Product
revenue in the Consolidated Statements of Operations.
Shipping and handling costs incurred for inventory purchases are
recorded in Cost of revenue in the Consolidated
Statements of Operations.



| |                    
| | -------------------
| | Advertising Expense

Caliper expenses costs of advertising as
incurred. Advertising costs were $690,000 for the year ending
December 31, 2002 as compared to $631,000 in 2001 and
$133,000 in 2000.



| |                
| | ---------------
| | Risk Management

Caliper has purchased commercial insurance to
cover its estimated future legal costs and settlements related
to workers compensation, product, general, auto and
operations liability claims. Calipers management decides
the amount of insurance coverage to purchase from unaffiliated
companies and the appropriate amount of risk coverage based on
the cost and availability of insurance and the likelihood of a
loss. Management believes that the levels of risk that Caliper
has provided insurance coverage for are consistent with those of
other companies in its industry. There can be no assurance that
Caliper will not incur losses beyond the limits, or outside the
coverage, of its insurance.



| |                       
| | ----------------------
| | Credit and Other Risks

Financial instruments, which potentially subject
Caliper to concentrations of credit risk, consist principally of
cash and trade accounts receivable. Caliper invests excess cash
in securities that it believes bear minimal risk. These
investments are of a short-term nature and include investments
in auction rate preferred securities, commercial paper and
government and corporate debt securities. By policy, the amount
of credit exposure to any one institution or issuer is limited.
These investments are generally not collateralized and primarily
mature within three years Caliper has not experienced any losses
due to institutional failure or bankruptcy.

Calipers allowance for uncollectible
accounts at December 31, 2002 was $119,000 and was not
material in prior years. Caliper grants credit to customers
based on evaluations of their financial condition, generally
without requiring collateral. Concentrations of credit risk with
respect to accounts receivable are present due to the small
number of customers comprising Calipers customer base.
However, the credit risk is reduced through Calipers
efforts to monitor its exposure for credit losses and maintain
allowances, if necessary. Two customers, Agilent and Amphora,
accounted for approximately 63% of Calipers total revenues
in 2002 and 45% in 2001. These two customers accounted for
approximately 39% and 61% of Calipers outstanding accounts
receivable balance at December 31, 2002 and 2001,
respectively. Calipers policy is to perform an analysis of
the recoverability of its trade accounts receivable at the end
of each reporting period and to establish allowances for those
accounts considered uncollectible. Caliper analyzes historical
bad debts, customer concentrations, customer credit-worthiness,
and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts.

F-13



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Calipers products include certain
components that are currently single-sourced. Caliper believes
that other vendors would be able to provide similar equipment,
however, the qualification of such vendors may require start-up
time. In order to mitigate any adverse impacts from a disruption
of supply, Caliper attempts to maintain an adequate supply of
critical single-sourced equipment.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Derivative and Hedging Activities
    Accounting Policy for Derivative Instruments

Effective January 1, 2001, Caliper adopted
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. In connection with the
adoption of SFAS No. 133, Caliper recognizes derivative
financial instruments in the financial statements at fair value
regardless of the purpose or intent for holding the instrument.
Changes in the fair value of derivative financial instruments
are either recognized periodically in income or in stockholders
equity as a component of comprehensive income (loss) depending
on whether the derivative financial instrument qualifies for
hedge accounting, and if so, whether it is designated as a fair
value hedge or cash flow hedge. For derivative instruments that
are designated and qualify as fair value hedge (i.e., hedging
the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable
to a particular risk), the gain or loss on the derivative
instrument as well as the offsetting loss or gain on the hedged
item attributable to the hedged risk are recognized in current
earnings during the period of the change in fair values. For
derivative instruments that are designated and qualify as a cash
flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular
risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of other
comprehensive income and is reclassified into earnings in the
same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item, if any, is
recognized in current earnings during the period of change.
Hedge effectiveness is assessed on a quarterly basis.

As discussed in Note 16, Caliper entered into a
settlement agreement with Aclara Biosciences. The terms of the
agreement provide that if Caliper sold any of the 900,000 shares
of Aclaras common stock received in the settlement between
18 and 24 months from the effective date of the settlement
agreement, and the then fair value of Aclaras stock is
less than $36.11 per share, Aclara would pay Caliper in cash a
dollar amount equal to the difference between the aggregate fair
value of the Aclara stock at the date the shares were disposed
and $32.5 million. If the then fair value of the Aclara
stock was greater than $36.11 per share, Caliper would have
receive no additional consideration from Aclara. Caliper was
restricted from selling its shares of Aclara for 18 months
following the effective date of the settlement agreement. If
Caliper sold its shares of Aclara stock at any time after
24 months from the effective date of the settlement
agreement, Aclara would of had no obligation to provide any
additional consideration to Caliper. As discussed in Note 16,
Aclara had executed a fully funded $32.5 million standby
letter of credit in favor of Caliper to secure its performance
under this obligation. In effect, Aclara guaranteed the
aggregate settlement amount of $32.5 million, so long as
Caliper sold its Aclara stock within a specified period of time.

Caliper accounted for this arrangement by
initially recording $4.3 million in Aclara stock at fair
market value, with a note receivable with a corresponding face
value of $28.2 million including other receivable for the
fully funded letter of credit which was reduced by the initial
fair value ($2.7 million) of an embedded derivative. The
embedded derivative had been designated as a fair value hedge of
the Aclara stock.

The mark-to-market change in the fair value of
the Aclara stock was recorded in earnings in the other income or
expense line on the statement of operations and was offset by
the gains or losses in the fair value of the derivative reported
in the same other income or expense line. The ineffective
portion of the embedded derivative was also recorded in the
other income or expense line on the statement of operations. As
of December 31, 2001, the balances in Aclara stock and the
note receivable were $4.6 million and $26.9 million
respectively.

F-14



---



##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On October 15, 2002, Caliper received
$32.5 million in cash from Aclara upon delivering 900,000
shares of Aclara common stock to Aclara in accordance with the
terms of the comprehensive settlement agreement between the
companies. As of December 31, 2002, Caliper has no
derivative financial instruments.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

Caliper has adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive
Income. The only component of comprehensive income
(loss) is unrealized gains and losses on available-for-sale
securities. Comprehensive income (loss) has been disclosed
in the Statement of Stockholders Equity.



| |                         
| | ------------------------
| | Stock-Based Compensation

Caliper accounts for its stock options and equity
awards in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and has elected to follow the
disclosure only alternative prescribed by Financial
Accounting Standards Boards Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123). Caliper
accounts for stock options issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues
Task Force 96-18. For the year ended December 31, 2002,
compensation expense related to stock options issued to
non-employees was $452,000 as compared to $80,000 for the year
ended December 31, 2001 and $254,000 for the year ended
December 31, 2000.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the vesting period of the options using the graded vesting
method. Calipers pro forma information is as follows:

|                             |                                                                                                                                                      |                                       |   |         |       |      |   |         |       |   |   |         |       |  
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                             |                                                                                                                                                      |                                      
|                             |                                                                                                                                                      | Years Ended December 31,             
|                             |                                                                                                                                                      |                                      
|                             |                                                                                                                                                      | 2002                                  |   | 2001    |       | 2000
|                             |                                                                                                                                                      |                                       |   |         |       |     
|                             |                                                                                                                                                      |                                      
|                             |                                                                                                                                                      | (In thousands, except per share data)
|Net income (loss):           |                                                                                                                                                      |                                       |   |         |       |      |   |         |       |   |   |        
|                             | As reported                                                                                                                                          |                                       | $ | (40,964 | )     |      | $ | 3,823   |       |   | $ | (13,317 | )    
|                             | Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                       |                                       |   | 378     |       |      |   | 2,540   |       |   |   | 4,545   |      
|                             | Deduct: Total stock-based employee compensation
    expense determined under fair value based methods for all
    awards, net of related tax effects |                                       |   | (25,221 | )     |      |   | (16,324 | )     |   |   | (8,674  | )    
|                             |                                                                                                                                                      |                                       |   |         |       |      |   |         |       |   |   |        
|                             | Pro forma net loss                                                                                                                                   |                                       | $ | (65,807 | )     |      | $ | (9,961  | )     |   | $ | (17,446 | )    
|                             |                                                                                                                                                      |                                       |   |         |       |      |   |         |       |   |   |        
|Net income (loss) per share: |                                                                                                                                                      |                                       |   |         |       |      |   |         |       |   |   |        
|                             | As reported:                                                                                                                                         |                                       |   |         |       |      |   |         |       |   |   |         |      
|                             |                                                                                                                                                      | Basic                                 |   | $       | (1.68 | )    |   | $       | 0.16  |   |   | $       | (0.61 | )
|                             |                                                                                                                                                      | Diluted                               |   | $       | (1.68 | )    |   | $       | 0.15  |   |   | $       | (0.61 | )
|                             | Pro forma:                                                                                                                                           |                                       |   |         |       |      |   |         |       |   |   |         |      
|                             |                                                                                                                                                      | Basic                                 |   | $       | (2.70 | )    |   | $       | (0.42 | ) |   | $       | (0.80 | )
|                             |                                                                                                                                                      | Diluted                               |   | $       | (2.70 | )    |   | $       | (0.39 | ) |   | $       | (0.80 | )

The effects of applying SFAS No. 123 for pro
forma disclosures are not likely to be representative of the
effects on reported net loss for future years.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

Basic earnings per share is calculated based on
the weighted-average number of common shares outstanding during
the period. Diluted earnings per share would give effect to the
dilutive effect of common stock equivalents consisting of stock
options and warrants (calculated using the treasury stock
method). Potentially dilutive securities have been excluded from
the diluted earnings per share computations as they have an
antidilutive effect due to Calipers net loss.

F-15



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Proforma net loss per share has been computed to
give effect to the adoption of the SEC Staff Accounting Bulletin
No. 101  Revenue Recognition in Financial
Statements  as a cumulative change in accounting
principle effective January 1, 2000.

A reconciliation of shares used in the
calculations is as follows (in thousands except per share data):

|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |        |  
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------ | ------- | ---- |  | ---- | ------ | ----- |  | - | ------- | ------ | -
|                                                                                         |                                                                 |                         
|                                                                                         |                                                                 | Years Ended December 31,
|                                                                                         |                                                                 |                         
|                                                                                         |                                                                 | 2002                     |         | 2001 |  | 2000
|                                                                                         |                                                                 |                          |         |      |  |     
|Income (loss):                                                                           |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Income (loss) before cumulative effect of change
    in accounting principle             |                                                                 | $                        | (40,964 | )    |  | $    | 3,823  |       |  | $ | (11,023 | )     
|                                                                                         | Cumulative effect of a change in accounting
    principle       |                          |         |     |  |      |        |      |  |   |         | (2,294 | )
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Net income (loss)                                                                        |                                                                 | $                        | (40,964 | )    |  | $    | 3,823  |       |  | $ | (13,317 | )     
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Weighted-average shares of common stock
    outstanding                                  |                                                                 |                          | 24,405  |      |  |      | 24,009 |       |  |   | 21,939  |       
|Less: weighted-average shares subject to
    repurchase                                  |                                                                 |                          | (2      | )    |  |      | (12    | )     |  |   | (86     | )     
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Weighted-average shares used in basic
    computations of net income (loss) per share    |                                                                 |                          | 24,403  |      |  |      | 23,997 |       |  |   | 21,853  |       
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Weighted-average shares used in basic
    computations of net income (loss) per share    |                                                                 |                          | 24,403  |      |  |      | 23,997 |       |  |   | 21,853  |       
|                                                                                         | Dilutive stock options  based on the
    treasury stock method |                          |         |     |  |      |        | 1,601 |  |   |         |       |  
|                                                                                         | Dilutive warrants  based on the
    treasury stock method      |                          |         |     |  |      |        | 36    |  |   |         |       |  
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Weighted-average shares used in dilutive
    computations of net income (loss) per share |                                                                 |                          | 24,403  |      |  |      | 25,634 |       |  |   | 21,853  |       
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Income (loss) per share:                                                                 |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Basic:                                                                                   |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Income (loss) before cumulative effect of change
    in accounting principle             |                                                                 | $                        | (1.68   | )    |  | $    | 0.16   |       |  | $ | (0.50   | )     
|                                                                                         | Cumulative effect of a change in accounting
    principle       |                          |         |     |  |      |        |      |  |   |         | (0.11  | )
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Net income (loss) per share                                                              |                                                                 | $                        | (1.68   | )    |  | $    | 0.16   |       |  | $ | (0.61   | )     
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Diluted:                                                                                 |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Income (loss) before cumulative effect of change
    in accounting principle             |                                                                 | $                        | (1.68   | )    |  | $    | 0.15   |       |  | $ | (0.50   | )     
|                                                                                         | Cumulative effect of a change in accounting
    principle       |                          |         |     |  |      |        |      |  |   |         | (0.11  | )
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       
|Net income (loss) per share                                                              |                                                                 | $                        | (1.68   | )    |  | $    | 0.15   |       |  | $ | (0.61   | )     
|                                                                                         |                                                                 |                          |         |      |  |      |        |       |  |   |         |       

The following outstanding options and warrants
(prior to the application of the treasury stock method) were
excluded from the computation of diluted net loss per share as
they had an antidilutive effect (in thousands):

|                     |  |                          |       |      |  |      |       |  |  |  |       | 
|-------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                     |  |                         
|                     |  | Years Ended December 31,
|                     |  |                         
|                     |  | 2002                     |       | 2001 |  | 2000
|                     |  |                          |       |      |  |     
|Options and warrants |  |                          | 6,045 |      |  |      | 2,403 |  |  |  | 3,082 | 



| |                           
| | --------------------------
| | Significant Concentrations

Financial instruments that potentially subject
Caliper to concentrations of credit risk primarily consist of
cash equivalents, marketable securities and trade receivables
(see Note 3).

In 2002, Agilent represented 39% of total
revenues and Amphora, a related party, accounted for 24% of
total revenues. In 2002, three of Calipers previous
Technology Access Program customers combined

F-16



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

accounted for 12% of total revenues. . In 2001,
Agilent represented 32% of total revenues and three of
Calipers Technology Access Program customers accounted for
6%, 6% and 10% of total revenues. Also in 2001, Amphora, a
related party, accounted for 13% of total revenues. In 2000,
Agilent represented 45% of total revenues and three of
Calipers Technology Access Program customers accounted for
18%, 14% and 13% of total revenues

Agilent and Amphora represented 36% and 3%,
respectively, of Calipers outstanding accounts receivable
balance as of December 31, 2002 as compared to 13% and 48%
as of December 31, 2001, respectively. Other customers who
represented 10% or greater of Calipers outstanding
accounts receivable balance were Ambion and Wako at 13% and 11%,
respectively, as of December 31, 2002, and SUGEN and a
petrochemical customer at 15% and 13%, respectively, as of
December 31, 2001.

Caliper relies on several companies as the single
source of various materials in its manufacturing process. Any
extended interruption in the supply of these materials could
result in the failure to meet customer demand.

Reclassifications

Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform with the 2002
financial statement presentation. These reclassifications had no
effect on previously reported net income (loss),
stockholders equity or net income (loss) per share.

Recent
Accounting Pronouncements

In June 2002 the Financial Accounting Services
Board (FASB), issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. The
standard addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).SFAS No. 146 states that a
liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair
value in the period in which the liability is incurred, except
for a liability for one-time termination benefits that are
incurred over a period of time. The standard will be effective
for exit or disposal activities initiated after
December 31, 2002. The provisions of Statement 146 are
required to be applied prospectively after the adoption date to
newly initiated exit activities, and may affect the timing of
recognition of future restructuring costs, as well as amounts
recognized.

In November 2002, the Financial Accounting
Standards Board (or FASB) issued Interpretation No. 45 (or
FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the
existing disclosure requirements for most guarantees, including
residual value guarantees issued in conjunction with operating
lease agreements. It also clarifies that at the time a company
issues a guarantee, the company must recognize an initial
liability for the fair value of the obligation it assumes under
that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15,
2002. Calipers adoption of the recognition and measurement
of FIN 45 are not expected to have a material impact on its
results of operations and financial position. See the
Warranty Expense note in the Notes to Consolidated
Financial Statements of Part II, Item 8 of this
Form 10-K regarding our warranty-related disclosures.

In December 2002, the FASB issued SFAS
No. 148 (SFAS 148), Accounting for
Stock-Based Compensation, Transition and Disclosure.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the
fair value method of accounting

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for stock-based employee compensation be
displayed more prominently and in a tabular format.
Additionally, SFAS 148 requires disclosure of the pro forma
effect in interim financial statements. The transition and
annual disclosure requirements of SFAS 148 are effective
for fiscal years ending after December 15, 2002. Caliper
has included the required additional disclosures in Note 1
to its condensed consolidated financial statements and does not
expect SFAS 148 to have an effect on its results of
operations or financial.

In January 2003, the FASB issued FASB
Interpretation No. 46, or FIN 46,
Consolidation of Variable Interest Entities.FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements,to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before
February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period.
Caliper does not believe there will be a material effect upon
its financial condition or results of operations from the
adoption of the provisions of FIN 46.

In January 2003, the Emerging Issues Task Force
published EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables, which requires companies to
determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. In applying EITF
Issue 00-21, revenue arrangements with multiple
deliverables should be divided into separate units of accounting
if the deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values. This
issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Caliper is
currently evaluating the impact the adoption of this issue will
have on its results of operations and/or financial position.

3.     Cash, Cash
Equivalents and Marketable Securities

Calipers cash, cash equivalents and
marketable securities are invested in a diversified portfolio of
financial instruments, including money market instruments,
corporate notes and bonds, government or government agency
securities and other debt securities issued by financial
institutions and other issuers with strong credit ratings. By
policy, the amount of credit exposure to any one institution is
limited. Investments are generally not collateralized and
primarily mature within three years. The following is a summary
of available-for-sale securities as of December 31, 2002:

|                                              |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |         | 
|--------------------------------------------- | ------------------------- | -------------- | ------- | ---------- |  | ---------- | --- | ---------- | - | - | ----- | ----- |  | - | ------- | ------- | 
|                                              |                           |                |         | Gross      |  | Gross      |     |           
|                                              |                           | Amortized      |         | Unrealized |  | Unrealized |     | Estimated 
|                                              |                           | Cost           |         | Losses     |  | Gains      |     | Fair Value
|                                              |                           |                |         |            |  |            |     |           
|                                              |                           |               
|                                              |                           | (In thousands)
|Cash and money market funds                   |                           | $              | 16,184  |            |  | $          |    |            |   | $ |      |       |  | $ | 16,184  |        
|Bonds of the U.S. Government and its agencies |                           |                | 55,663  |            |  |            |    |            |   |   | 815   |       |  |   | 56,478  |        
|Commercial paper                              |                           |                | 80,959  |            |  |            | (98 | )          |   |   | 800   |       |  |   | 81,661  |        
|                                              |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |        
|                                              |                           | $              | 152,806 |            |  | $          | (98 | )          |   | $ | 1,615 |       |  | $ | 154,323 |        
|                                              |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |        
|Reported as:                                  |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |        
|                                              | Cash and cash equivalents |                | $       | 16,184     |  |            | $   |           |   |   | $     |      |  |   | $       | 16,184  | 
|                                              | Marketable securities     |                |         | 136,622    |  |            |     | (98        | ) |   |       | 1,615 |  |   |         | 138,139 | 
|                                              |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |        
|                                              |                           | $              | 152,806 |            |  | $          | (98 | )          |   | $ | 1,615 |       |  | $ | 154,323 |        
|                                              |                           |                |         |            |  |            |     |            |   |   |       |       |  |   |         |        

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of the cost and
estimated fair value of available-for-sale securities at
December 31, 2002, by contractual maturity:

|                                          |       |                |        |            |  |   |        |         | 
|----------------------------------------- | ----- | -------------- | ------ | ---------- |  | - | ------ | ------- | 
|                                          |       | Amortized      |        | Estimated 
|                                          |       | Cost           |        | Fair Value
|                                          |       |                |        |           
|                                          |       |               
|                                          |       | (In thousands)
|Mature in one year or less                |       | $              | 63,889 |            |  | $ | 64,253 |        
|Mature after one year through three years |       |                | 88,917 |            |  |   | 90,070 |        
|                                          |       |                |        |            |  |   |        |        
|                                          | Total |                | $      | 152,806    |  |   | $      | 154,323 | 
|                                          |       |                |        |            |  |   |        |        

The following is a summary of available-for-sale
securities as of December 31, 2001:

|                                              |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |         | 
|--------------------------------------------- | ------------------------- | -------------- | ------- | ---------- |  | ---------- | ---- | ---------- | - | - | ----- | ----- |  | - | ------- | ------- | 
|                                              |                           |                |         | Gross      |  | Gross      |      |           
|                                              |                           | Amortized      |         | Unrealized |  | Unrealized |      | Estimated 
|                                              |                           | Cost           |         | Losses     |  | Gains      |      | Fair Value
|                                              |                           |                |         |            |  |            |      |           
|                                              |                           |               
|                                              |                           | (In thousands)
|Cash and money market funds                   |                           | $              | 10,655  |            |  | $          |     |            |   | $ |      |       |  | $ | 10,655  |        
|Bonds of the U.S. Government and its agencies |                           |                | 28,446  |            |  |            | (37  | )          |   |   | 333   |       |  |   | 28,742  |        
|Commercial paper                              |                           |                | 125,058 |            |  |            | (85  | )          |   |   | 1,806 |       |  |   | 126,779 |        
|                                              |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |        
|                                              |                           | $              | 164,159 |            |  | $          | (122 | )          |   | $ | 2,139 |       |  | $ | 166,176 |        
|                                              |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |        
|Reported as:                                  |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |        
|                                              | Cash and cash equivalents |                | $       | 10,655     |  |            | $    |           |   |   | $     |      |  |   | $       | 10,655  | 
|                                              | Marketable securities     |                |         | 153,504    |  |            |      | (122       | ) |   |       | 2,139 |  |   |         | 155,521 | 
|                                              |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |        
|                                              |                           | $              | 164,159 |            |  | $          | (122 | )          |   | $ | 2,139 |       |  | $ | 166,176 |        
|                                              |                           |                |         |            |  |            |      |            |   |   |       |       |  |   |         |        

Gross realized gains and losses on sales of
available for sale securities were immaterial.

4.     Notes
Receivable

As of December 31, 2002, Caliper held a note
receivable of $215,000 from Daniel L. Kisner, Board
Chairman of Caliper. This note, with an initial principal amount
of $500,000, bears annual interest at 5.96% and is repayable
upon the earlier of; (i) July 29, 2005, or
(ii) the voluntary termination of the officers
employment with Caliper. Prior to July 1, 2002, this note
was subject to forgiveness by Caliper of principal and interest
amounts based on performance reviews of the officer with
$285,000 of the note principal having been forgiven between 1999
and 2001. Caliper believes this $215,000 note receivable
approximates fair value as of December 31, 2002. In 2002,
Michael R. Knapp, Calipers Chief Executive Officer, paid
Caliper in full for the $200,000 promissory note held by Caliper
associated with Dr. Knapps purchase of a residence in
July 1997. This note had an initial principal amount of $200,000
with an annual interest at 5.96% and was not subject to
forgiveness by Caliper of any principal or interest amounts.

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Inventories

Inventories are stated at the lower of cost
(determined on a first-in, first-out basis) or market.
Inventories consist of the following (in thousands):

|                |             |              |       |              |  |   |       |       | 
|--------------- | ----------- | ------------ | ----- | ------------ |  | - | ----- | ----- | 
|                |             | December 31, |       | December 31,
|                |             | 2002         |       | 2001        
|                |             |              |       |             
|Raw material    |             | $            | 3,614 |              |  | $ | 1,952 |      
|Work-in-process |             |              | 1,590 |              |  |   | 657   |      
|Finished goods  |             |              | 760   |              |  |   | 802   |      
|                |             |              |       |              |  |   |       |      
|                | Inventories |              | $     | 5,964        |  |   | $     | 3,411 | 
|                |             |              |       |              |  |   |       |      

Caliper permanently writes off 100% of the cost
of inventory that Caliper specifically identifies and considers
obsolete or excessive to fulfill future sales estimates. Caliper
defines obsolete inventory as inventory that will no longer be
used in the manufacturing process. Excess inventory is generally
defined as inventory in excess of projected usage, and is
determined using managements best estimate of future
demand at the time, based upon information then available to
Caliper. Caliper uses a twelve-month demand forecast and, in
addition to the demand forecast, Caliper also considers:
(1) parts and subassemblies that can be used in alternative
finished products; (2) parts and subassemblies that are
unlikely to be engineered out of Calipers products; and
(3) known design changes which would reduce Calipers
ability to use the inventory as planned. In the year ended
December 31, 2002, Caliper recorded a charge of $701,000 to
cost of product revenues for excess and obsolete inventories.
There were no charges to cost of revenues for excess and
obsolete inventories in prior years.

6.     Property and
Equipment

Property and equipment consists of the following:

|                                          |  |                |         |      |  |   |        |  
|----------------------------------------- |  | -------------- | ------- | ---- |  | - | ------ | -
|                                          |  |               
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2002           |         | 2001
|                                          |  |                |         |     
|                                          |  |               
|                                          |  | (In thousands)
|Machinery, equipment, and furniture       |  | $              | 21,123  |      |  | $ | 17,101 |  
|Leasehold improvements                    |  |                | 5,235   |      |  |   | 3,498  |  
|                                          |  |                |         |      |  |   |        |  
|                                          |  |                | 26,358  |      |  |   | 20,599 |  
|Accumulated depreciation and amortization |  |                | (13,813 | )    |  |   | (8,018 | )
|                                          |  |                |         |      |  |   |        |  
|Property and equipment, net               |  | $              | 12,545  |      |  | $ | 12,581 |  
|                                          |  |                |         |      |  |   |        |  

As of December 31, 2002 and 2001, property
and equipment includes assets acquired under capital leases of
approximately $9.9 million and $9.0 million
respectively. Accumulated depreciation related to leased assets
was approximately $6.4 million and $4.7 million at
December 31, 2002 and 2001.

7.     Commitments

Leases

As of December 31, 2002, Caliper had
$9.9 million of property and equipment financed through
capital lease obligations and approximately $965,000 unused and
expired under an equipment sale-leaseback credit line. The
obligations under the equipment sale-leaseback arrangements are
secured by the equipment financed, bear interest at a
weighted-average fixed rate of approximately 12.2%, and are
due in monthly installments through June 2005. Under the
terms of one equipment sale-leaseback agreement, ownership of

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the financed equipment may be purchased by
Caliper at fair value at the end of the financing term. Other
equipment sale-leaseback agreements require a balloon payment at
the end of each loan term.

As of December 31, 2002, future minimum
lease payments under operating and capital leases, reduced by
minimum sublease income in the case of operating leases, and
principal payments on equipment loans are as follows:

|                                                  |            |                                            |   |                   |        |   |        |       |       | 
|------------------------------------------------- | ---------- | ------------------------------------------ | - | ----------------- | ------ | - | ------ | ----- | ----- | 
|                                                  |            |                                            |   | Obligations Under
|                                                  |            | Operating                                  |   | Sale-Leaseback   
|                                                  |            | Leases                                     |   | Arrangements     
|                                                  |            |                                            |   |                  
|                                                  |            |                                           
|                                                  |            | (In thousands)                            
|Years ending December 31:                         |            |                                            |   |                   |        |   |        |      
|                                                  | 2003       |                                            | $ | 5,367             |        |   | $      | 2,806 |      
|                                                  | 2004       |                                            |   | 5,520             |        |   |        | 1,750 |      
|                                                  | 2005       |                                            |   | 5,624             |        |   |        | 385   |      
|                                                  | 2006       |                                            |   | 5,768             |        |   |        |      |      
|                                                  | Thereafter |                                            |   | 10,240            |        |   |        |      |      
|                                                  |            |                                            |   |                   |        |   |        |      
|                                                  |            | Total minimum lease and principal payments |   | $                 | 32,519 |   |        |       | 4,941 | 
|                                                  |            |                                            |   |                   |        |   |        |      
|Amount representing interest                      |            |                                            |   |                   |        |   | 543    |      
|                                                  |            |                                            |   |                   |        |   |        |      
|Present value of future payments                  |            |                                            |   |                   |        |   | 4,398  |      
|Current portion of sale-leaseback arrangements    |            |                                            |   |                   |        |   | (2,412 | )    
|                                                  |            |                                            |   |                   |        |   |        |      
|Noncurrent portion of sale-leaseback arrangements |            |                                            |   |                   |        | $ | 1,986  |      
|                                                  |            |                                            |   |                   |        |   |        |      

Through June 30, 2002, Caliper drew down
$822,000 of the $1.8 million remaining balance of the
$3.0 million equipment sale-leaseback credit line which
existed as of December 31, 2001 at a weighted-average
interest rate of 11.9%. The drawdown period under this
$3.0 million equipment sale-leaseback arrangement expired
on June 30, 2002. As of December 31, 2002, Caliper
drew down approximately $2.0 million in total under the
sale-leaseback arrangement at a weighted average interest rate
of 11.7% and had $965,000 expire as unused under this
arrangement. Caliper did not renew or have any similar
arrangements in place to finance equipment purchases as of
December 31, 2002.

Rent expense relating to operating leases was
approximately $5.2 million in 2002, $3.9 million in
2001, and $2.5 million in 2000.

In December 1998, Caliper entered into a 10-year
facility operating lease agreement. Caliper also entered into a
sublease agreement pursuant to which it received a monthly
amount of $18,000 from December 1998 through November 1999 and a
monthly amount of $24,000 in December 1999 and January 2000. In
June 2000, Caliper entered into an 8-year facility operating
lease agreement and also entered into a sublease agreement with
a third party for a monthly amount of $42,000 from September
2000 through June 2001. In June 2001, Caliper entered into an
7-year facility operating lease agreement and also entered into
a sublease agreement with Amphora, a related party, for a
monthly amount of $18,500 from September 2001 through August
2004 subject also to a 3% per annum increase. In December 2002,
in connection with the completion of Amphoras second
financing, Caliper agreed to an early termination of this
Sublease Agreement as of March 31, 2003. The annual
increase is 4% for the first operating lease agreement and is 3%
for the second and third agreement. In connection with these
three facility leases, Caliper has a $2.8 million standby
letter-of-credit arrangement with a bank expiring in year 2008.
Caliper has pledged a certificate of deposit of
$2.8 million as collateral on outstanding letters of credit
related to Calipers operating lease agreements and is
classified as security deposits on the balance sheet.

F-21



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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Inventory Purchases

As of December 31, 2002, Caliper had a
non-cancelable purchase commitment in the amount of
approximately $450,000 with its foreign supplier for the
purchase of proprietary glass stock used in the manufacture of
certain types of its chips.



| |          
| | ---------
| | Royalties

During the fourth quarter of 2002, Caliper
entered into an amendment and restatement of Calipers
existing license agreements with UT-Battelle, LLC under which
Caliper has obtained an exclusive license to the patents
covering the inventions of Dr. J. Michael Ramsey. Although
Caliper has minimum royalty obligations under this license
agreement, its earned royalty payments exceeded the required
minimum royalty for 2002. Royalty payments were $81,000 in 2002.
Caliper also has an exclusive license from the Trustees of the
University of Pennsylvania to certain patents relating to
microfluidic applications and chip structures. The minimum
royalty obligation under this license rises over time, but never
exceeds $200,000 per year.



|   |                                              
|-- | ---------------------------------------------
|8. | Other Current and Non-current
    Liabilities

Other current and non-current liabilities at
December 31, 2002 and December 31, 2001 consist of the
following;

|                                  |                                         |                |       |       |  |   |       |       | 
|--------------------------------- | --------------------------------------- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                                  |                                         |               
|                                  |                                         | December 31,  
|                                  |                                         |               
|                                  |                                         | 2002           |       | 2001 
|                                  |                                         |                |       |      
|                                  |                                         |               
|                                  |                                         | (In thousands)
|Accrued legal                     |                                         | $              | 328   |       |  | $ | 151   |      
|Accrued accounting and consulting |                                         |                | 147   |       |  |   | 121   |      
|Accrued warranty                  |                                         |                | 265   |       |  |   | 85    |      
|Accrued royalties                 |                                         |                | 183   |       |  |   |      |      
|Accrued other                     |                                         |                | 187   |       |  |   |      |      
|                                  |                                         |                |       |       |  |   |       |      
|                                  | Total other current accrued liabilities |                | $     | 1,110 |  |   | $     | 357   | 
|                                  |                                         |                |       |       |  |   |       |      
|Deferred rent                     |                                         | $              | 1,552 |       |  | $ | 1,239 |      
|Deferred compensation obligation  |                                         |                | 334   |       |  |   | 261   |      
|Other                             |                                         |                | 100   |       |  |   | 100   |      
|                                  |                                         |                |       |       |  |   |       |      
|                                  | Total other noncurrent liabilities      |                | $     | 1,986 |  |   | $     | 1,600 | 
|                                  |                                         |                |       |       |  |   |       |      



|   |                         
|-- | ------------------------
|9. | Restructuring Activities

Due to the broader economic slowdown and reduced
research and development spending by biopharmaceutical companies
that Caliper believed was affecting Calipers sales to
customers, Caliper began in July 2002 a detailed strategic
review in which it evaluated each of its products and programs
for commercial opportunity, time to market and resource
requirements. In September 2002, to better align Calipers
organizational structure with these depressed market conditions
and customer demand, Caliper conducted a reduction in force that
resulted in a downsizing of its employee work force by
28 employees, or approximately 10% concluding 2002 with 251
employees. Of the employees affected by the reduction in force,
75% were in research and development with the remaining divided
equally between manufacturing and administrative functions.
Prior to the date of the financial statements, management with
the appropriate level of authority approved and committed
Caliper to a plan of termination that included the benefits
terminated employees would receive. In addition, prior to the
date of the financial statements, the termination benefits were
communicated to employees in detail sufficient to enable them to
determine the nature and amounts of their

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

individual severance benefits. As of
December 31, 2002, all of the employee separations were
completed. Caliper recorded a charge of $314,000 for severance
and related benefits with all payments distributed prior to
December 31, 2002. Caliper has had no other restructuring
charges in prior periods.



|    |                                                                    
|--- | -------------------------------------------------------------------
|10. | Redeemable Convertible Preferred Stock and
    Stockholders Equity



| |                  
| | -----------------
| | Private Placement

In August 2000, Caliper completed a private
placement of 2,300,000 shares of its common stock to
selected institutional investors, at a per share price of
$48.00. Caliper received aggregate gross proceeds from the
offering of approximately $110.4 million before payment of
placement agent fees and other expenses of approximately
$5.5 million.



| |                                         
| | ----------------------------------------
| | Preferred Share Purchase Rights
    Plan

In December 2001, the board of directors and
stockholders of Caliper adopted a Preferred Share Purchase
Rights Plan (Rights Plan) under which Caliper issued
as a dividend certain rights to all holders of its common stock
to acquire additional shares of common stock at a discount price
under certain circumstances. The dividend of the Rights was made
to holders of record of Calipers common stock as of
January 8, 2002 and shares of common stock that are newly
issued after this date will also carry Rights. The Rights Plan
is to provide protection to stockholders from various
unsolicited and abusive takeover tactics, including attempts to
acquire control of Caliper at an inadequate price or treat all
stockholders equally. Under the Rights Plan, each stockholder
received one Right for each share of Calipers outstanding
common stock held by the stockholder. Each Right will entitle
the holder to purchase one one-hundredth of a share of newly
designated Series A Junior Participating Preferred Stock of
Caliper at an initial exercise price of $100. Initially, the
Rights are not detachable from Calipers common stock and
are not exercisable. Subject to certain exceptions, they become
immediately exercisable after any person or group (an
Acquiring Person) acquires beneficial ownership of
15% or more of Calipers common stock or 10 business days
(or such date as the board of directors may determine) after any
person or entity announces a tender or exchange offer that would
result in a 15% or greater beneficial ownership level. At no
time will the Rights have any voting power. If the Rights become
exercisable and a buyer becomes an Acquiring Person, all Rights
holders, except the Acquiring Person, will be entitled to
purchase, for each Right held, $200 worth of Calipers
common stock for $100. Calipers board of directors may
amend or terminate the Rights Plan at any time or redeem the
rights prior to the time a person acquires more than 15% of
Calipers common stock. Issuance of the Rights will not
affect the financial position of Caliper or interfere with its
business plans. Issuance of the Rights will not affect reported
earnings per share and will not be taxable to Caliper or
Calipers stockholder except under certain circumstance if
the Rights become exercisable.



| |                            
| | ---------------------------
| | Convertible Preferred Stock

During 1999, Caliper recorded $2.3 million
for accretions up to the date of initial public offering. Upon
the closing of the initial public offering, each of the
outstanding 11,703,692 shares of redeemable convertible
preferred stock and 829,142 shares of convertible preferred
stock was automatically converted into one share of common stock.



| |         
| | --------
| | Warrants

In January 1996, in connection with an equipment
financing agreement, Caliper issued a warrant that entitles the
holder to purchase 3,276 shares of common stock at an
exercise price of $1.22 per share. In June 2000, the warrant was
exercised under a net exercise provision and 3,194 shares
of common stock were issued.

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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 1996, in connection with a capital lease
agreement, Caliper granted a warrant that entitles the holder to
purchase 32,767 shares of Series B preferred stock at
an exercise price of $1.22 per share. In June 2000, the warrant
was exercised under a net exercise provision and
31,862 shares of common stock were issued.

In October 1996, in connection with certain
agreements, Caliper issued two warrants that entitle the holders
to purchase a total of 38,460 shares of common stock at an
exercise price of $1.22 per share. One of these warrants is
exercisable through October 11, 2006. In July 2000, the
other warrant was exercised under a net exercise provision and
18,729 shares of common stock were issued.

No amounts have been recorded by Caliper for the
above warrant issuances, as the amounts were determined to be
immaterial at the time of issuance.

In August 1995, Caliper executed an agreement
which called for the issue of two warrants, upon achievement of
a certain patent milestone, to purchase a total of 38,460 shares
of common stock at an exercise price of $1.22 per share. This
patent milestone was met in December 1999, and the two warrants
were issued in February 2000. These warrants will expire in
January 2006. The fair value of the warrants was capitalized in
1999 and is being amortized over 5 years. One of these
warrants is exercisable through January 17, 2006. In July
2000, one of these warrants was exercised under a net exercise
provision and 18,729 shares of common stock were issued.
There were no exercises in 2002 or in 2001.



| |                                       
| | --------------------------------------
| | Common Stock Subject to
    Repurchase

Common stock issued to founders of Caliper vested
generally over five years at 20% one year from the date of grant
and on a monthly, pro rata basis thereafter. At
December 31, 2002, no shares were subject to repurchase at
the original issuance price in the event of termination of
employment or services to Caliper. Caliper has not repurchased
any shares in accordance with these rights.



| |                   
| | ------------------
| | Stock Option Plans

In December 2001, Calipers board of
directors adopted the 2001 Non-Statutory Stock Option Plan
(2001 Non-Statutory Plan). A total of
500,000 shares of common stock has been reserved for
issuance under this plan. Caliper issued 230,400 shares
under the 2001 Non-Statutory Plan in the year 2001 at a weighted
average price of $12.24. Caliper issued the remaining 269,600
shares under the 2001 Non-Statutory Plan in the year 2002 at a
weighted average price of $7.82. Of the 269,600 shares
issued in 2002, 50,713 shares expired and were canceled
which became available for future issuance. Options under the
2001 Non-Statutory Plan cannot be issued to Calipers
current officers and directors and was therefore not required to
be voted on and approved by stockholders.

In October 1999, Calipers board of
directors and stockholders adopted the 1999 Equity Incentive
Plan (1999 Equity Plan). The 1999 Equity Plan
amended and restated the 1996 Stock Incentive Plan and increased
the shares reserved for issuance to 4 million. In addition,
the 1999 Equity Plan provides for an automatic increase in the
shares reserved for issuance by the greater of 5% of outstanding
shares on a fully-diluted basis or the number of shares that
have been made subject to awards granted under the 1999 Equity
Plan during the prior 12-month period. The automatic share
reserve increase may not exceed 12,820,000 shares in
aggregate over the 10-year period. In June 2002, 2001 and 2000,
an additional 2,456,997 shares, 1,350,058 shares and
1,439,198 shares of common stock, respectively, became
issuable under this plan.

In October 1999, Calipers board of
directors and stockholders adopted the 1999 Non-Employee
Directors Stock Option Plan (1999 Directors
Plan) which provides for the automatic grant of options to
non-employee directors. A total of 200,000 shares of common
stock has been reserved for issuance under this plan. The number
of shares reserved for issuance will automatically increase by
the greater of 0.3% of

F-24



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

outstanding shares on a fully-diluted basis or
the number of shares subject to options granted under the 1999
Directors Plan during the prior 12-month period. In June
2002, 2001 and 2000, an additional 36,000 shares,
77,017 shares and 69,496 shares of common stock,
respectively, became issuable under this plan.

On August 31, 1996, Calipers board of
directors and stockholders adopted the 1996 Stock Incentive Plan
(the 1996 Stock Plan). This plan supersedes the 1996
Equity Incentive Plan and provides for the issuance of common
stock and the granting of options to purchase common stock to
employees, officers, directors, and consultants of Caliper.
Caliper granted shares of common stock for issuance under the
1996 Stock Plan at no less than the fair value of the stock (no
less than 85% of fair value for nonqualified options). Options
granted under the 1996 Stock Plan generally vest over
5 years at a rate of 20% one year from the grant date and
1/60 monthly thereafter. Options canceled under the 1996
Equity Incentive Plan are not available for future grants.

A summary of activity under the plans is as
follows:

|                             |            |           |           |                     |   |                |           |            |   |   |                |                 |  |   |       |       | 
|---------------------------- | ---------- | --------- | --------- | ------------------- | - | -------------- | --------- | ---------- | - | - | -------------- | --------------- |  | - | ----- | ----- | 
|                             |            |           |           |                     |   |               
|                             |            |           |           | Options Outstanding |   | Weighted-     
|                             |            |           |           |                     |   | Average       
|                             |            | Options   |           | Number of           |   |                |           | Exercise  
|                             |            | Available |           | Options             |   | Exercise Price |           | Price     
|                             |            |           |           |                     |   |                |           |           
|Balance at December 31, 1999 |            |           | 1,271,542 |                     |   |                | 2,383,984 |            |   | $ | 0.06 - $ 14.00 |                 |  | $ | 2.25  |      
|                             | Authorized |           |           | 1,508,694           |   |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Awards     |           |           | (6,250              | ) |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Granted    |           |           | (916,681            | ) |                |           | 916,681    |   |   | $              | 24.13 - $162.00 |  |   | $     | 59.67 | 
|                             | Exercised  |           |           |                    |   |                |           | (230,703   | ) |   | $              | 0.06 - $ 14.00  |  |   | $     | 1.05  | 
|                             | Canceled   |           |           | 23,513              |   |                |           | (27,060    | ) |   | $              | 0.06 - $ 77.00  |  |   | $     | 3.26  | 
|                             |            |           |           |                     |   |                |           |            |   |   |                |                 |  |   |       |      
|Balance at December 31, 2000 |            |           | 1,880,818 |                     |   |                | 3,042,902 |            |   | $ | 0.06 - $162.00 |                 |  | $ | 19.63 |      
|                             | Authorized |           |           | 1,927,075           |   |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Awards     |           |           |                    |   |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Granted    |           |           | (2,625,293          | ) |                |           | 2,625,293  |   |   | $              | 9.25 - $ 47.00  |  |   | $     | 21.51 | 
|                             | Exercised  |           |           |                    |   |                |           | (398,761   | ) |   | $              | 0.06 - $ 14.00  |  |   | $     | 2.08  | 
|                             | Canceled   |           |           | 381,395             |   |                |           | (381,395   | ) |   | $              | 0.47 - $106.00  |  |   | $     | 33.70 | 
|                             |            |           |           |                     |   |                |           |            |   |   |                |                 |  |   |       |      
|Balance at December 31, 2001 |            |           | 1,563,995 |                     |   |                | 4,888,039 |            |   | $ | 0.06 - $162.00 |                 |  | $ | 20.95 |      
|                             | Authorized |           |           | 2,492,997           |   |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Awards     |           |           |                    |   |                |           |           |   |   |                |                |  |   |       |      | 
|                             | Granted    |           |           | (2,682,387          | ) |                |           | 2,682,387  |   |   | $              | 3.52 - $ 17.66  |  |   | $     | 9.46  | 
|                             | Exercised  |           |           |                    |   |                |           | (157,866   | ) |   | $              | 0.06 - $  3.12  |  |   | $     | 1.07  | 
|                             | Canceled   |           |           | 3,030,253           |   |                |           | (3,030,253 | ) |   | $              | 0.47 - $102.00  |  |   | $     | 26.60 | 
|                             |            |           |           |                     |   |                |           |            |   |   |                |                 |  |   |       |      
|Balance at December 31, 2002 |            |           | 4,404,858 |                     |   |                | 4,382,307 |            |   | $ | 0.06 - $162.00 |                 |  | $ | 10.15 |      
|                             |            |           |           |                     |   |                |           |            |   |   |                |                 |  |   |       |      

Caliper granted nonqualified options of
1,757,729, 1,402,344, and 391,841 for the years ended
December 31, 2002, 2001, and 2000, respectively.

The weighted-average fair value of options
granted during 2002, 2001, and 2000 was $7.16, $15.72, and
$47.60, respectively.

F-25



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information with
respect to stock options outstanding at December 31, 2002:

|                        |  |                     |           |                     |  |                |     |           |  |                |        |  |  |  |           |  |  |   |        | 
|----------------------- |  | ------------------- | --------- | ------------------- |  | -------------- | --- | --------- |  | -------------- | ------ |  |  |  | --------- |  |  | - | ------ | 
|                        |  |                     |           |                     |  |               
|                        |  | Options Exercisable |           |                    
|                        |  |                     |           | Options Outstanding
|                        |  |                     |           | Weighted            |  |                |     |          
|                        |  |                     |           | Average             |  | Weighted       |     |           |  | Weighted      
|                        |  | Number of           |           | Remaining           |  | Average        |     | Number of |  | Average       
|Range of Exercise Price |  | Shares              |           | Contractual Life    |  | Exercise Price |     | Shares    |  | Exercise Price
|                        |  |                     |           |                     |  |                |     |           |  |               
|$  0.06 - $  0.06       |  |                     | 12,741    |                     |  |                | 1.4 |           |  | $              | 0.06   |  |  |  | 12,741    |  |  | $ | 0.06   | 
|$  0.47 - $  0.62       |  |                     | 125,416   |                     |  |                | 4.3 |           |  | $              | 0.57   |  |  |  | 123,143   |  |  | $ | 0.57   | 
|$  0.97 - $  0.97       |  |                     | 775,478   |                     |  |                | 6.1 |           |  | $              | 0.97   |  |  |  | 552,595   |  |  | $ | 0.97   | 
|$  3.12 - $  4.44       |  |                     | 976,573   |                     |  |                | 8.3 |           |  | $              | 3.68   |  |  |  | 296,342   |  |  | $ | 3.12   | 
|$  4.71 - $  6.75       |  |                     | 719,000   |                     |  |                | 9.5 |           |  | $              | 6.00   |  |  |  | 0         |  |  |   |        | 
|$  7.55 - $ 11.03       |  |                     | 457,274   |                     |  |                | 8.9 |           |  | $              | 8.42   |  |  |  | 57,457    |  |  | $ | 9.99   | 
|$ 11.80 - $ 17.34       |  |                     | 922,309   |                     |  |                | 8.6 |           |  | $              | 14.23  |  |  |  | 244,545   |  |  | $ | 14.19  | 
|$ 19.80 - $ 26.10       |  |                     | 10,800    |                     |  |                | 8.5 |           |  | $              | 21.59  |  |  |  | 4,025     |  |  | $ | 21.67  | 
|$ 31.13 - $ 44.44       |  |                     | 254,255   |                     |  |                | 7.5 |           |  | $              | 33.27  |  |  |  | 151,878   |  |  | $ | 33.22  | 
|$ 50.00 - $ 58.50       |  |                     | 46,530    |                     |  |                | 7.5 |           |  | $              | 57.32  |  |  |  | 41,384    |  |  | $ | 57.70  | 
|$ 77.00 - $ 77.00       |  |                     | 67,981    |                     |  |                | 5.9 |           |  | $              | 77.00  |  |  |  | 52,065    |  |  | $ | 77.00  | 
|$130.00 - $162.00       |  |                     | 13,950    |                     |  |                | 7.1 |           |  | $              | 154.77 |  |  |  | 9,881     |  |  | $ | 154.77 | 
|                        |  |                     |           |                     |  |                |     |           |  |                |        |  |  |  |           |  |  |   |        | 
|$  0.06 - $162.00       |  |                     | 4,382,307 |                     |  |                | 8.0 |           |  | $              | 10.15  |  |  |  | 1,546,056 |  |  | $ | 12.05  | 
|                        |  |                     |           |                     |  |                |     |           |  |                |        |  |  |  |           |  |  |   |        | 

Employee
Stock Purchase Plan

In October 1999, the board of directors and
stockholders adopted the 1999 Employee Stock Purchase Plan
(1999 Purchase Plan). A total of 300,000 shares of
common stock has been reserved for issuance under the 1999
Purchase Plan. The number of shares reserved automatically
increases by the greater of 0.5% of outstanding shares on a
fully-diluted basis or the number of shares issued under the
1999 Purchase Plan during the prior 12-month period. The
automatic share reserve increase may not exceed 3 million
shares in aggregate over the 10-year period. The 1999 Purchase
Plan permits eligible employees to acquire shares of
Calipers common stock through payroll deductions of up to
10% of their gross earnings. No employee may participate in the
1999 Purchase Plan if immediately after the grant the employee
has voting power over 5% or more of the outstanding capital
stock. Under the 1999 Purchase Plan, the board may specify
offerings of up to 27 months. Unless the board determines
otherwise, common stock may be purchased at the lower of 85% of
the fair market value of Calipers common stock on the
first day of the offering or 85% of the fair market value of
Calipers common stock on the purchase date. The initial
offering period began on the effective date of the initial
public offering. Caliper issued 337,424 shares under the 1999
Purchase Plan in the year 2002 at a weighted average price of
$4.33. Caliper issued 69,201 and 112,881 shares under the 1999
Purchase Plan in the year 2000 and 2001 at a weighted average
price of $14.27 and $12,51, respectively. In June 2002, 2001 and
2000, an additional 201,642, 128,361, and 115,827 shares,
respectively, of common stock became issuable under the 1999
Purchase Plan. As of December 31, 2002, 226,324 shares
remain available for future issuance.

Stock Based
Compensation

Pro forma information regarding net loss and net
loss per share is required by SFAS No. 123, and has been
determined as if Caliper had accounted for its employee stock
options under the fair-value method of

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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that Statement (see Note 1 of the Notes to
Consolidated Financial Statements). The fair value of these
options was estimated at the date of grant using the
Black-Scholes method and the following assumptions:

|                            |  |      |      |      |  |      |      |  |  |  |      | 
|--------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                            |  | 2002 |      | 2001 |  | 2000
|                            |  |      |      |      |  |     
|Volatility (%)              |  |      | 112  |      |  |      | 112  |  |  |  | 120  | 
|Risk-free interest rate (%) |  |      | 3.70 |      |  |      | 4.33 |  |  |  | 6.28 | 
|Expected life (years)       |  |      | 4.0  |      |  |      | 4.0  |  |  |  | 4.0  | 
|Expected dividend yield (%) |  |      | 0    |      |  |      | 0    |  |  |  | 0    | 

Caliper has recorded deferred stock compensation
of approximately $12.7 million for the year ended
December 31, 1999, representing the difference between the
exercise price of the options granted and the deemed fair value
of the common stock. These amounts are being amortized by
charges to operations over the vesting periods of the individual
stock options using the graded vesting method. Such amortization
expense amounted to approximately $378,000, $2.5 million,
and $4.5 million for the years ended December 31,
2002, December 31, 2001 and December 31, 2000,
respectively. The amortization expense recorded in 2002 was net
of $1.0 million reversal of stock compensation expense
recognized through the third quarter of 2002 resulting from
forfeited options in connection with its 10% reduction in force
and other employee terminations conducted in September 2002.
Caliper expects to record amortization expense for deferred
compensation of $542,500 and $94,500 during 2003 and 2004,
respectively.



| |               
| | --------------
| | Reserved Stock

As of December 31, 2002, Caliper had
reserved shares of common stock for future issuance as follows:

|                                     |  |  |           | 
|------------------------------------ |  |  | --------- | 
|1999 Equity Incentive Plan           |  |  | 7,904,652 | 
|1999 Directors Plan                 |  |  | 382,513   | 
|2001 Non-Statutory Stock Option Plan |  |  | 500,000   | 
|Warrants                             |  |  | 38,460    | 
|1999 Employee Stock Purchase Plan    |  |  | 226,324   | 
|                                     |  |  |           | 
|                                     |  |  | 9,051,949 | 
|                                     |  |  |           | 

11.     Stock Option
Exchange Offer

On October 16, 2002, Caliper commenced a
voluntary stock option exchange program for its employees. Under
the program, employees were given the opportunity to submit for
cancellation certain of their outstanding stock options in a
one-for-one exchange for replacement options to be granted on a
day that is at least six months and one day from the date of
cancellation of the submitted options. The unexercised stock
options that were tendered for exchange under the stock option
exchange program were for 1,511,331 shares with 194
employees participating in the exchange program. The exercise
price of the replacement options will be equal to the closing
price of Calipers common stock as reported on the Nasdaq
National Market on the grant date of the replacement options,
which is expected to be on or about May 20, 2003. The offer
of the option exchange commenced on October 16, 2002, and
expired on November 19, 2002.

12.     Income
Taxes

Caliper has no provision for U.S. federal or
state income taxes for any period as it has incurred operating
losses.

F-27



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A reconciliation of income taxes at the statutory
federal income tax rate to net income taxes included in the
accompanying statements of operations is as follow:

|                                           |                                       |                         |         |      |  |      |        |     |  |   |        |       | 
|------------------------------------------ | ------------------------------------- | ----------------------- | ------- | ---- |  | ---- | ------ | --- |  | - | ------ | ----- | 
|                                           |                                       |                        
|                                           |                                       | Year Ended December 31,
|                                           |                                       |                        
|                                           |                                       | 2002                    |         | 2001 |  | 2000
|                                           |                                       |                         |         |      |  |     
|                                           |                                       |                        
|                                           |                                       | (In thousands)         
|U.S. federal taxes (benefit):              |                                       |                         |         |      |  |      |        |     |  |   |        |      
|At statutory rate                          |                                       | $                       | (14,197 | )    |  | $    | 1,300  |     |  | $ | (4,528 | )    
|Federal alternative minimum taxes          |                                       |                         |        |      |  |      |       |     |  |   |       |      
|State                                      |                                       |                         |        |      |  |      |       |     |  |   |       |      
|Foreign                                    |                                       |                         |        |      |  |      |       |     |  |   |       |      
|Permanent differences:                     |                                       |                         |         |      |  |      |        |     |  |   |        |      
|                                           | Amortization of Deferred Compensation |                         |         | 542  |  |      |        | 864 |  |   |        | 1,545 | 
|                                           | Other                                 |                         |         | 169  |  |      |        | 106 |  |   |        | 13    | 
|Unutilized (utilized) net operating losses |                                       |                         | 13,486  |      |  |      | (2,270 | )   |  |   | 2,970  |      
|                                           |                                       |                         |         |      |  |      |        |     |  |   |        |      
|Total                                      |                                       | $                       |        |      |  | $    |       |     |  | $ |       |      
|                                           |                                       |                         |         |      |  |      |        |     |  |   |        |      

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of Calipers deferred
tax assets for federal and state income taxes are as follows:

|                                     |       |                |         |      |  |      |         |   |  |   |         |   | 
|------------------------------------ | ----- | -------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - | 
|                                     |       |               
|                                     |       | December 31,  
|                                     |       |               
|                                     |       | 2002           |         | 2001 |  | 2000
|                                     |       |                |         |      |  |     
|                                     |       |               
|                                     |       | (In thousands)
|Net operating loss carryforwards     |       | $              | 22,400  |      |  | $    | 9,500   |   |  | $ | 10,900  |  
|Research credit carryforwards        |       |                | 4,350   |      |  |      | 3,040   |   |  |   | 1,350   |  
|Capitalized research and development |       |                | 3,420   |      |  |      | 1,477   |   |  |   | 1,658   |  
|Other, net                           |       |                | 3,050   |      |  |      | 1,810   |   |  |   | 2,790   |  
|                                     |       |                |         |      |  |      |         |   |  |   |         |  
|Net deferred tax assets              |       |                | 33,220  |      |  |      | 15,827  |   |  |   | 16,698  |  
|Valuation allowance                  |       |                | (33,220 | )    |  |      | (15,827 | ) |  |   | (16,698 | )
|                                     |       |                |         |      |  |      |         |   |  |   |         |  
|                                     | Total |                | $       |     |  |      | $       |  |  |   | $       |  | 
|                                     |       |                |         |      |  |      |         |   |  |   |         |  

As of December 31, 2002, Caliper had federal
and California net operating loss carryforwards of approximately
$64.8 million and $5.9 million. Caliper also had
federal and state research and development tax credit
carryforwards of approximately $2.8 million and
$2.4 million, respectively. The federal net operating loss
and credit carryforwards will expire at various dates beginning
in the year 2009 through 2022, if not utilized. The state of
California net operating losses will begin to expire in year
2004, if not utilized.

Because of Calipers lack of earnings
history and the uncertainty of realizing these net operating
losses, the deferred tax assets have been fully offset by a
valuation allowance. The valuation allowance increased
(decreased) by 17.4 million, ($871,000) and
$6.2 million during the years ended December 31, 2002, 2001
and 2000, respectively.

Utilization of the federal and state net
operating losses and credits may be subject to a substantial
limitation due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The
annual limitation may result in the expiration of net operating
losses and credits before utilization.

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##### Table of Contents



CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.     Contracts and
Grants



| |                           
| | --------------------------
| | Collaboration with Agilent

In May 1998, Caliper executed a collaboration
agreement with Hewlett-Packard Company
(Hewlett-Packard) to create a line of commercial
research products based on LabChip technologies. In November
1999, Hewlett-Packard transferred this collaboration to its
subsidiary, Agilent Technologies, Inc. (Agilent). In
this collaboration, Caliper primarily focuses on developing core
technology and LabChip applications. Caliper also manufactures
the chips and supplies the chips and reagents to Agilent. If
Caliper elects, however, not to manufacture chips for a LabChip
application or is unable to meet minimum mutually agreed supply
commitments, Agilent would have the right to manufacture those
chips. Agilent primarily focuses on developing instruments and
software, manufacturing instruments, and marketing, selling and
supporting complete systems.

Agilent funds Calipers product development
efforts under the collaboration, reimburses Calipers costs
of supplying chips and reagents, and pays Caliper a share of the
gross margin on all components of LabChip systems. The gross
margin share varies depending on the type of collaboration
product, whether Caliper or Agilent manufacture the
collaboration product, and whether such collaboration product is
sold during the collaboration or after the collaboration has
terminated. Under this agreement, Hewlett-Packard purchased
534,188 shares of Calipers redeemable convertible
preferred stock Series E with an aggregate cost of
$5.0 million.

The term of the Agilent agreement is eight years,
beginning in May 1998. After three years, Agilent could have
elected not to meet certain annual funding requirements, in
which case either party could have terminated the agreement.
Agilent elected to continue the annual funding requirements in
May 2001. Either party could also terminate the agreement after
five years.

In May 2002, Caliper notified Agilent of its
election to terminate the agreement between the companies,
effective as of May 2003. If Caliper does not enter into a new
agreement before that time, then under the existing agreement
the parties relationship would change, including as
follows: Caliper may cease to receive development funding for
new products; Caliper will grant Agilent a non-exclusive
royalty-bearing license to use the lab-on-a-chip technologies as
then developed for Agilent to develop, make and sell products in
the field that applied during the collaboration; Caliper may be
required to transfer chip manufacturing know-how and receive
royalties on Agilents sales of systems that employ
Calipers technologies; and beginning in November 2003,
Caliper will have the right to market and sell collaboration
products, with reciprocal supply arrangements with Agilent.

In its collaboration with Agilent, Caliper has
primarily focused on developing core LabChip technology and
product applications. Caliper has also manufactured the chips
and supplied the chips and reagents to Agilent. Agilent has
primarily focused on developing instruments and software,
manufacturing instruments and marketing, selling and supporting
complete systems. Agilent and Caliper have worked in a
collaborative manner to identify new applications for
development and distribution. Historically Agilent has also
provided product development funding to Caliper. This funding
could cease at any time after the termination of the formal
agreement in May 2003.

Under the collaboration, Agilent reimburses
Calipers costs of manufacturing chips and reagents and
pays us a share of the gross margin on all components of LabChip
systems, including instruments. This general structure for
existing products will survive termination of the agreement. The
gross margin share varies depending on the type of collaboration
product, and on whether Agilent or Caliper manufactures the
collaboration product. After the collaboration agreement
terminates in May 2003, Calipers gross margin share for
existing products will remain the same until November 2004. In
November 2004, Calipers gross margin share for such chips
and reagents will decrease, and in May 2006 Calipers gross
margin share for such chips and reagents will decrease again.
Calipers gross margin share for existing instruments will
also decrease in the

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

same time periods, although at somewhat different
rates. Upon termination of the agreement in May 2003, Agilent
will have a non-exclusive license in the field of the
collaboration to certain of Calipers LabChip technology to
develop, manufacture and sell new products in that field.
Agilent will be required to pay royalties to Caliper based on
its net revenue from sales of such products at the established
royalty rates set forth in the termination provisions of the
collaboration agreement.

Upon termination of the agreement, Caliper will
be obligated to continue to supply existing chips and reagents
to Agilent for a three-year period. Agilent will also have a
non-exclusive license to manufacture chips for Agilent LabChip
applications, in each case subject to gross margin sharing or
royalty payments to Caliper as described above. During the
six-month period following termination, Caliper will also be
obligated to train Agilent personnel with respect to the
manufacturing of chips, subject in certain circumstances to
reimbursement by Agilent of Calipers incurred expenses.
Agilent will be similarly obligated to train Caliper personnel
regarding the manufacturing of instruments, and upon
Calipers request, to transfer to Caliper all Agilent
know-how incorporated into collaboration products. Caliper will
retain its entire license rights to Agilents technology
granted during the term of the collaboration.

After a six-month period following termination of
the agreement with Agilent, Caliper will be entitled to market,
sell and support, either independently or with other third
parties, all products developed during the collaboration. For a
three-year period following termination, Caliper will be
required to purchase its requirements for such products from
Agilent, on the terms set forth in the termination provisions of
the agreement.

Technology
Access Program

In prior years and through the majority of 2001,
Caliper maintained a Technology Access Program which provided
customers with early access to new products, and offered
technical training, support and customization services.
Technology Access Program customers had non-exclusive access to
all of the drug discovery products Caliper offered during the
term of the agreement. These agreements generally provided for
customers to pay an up-front license fee and annual subscription
fees, and to reimburse Caliper for its costs of providing
development and support services. Instruments and chips were
generally sold separately on a product-by-product basis,
although some agreements establish prices for initial
instruments or estimates of per data point charges for sipper
chips. In August 2001, Caliper began to amend these agreements
with continuing Technology Access Program customers to
transition them to a products and services based customer for
commercially available drug discovery products. Caliper proposed
to each customer, and they agreed, that the remaining technology
access and subscription fees due Caliper under their agreement
would be converted to credits toward the purchase of products
and services. These credits had to be utilized in the eight to
fifteen months after August 2001.

Caliper had four Technology Access Program
customers for its drug discovery systems: Eli Lilly and Company
(Eli Lilly), Millennium Pharmaceuticals, Inc.
(Millennium), Amgen, Inc. (Amgen) and
Hoffmann-La Roche Inc. (Roche).

Eli Lilly.Caliper
signed a technology access agreement with Eli Lilly in August
1999. The term was three years. In August 2001, the agreement
was amended to include terms for commercially available products
and continuing assay development services through August 2002.
There were no further technology access fees or subscription
fees with products and services purchased by Eli Lilly after
August 2001. Subsequently, Caliper recognizes revenues upon
shipment and transfer of title to products sold to Eli Lilly or
when the assay development service has been provided by Caliper.

Millennium.Caliper
signed a broad technology access and application development
collaboration with Millennium in March 2000. The term is two
years with an option to renew in the third year. In December
2001, the agreement was amended to include terms for
commercially available products and continuing assay

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

development services through March 2003. There
were no further technology access fees or subscription fees with
products and services purchased by Millennium after December
2001. Subsequently, Caliper recognizes revenues upon shipment
and transfer of title to products sold to Millennium or when the
assay development service has been provided by Caliper.

Amgen.Caliper
entered into a three year technology access agreement with Amgen
in December 1998. In December 2001, the agreement was amended to
include terms for commercially available products and continuing
assay development services and extended through to December
2002. Under the amended agreement Caliper agreed to convert
technology access fees still available towards the purchase of
products and services that Amgen utilized in December 2001.
There were no further technology access fees or subscription
fees with products and services purchased by Amgen after
December 2001. Subsequently, Caliper recognizes revenues upon
shipment and transfer of title to products sold to Amgen or when
the assay development service has been provided by Caliper.

Hoffmann-La Roche.Caliper entered into a technology
access agreement with Roche in November 1998, which expired in
July 2000. This agreement superseded an earlier agreement under
which Roche funded early development of the high throughput
screening technology in exchange for certain exclusive rights to
an ultra high throughput screening system. Under this earlier
agreement, Roche purchased 854,701 shares of Calipers
redeemable convertible preferred stock Series C with an
aggregate cost of $4.0 million. Roche now has non-exclusive
rights to purchase high throughput products that are offered to
other Technology Access Program and commercial customers.
Caliper did not receive an up-front license fee or annual
subscription fee from Roche.

Value Added
Screening Collaboration Program

Calipers Value Added Screening
Collaboration program offered high throughput screening services
using Calipers LabChip systems. Calipers first Value
Added Screening Collaboration agreement was established with
Neurocrine Biosciences in December 1998. Caliper received
screening fees on a per data point basis, preclinical milestones
and royalties on Neurocrine products emerging from the
collaboration. This agreement had a three-year term, but could
have been terminated by either party under certain circumstances
after the first year. In 2001, when Caliper decided to
transition its business to product-based revenues, this program
was eliminated. Of the two Value Added Screening Collaboration
collaborations, the contract with Neurocrine Biosciences and
SUGEN expired in December 2001. SUGEN became a commercial
products customer in December 2001.

Revenue from the alliance and programs discussed
above were approximately $16.0 million and
$17.8 million in 2001 and 2000 respectively. Revenue earned
from reimbursement of development and support activities
approximated actual costs incurred.

In September 1998, Caliper received a grant from
the Advanced Technology Program of the National Institute of
Standards and Technology (NIST) to develop a
Reference Laboratory DNA Diagnostics System based on
Calipers lab-on-a-chip technology of
approximately $2 million over three years. The grant period
began in January 1999 and concluded in December 2001, and no
revenues will be recognized after 2001.

14.     Related
Party

In September of 2001, Caliper completed the spin
out of a new company, Amphora Discovery Corp., to create and
commercialize a comprehensive database of chemical genomics
information. Venture capitalists invested $25 million in
Amphora, and entered into agreements to invest up to an
additional $10 million if requested by Amphora, causing
Amphora to be a separate, independent company from Caliper with
its own management team and board of directors. Calipers
ownership interest in Amphora was approximately 28%.

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

These venture capitalist include ARCH Venture
Partners and Venrock Associates. One of Calipers
directors, Robert T. Nelsen, is a Managing Director of ARCH
Venture Partners, and another of Calipers directors,
Anthony B. Evnin, is a General Partner of Venrock Associates.
Calipers investment in Amphora is accounted for under the
equity method of accounting. As Calipers investment in
Amphora has no basis for accounting purposes and, because
Caliper does not guarantee debt or have commitments to fund
losses of Amphora, Caliper has not recorded its proportionate
share of Amphoras operating losses in its financial
statements since the completion of Amphoras financing.

Caliper has had two representatives on
Amphoras six-member board of directors. Michael R. Knapp,
Calipers Chief Executive Officer, and James L. Knighton,
Calipers President and Chief Financial Officer, had served
on Amphoras board of directors since September 2001.
Mr. Knighton resigned from Amphoras board of
directors in February 2002 and was replaced by Daniel L.
Kisner, Calipers Board Chairman. Mr. Knighton also
served as Amphoras acting Chief Financial Officer from
September 2001 until January 2002. In connection with the
formation of Amphora, Dr. Knapp and Mr. Knighton
received 900,000 and 450,000 shares of restricted common stock,
respectively, at a share value of $0.10 per share.
Dr. Knapp and Mr. Knighton paid $0.01 per share of the
purchase price in cash, with the remainder of the purchase price
paid by the cancellation of all amounts owed by Amphora to
Dr. Knapp and Mr. Knighton for services provided by
them to Amphora prior to the issuance of such common shares to
them. Initially, 100% of such shares were subject to a
repurchase option in favor of Amphora. 50% of such shares were
released from this repurchase option when Amphora completed its
initial third party financing in September 2001. The remaining
50% of such shares will be ratably released from Amphoras
repurchase option over an eight-year period on a monthly basis
with respect to each of Dr. Knapp or Mr. Knighton for
so long as they serve on Amphoras board or remain
available to provide advisory services to Amphora pursuant to
existing consulting contracts. Additionally, Dr. Knapp
participated as a private investor in Amphoras initial
September 2001 financing, wherein he purchased 50,000 shares of
Amphoras preferred stock. Dr. Kisner did not receive any
shares of restricted Amphora common stock or options to buy
Amphora common stock in connection with his appointment to
Amphoras board.

In December 2002, Amphora completed a second
private placement of securities with third party investors.
After the completion of this financing, Calipers ownership
in Amphora was reduced to approximately 13% from 28% on a fully
diluted basis. Over time Caliper expects that its ownership in
Amphora will be further diluted, as Caliper has no plans to make
any future equity investments in Amphora. On March 17,
2003, one of Calipers two representatives, Dr. Knapp,
resigned from Amphoras board of directors. Due to the
reduction in its percentage ownership of Amphora, Caliper now
has the right to appoint only one member to Amphoras
board. Dr. Kisner continues to be a member of
Amphoras board of directors.

In September 2001, Caliper and Amphora entered
into a LabChip Solutions Agreement and an Intellectual Property
Agreement. The LabChip Solutions Agreement provided for the
ongoing supply of Caliper automated drug discovery systems and
chips to Amphora, and for the provision of related services by
Caliper to Amphora. Under this agreement, Amphora agreed to
purchase a minimum of eleven Caliper 250 Drug Discovery
instruments by December 31, 2001 and at least eleven
additional Caliper 250 Drug Discovery instruments by
December 31, 2002. Amphora also agreed to purchase
datapoints at a fixed amount of $2 million in the first
year and a minimum of $4 million to a maximum based on
volume of $6 million in the second year of the agreement.
The LabChip Solutions Agreement also contains certain
intellectual property licensing provisions pertaining to the
parties independent and collaborative efforts to develop
new drug discovery systems based on Calipers microfluidic
technologies. Under the Intellectual Property Agreement, Caliper
has granted Amphora certain exclusive rights to use
Calipers drug discovery products in a chemical genomics
database business.

In connection with the completion of
Amphoras December 2002 financing, Caliper and Amphora
agreed to a renegotiation of Amphoras obligations under
the LabChip Solutions Agreement. Under the renegotiated

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

agreement, the Companies agreed to restructure
the $4 million minimum datapoint payment for 2002 as
follows: Amphora agreed to purchase a minimum of
$1.8 million of datapoints during the second year of the
agreement beginning in December 2002 and over time to make up to
$2.2 million of deferred payments to Caliper. These
deferred payments are contingent upon Amphoras future
revenue generation, datapoint production and other conditions
and can be satisfied by Amphora under three methods:
i) quarterly payments to Caliper based on Amphoras
revenues; ii) commissions earned by Amphora as they provide
certain marketing assistance to Caliper for Calipers
instruments; and iii) additional datapoint payments if
Amphora exceeds the certain minimum datapoint levels. We also
agreed to defer to December 31, 2003 Amphoras
obligation to purchase the one remaining Caliper 250 instrument
of the 11 originally scheduled to be purchased by Amphora
before December 31, 2002. In consideration for our
agreement to this restructuring, Amphora issued to Caliper
2.5 million shares of Amphora preferred stock. We ascribed
a nominal value of $25,000 to these shares as Amphora is a
privately held research and development company.

In 2002, Caliper sold a total of
$6.2 million in Caliper 250 Drug Discovery system
products, chips, datapoints and assay development services to
Amphora recording the sale of products and services as related
party revenue in Calipers financial statements. In 2001 by
comparison, subsequent to Amphoras third-party financing,
Caliper sold a total of $3.9 million in Caliper 250 Drug
Discovery system products, chips, datapoints and assay
development services. Of the $6.2 million in total 2002
sales, $3.3 million related to drug discovery system
products and, under the equity method of accounting, Caliper
deferred 28% of the gross profit of these sales, or $333,000,
that reflects its retained ownership interest in the products
sold to Amphora in 2002. The remaining $2.9 million of
revenue recognized in 2002 consisted of $1.7 million in
datapoints, $900,000 in assay development services and deferred
gross profit revenue from Caliper 250 Drug Discovery system
product sales in 2002 and 2001. In 2002, Caliper recognized a
total of $177,000 of this deferred gross profit as revenue of
which $121,000 related to drug discovery system products sold in
2001 and $56,000 related to products sold in 2002. Caliper
expects to recognize the remaining $499,000 as revenue ratably
over the next 36 months as Amphora records depreciation on
its Caliper 250 Drug Discovery systems. As all drug
discovery system sales to Amphora occurred prior to
Amphoras December 2002 third part financing, all future
drug discovery system sales will be deferred at Calipers
then retained ownership interest level which is approximately
13% currently. The completion of Amphoras second financing
in December 2002 did not have any impact on Calipers
method of accounting for Amphora.

In December 2002, Amphora assumed full service
responsibility for all of the 21 Caliper 250 Drug Discovery
instruments purchased from Caliper including instruments still
within their 12-month warranty period. In return, Caliper
provided a $55,000 warranty rebate on the 10 Caliper
250 Drug Discovery instruments purchased earlier in 2002
and will provide a discount on future sales of instruments
purchased without a warranty. Caliper has no remaining warranty
or service responsibility on instruments purchased now or in the
future by Amphora.

In September 2001, Amphora entered into a
three-year Sublease Agreement with Caliper for the rent of
approximately 5,700 square feet in one of Calipers
Mountain View, CA leased buildings for Amphoras research
and development use. Amphora is obligated for monthly rent based
on local market rates with a 3% per annum escalation and
Caliper, as landlord, is obligated to provide certain facilities
maintenance services. In December 2002, in connection with the
completion of Amphoras second financing, Caliper agreed to
an early termination of this Sublease Agreement as of
March 31, 2003. Caliper recorded both the subtenant rental
income and maintenance service costs as part of its overall
facilities costs.

In September 2001, Amphora entered into an
Administrative Services Agreement with Caliper for certain
financial accounting, purchasing and human resource services to
be provided by Calipers personnel. Caliper charged for
these services monthly at an hourly rate based on a cost plus
mark-up basis recording the corresponding payments from Amphora
as part of its overall employee costs. Amphora terminated this
agreement at its option in June 2002 when it achieved adequate
staffing to fulfill these functions.

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15.     401(k)
Plan

Caliper has a 401(k) plan qualified under section
401(k) of the Internal Revenue code that is available to all
eligible employees as defined in the plan. Caliper does not
match employee contributions.

16.     Litigation

On March 22, 1999, Caliper filed a lawsuit
in California Superior Court for the County of Santa Clara
against Aclara Biosciences, Inc. and Calipers former
patent counsel, a patent attorney named Bertram Rowland, and his
former law firm, Flehr, Hohbach, Test, Albritton and Herbert
alleging that all the defendants misappropriated certain of
Calipers trade secrets relating to Caliper business plans,
patents and intellectual property strategy. The suit also
alleges that Calipers former patent counsel committed a
breach of the duties they owed to Caliper as its former
attorneys. On September 14, 2000, Caliper reached a
settlement agreement with Dr. Rowland and Flehr, Hohbach,
Albritton, Test and Herbert in this case. The settlement
provided Caliper with a $12.0 million cash payment from
these defendants as well as other terms. This settlement has no
effect on Calipers lawsuits with Aclara. In this same
case, on October 27, 2000, the jury returned a verdict in
favor of Caliper and against Aclara on Calipers claims for
misappropriation of trade secrets and conversion of property.
The jury awarded Caliper $52.6 million for damages to
Caliper and unjust enrichment to Aclara, which the court reduced
to $35.6 million.

On January 7, 2001, Caliper announced a
comprehensive settlement agreement with Aclara Biosciences, Inc.
of all pending litigation between the two companies. Under the
terms of the settlement both companies agreed to dismiss all
suits and countersuits in the federal and state court actions
and to cross-license selected patents. The settlement provides
Caliper with freedom to operate under Aclaras 022
family of patents, which includes the 015 and other
patents, for its glass chips and related instruments through a
fully paid, royalty-free license. Under the terms of the
agreement, Aclara agreed to pay Caliper $37.5 million due
in 2002 over a three-year period in a combination of stock,
cash, and committed minimum royalties. Caliper also agreed to
license to Aclara the Ramsey family of patents for
use with Aclaras polymer chips and related instruments in
exchange for license fees and royalties. The two companies have
also agreed to an alternative dispute resolution procedure for
handling potential future patent disagreements out of court.

On March 22, 2001, in connection with the
settlement agreement mentioned above, Caliper received 900,000
shares of Aclaras common stock with a then current fair
value of $4.3 million. The common stock was restricted from
sale for a period of 18 months from the date of the
settlement agreement. As a component of the settlement
agreement, Aclara guaranteed the value of the Aclara common
stock to be $32.5 million at the time of Calipers
sale of the stock, provided that such sale occurs in the period
from 18 months to 24 months from the effective date of
the settlement agreement. Aclara entered into a fully-funded
$32.5 million standby letter of credit in favor of Caliper
to secure its performance under this potential obligation.
Accordingly, Caliper recognized the entire $32.5 million
settlement in the quarter ended March 31, 2001. Caliper
recognized $5.0 million of license fee revenue and
$27.5 million of litigation settlement in the income
statement pursuant to the terms contained in the settlement
agreement. Caliper will also receive royalties on certain Aclara
product sales commencing in 2002 through 2008 with a minimum
annual royalty payment of $2.5 million by
December 31st in each of years 2002 and 2003. Caliper does
not have any further obligations under the agreement. On
December 30, 2002, Caliper received $2.5 million in
cash from Aclara for the minimum annual royalty payment for 2002.

Caliper had accounted for this arrangement by
initially recording $4.3 million in Aclara stock at fair
market value, with a note receivable with a corresponding face
value of $28.2 million including other receivable for the
fully funded letter of credit which was reduced by the initial
fair value ($2.7 million) of an embedded derivative. The
latter two elements in combination represent the guarantee. The
receivable will be accreted to its face value of
$28.2 million over the life of the receivable using the
level-yield method. The embedded derivative was accounted for as
discussed in Note 2. On October 15, 2002, Caliper received

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$32.5 million in cash from Aclara upon
delivering 900,000 shares of Aclara common stock to Aclara in
accordance with the terms of the comprehensive settlement
agreement between the companies.

Commencing on June 7, 2001, Caliper and
three of its officers and directors (David V. Milligan, Daniel
L. Kisner and James L. Knighton) were named as defendants in
three securities class action lawsuits filed in the United
States District Court for the Southern District of New York. The
cases have been consolidated under the caption In re Caliper
Technologies Corp. Initial Public Offering Securities
Litigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints
were filed in the same Court against hundreds of other public
companies that conducted IPOs of their common stock since the
late 1990s (the IPO Lawsuits). On August 8,
2001, the IPO Lawsuits were consolidated for pretrial purposes
before United States Judge Shira Scheindlin of the Southern
District of New York. Together, those cases are denominated
In re Initial Public Offering Securities Litigation,
21 MC 92(SAS). On April 19, 2002, a Consolidated
Amended Complaint was filed alleging claims against Caliper and
the individual defendants under Sections 11 and 15 of the
Securities Act of 1933, and under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, as well as
Rule 10b-5 promulgated thereunder. The Consolidated Amended
Complaint also names certain underwriters of Calipers
December 1999 initial public offering of common stock. The
Complaint alleges that these underwriters charged excessive,
undisclosed commissions to investors and entered into improper
agreements with investors relating to aftermarket transactions.
The Complaint seeks an unspecified amount of money damages.
Caliper and the other issuers named as defendants in the IPO
Lawsuits moved on July 15, 2002 to dismiss all claims on
multiple grounds. By Stipulation and Order dated October 9,
2002, the claims against Messrs. Milligan, Kisner and
Knighton were dismissed without prejudice. On February 19,
2003, the Court granted Calipers motion to dismiss all
claims against it. Plaintiffs were not given the right to
replead the claims against Caliper; the time to appeal the
dismissal has not yet expired.

On April 16, 2002, Caliper filed a lawsuit
against Molecular Devices Corporation in the United States
District Court for the Northern District of California. In that
case, Caliper Technologies Corp. v. Molecular Devices
Corporation, No. C-02-1837 (N.D. Cal.), Caliper asserts
that Molecular Devices Corp.s IMAP and Reagent Assay Kits
infringe one or more claims of United States Patent
No. 6,287,774, which Caliper owns. Calipers complaint
seeks both injunctive relief precluding further infringement of
the patent and damages. The answer to the Complaint was filed on
May 8, 2002 and asserts a counterclaim seeking a
declaratory judgment that the patent is not infringed and is
invalid. Caliper believes the counterclaim to be without merit.
In late 2002, Caliper successfully moved the court to add a
newly-issued patent, U.S. Patent No. 6,472,141 to the
lawsuit, alleging that the same accused devices infringe one or
more of the claims of that patent. The answer to Calipers
First Amended Complaint was filed on December 17, 2002, and
asserts a counterclaim seeking a declaratory judgment that both
Caliper patents are invalid and not infringed. Caliper believes
the Amended Counterclaim to be without merit. On
January 28, 2003, Caliper filed a motion for preliminary
injunction, which is scheduled to be heard by the court in May
2003. In that motion, Caliper has asked the court to
preliminarily enjoin Molecular Devices from making, using,
selling, and offering to sell its infringing IMAP kits for
kinase assays. Discovery is underway, and no trial date has been
set by the Court.

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CALIPER TECHNOLOGIES CORP.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Geographic
Data

The table below presents Calipers
activities by geographical location. Caliper attributes revenues
to geographic locations based upon customer service and business
development activities.

|                             |               |                |        |        |  |      |        |        |  |   |        |        | 
|---------------------------- | ------------- | -------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                             |               | 2002           |        | 2001   |  | 2000
|                             |               |                |        |        |  |     
|                             |               |               
|                             |               | (In thousands)
|Revenues:                    |               |                |        |        |  |      |        |        |  |   |        |       
|                             | United States |                | $      | 23,838 |  |      | $      | 28,824 |  |   | $      | 18,564 | 
|                             | Europe        |                |        | 307    |  |      |        | 581    |  |   |        |       | 
|                             | Asia          |                |        | 1,688  |  |      |        | 183    |  |   |        |       | 
|                             |               |                |        |        |  |      |        |        |  |   |        |       
|                             |               | $              | 25,833 |        |  | $    | 29,588 |        |  | $ | 18,564 |       
|                             |               |                |        |        |  |      |        |        |  |   |        |       
|Property and equipment, net: |               |                |        |        |  |      |        |        |  |   |        |       
|                             | United States |                | $      | 12,522 |  |      | $      | 12,581 |  |   | $      | 9,101  | 
|                             | Europe        |                |        | 23     |  |      |        |       |  |   |        |       | 
|                             |               |                |        |        |  |      |        |        |  |   |        |       
|                             |               | $              | 12,545 |        |  | $    | 12,581 |        |  | $ | 9,101  |       
|                             |               |                |        |        |  |      |        |        |  |   |        |       



|    |                                     
|--- | ------------------------------------
|18. | Quarterly Financial Data (Unaudited)

|                                 |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                 |  | First                                 |         | Second  |  | Third   |         | Fourth 
|                                 |  | Quarter                               |         | Quarter |  | Quarter |         | Quarter
|                                 |  |                                       |         |         |  |         |         |        
|                                 |  |                                      
|                                 |  | (In thousands, except per share data)
|Year ended December 31, 2002     |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Total revenue                    |  | $                                     | 7,041   |         |  | $       | 7,236   |         |  | $ | 6,623   |   |  | $ | 4,933   |  
|Total costs and expenses         |  |                                       | 18,692  |         |  |         | 19,992  |         |  |   | 17,380  |   |  |   | 16,406  |  
|                                 |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Operating loss                   |  |                                       | (11,651 | )       |  |         | (12,756 | )       |  |   | (10,757 | ) |  |   | (11,473 | )
|Net income (loss)                |  |                                       | (9,686  | )       |  |         | (11,368 | )       |  |   | (9,375  | ) |  |   | (10,535 | )
|Basic and diluted loss per share |  | $                                     | (0.40   | )       |  | $       | (0.47   | )       |  | $ | (0.38   | ) |  | $ | (0.43   | )
|                                
|Year ended December 31, 2001     |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Total revenue                    |  | $                                     | 9,793   |         |  | $       | 5,287   |         |  | $ | 6,641   |   |  | $ | 7,867   |  
|Total costs and expenses         |  |                                       | 13,789  |         |  |         | 14,353  |         |  |   | 17,174  |   |  |   | 17,919  |  
|                                 |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Operating loss                   |  |                                       | (3,996  | )       |  |         | (9,066  | )       |  |   | (10,533 | ) |  |   | (10,052 | )
|Net income (loss)(1)             |  |                                       | 26,404  |         |  |         | (6,195  | )       |  |   | (8,368  | ) |  |   | (8,018  | )
|Basic income (loss) per share    |  | $                                     | 1.11    |         |  | $       | (0.27   | )       |  | $ | (0.35   | ) |  | $ | (0.33   | )
|Diluted income (loss) per share  |  | $                                     | 1.03    |         |  | $       | (0.27   | )       |  | $ | (0.35   | ) |  | $ | (0.33   | )



---



|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(1) | Includes litigation settlement of
    $27.5 million from Aclara recorded in March 2001.

F-36



---



##### Table of Contents



Caliper Technologies Corp.

Schedule IIVALUATION AND QUALIFYING
ACCOUNTS

|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|------------------------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | - | --- | --- |  | - | ------ | 
|                                            |  |                |        | Additions  |  |            |        |           
|                                            |  | Balance at     |        | Charged to |  |            |        | Balance at
|                                            |  | Beginning      |        | Costs and  |  |            |        | End of    
|                                            |  | Period         |        | Expenses   |  | Deductions |        | Period    
|                                            |  |                |        |            |  |            |        |           
|                                            |  |               
|                                            |  | (In thousands)
|Year ended December 31, 2002:               |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|Allowance for doubtful accounts             |  | $              |       |            |  | $          | 119    |            |  | $ |    |     |  | $ | 119    | 
|Valuation allowance for deferred tax assets |  |                | 15,827 |            |  |            | 17,393 | (2)        |  |   |    |     |  |   | 33,220 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|                                            |  | $              | 15,827 |            |  | $          | 17,512 |            |  | $ |    |     |  | $ | 33,339 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|                                           
|Year ended December 31, 2001:               |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|Allowance for doubtful accounts             |  | $              |       |            |  | $          |       |            |  | $ |    |     |  | $ |       | 
|Valuation allowance for deferred tax assets |  |                | 16,698 |            |  |            |       |            |  |   | 871 | (1) |  |   | 15,827 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|                                            |  | $              | 16,698 |            |  | $          |       |            |  | $ | 871 |     |  | $ | 15,827 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|Year ended December 31, 2000:               |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|Allowance for doubtful accounts             |  | $              |       |            |  | $          |       |            |  | $ |    |     |  | $ |       | 
|Valuation allowance for deferred tax assets |  |                | 10,500 |            |  |            | 6,198  | (2)        |  |   |    |     |  |   | 16,698 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 
|                                            |  | $              | 10,500 |            |  | $          | 6,198  |            |  | $ |    |     |  | $ | 16,698 | 
|                                            |  |                |        |            |  |            |        |            |  |   |     |     |  |   |        | 



---



|    |                                    
|--- | -----------------------------------
|(1) | Charged against current tax expense
|   
|(2) | Charged to deferred tax benefit    

F-37



---



##### Table of Contents






EXHIBIT INDEX

|        |    |                         |  |                                                                                                                                                                            
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 3  | .1(1)                   |  | Amended and Restated Certificate of Incorporation
    of Caliper.                                                                                                          
|        | 3  | .2(12)                  |  | Certificate of Designation Of Series A
    Junior Participating Preferred Stock.                                                                                           
|        | 3  | .3(2)                   |  | Bylaws of Caliper.                                                                                                                                                         
|        | 3  | .4                      |  | Amendment No. 1 to Bylaws of Caliper.                                                                                                                                      
|        | 4  | .1                      |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and
    3.4.                                                                                                                   
|        | 4  | .2(3)                   |  | Specimen Stock Certificate.                                                                                                                                                
|        | 4  | .3(12)                  |  | Rights Agreement, dated as of December 18,
    2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as
    Rights Agent.                                            
|        | 10 | .1(3)                   |  | Lease Agreement, dated December 1, 1998,
    between Caliper and 605 East Fairchild Associates, L.P.                                                                       
|        | 10 | .2(3)(4)                |  | 1996 Equity Incentive Plan.                                                                                                                                                
|        | 10 | .3(3)(4)(17)            |  | 1999 Equity Incentive Plan.                                                                                                                                                
|        | 10 | .4(3)(4)(17)            |  | 1999 Employee Stock Purchase Plan.                                                                                                                                         
|        | 10 | .5(3)(4)                |  | 1999 Non-Employee Directors Stock Option
    Plan.                                                                                                                        
|        | 10 | .6(3)(4)(17)            |  | Employment Agreement, dated January 18,
    1999, between Caliper and Daniel L. Kisner, M.D.                                                                               
|        | 10 | .7(3)(4)(17)            |  | Promissory Note, dated July 29, 1999,
    between Caliper and Daniel L. Kisner, M.D.                                                                                       
|        | 10 | .8(3)                   |  | Amended and Restated Investor Rights Agreement,
    dated May 7, 1998, among Caliper and certain stockholders
    of Caliper.                                              
|        | 10 | .9(3)(4)                |  | Form of Indemnification Agreement entered into
    between Caliper and its directors and executive officers.                                                               
|        | 10 | .10(3)(5)               |  | Collaboration Agreement, dated May 2, 1998,
    between Caliper and Hewlett-Packard Company (now Agilent).                                                                 
|        | 10 | .12(3)(5)               |  | Technology Access Agreement, dated
    December 21, 1998, between Caliper and Amgen, Inc.                                                                                  
|        | 10 | .13(3)(5)               |  | Technology Access Agreement, dated
    August 12, 1999, between Caliper and Eli Lilly and Company.                                                                         
|        | 10 | .15(3)(5)               |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between Lockheed Martin Energy
    Research Corporation and Caliper, as amended (domestic).     
|        | 10 | .16(3)(5)               |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between Lockheed Martin Energy
    Research Corporation and Caliper, as amended (international).
|        | 10 | .17(3)(4)               |  | Consulting Agreement, dated April 30, 1997,
    between Caliper and Dr. David V. Milligan.                                                                                 
|        | 10 | .18(3)(4)(17)           |  | Employment Agreement, dated September 23,
    1999, between Caliper and James L. Knighton.                                                                                 
|        | 10 | .19(3)(4)               |  | Consulting Agreement, dated May 1, 1997,
    between Caliper and Regis McKenna.                                                                                            
|        | 10 | .20(3)(4)(17)           |  | Promissory Note, dated March 25, 1997,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                     
|        | 10 | .21(3)(4)(17)           |  | Option Agreement, dated August 9, 1995,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                    
|        | 10 | .22(3)(4)(17)           |  | Amendment to Option Agreement, dated
    August 25, 1995, between Caliper, Michael R. Knapp, Ph.D.,
    J. Michael Ramsey, Ph.D. and Avalon Medical Partners.              
|        | 10 | .23(3)(4)               |  | The Corporate Plan for Retirement Select Plan
    Adoption Agreement and related Basic Plan Document.                                                                      
|        | 10 | .24(6)(17)              |  | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated October 11, 1996.                                                                 



---



##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                                           
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .25(6)(17)              |  | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated February 2, 2000.                                                                                                                                                                
|        | 10 | .26(5)(7)               |  | Technology Access and Applications Development
    Agreement, dated March 24, 2000, between Caliper and
    Millennium Pharmaceuticals, Inc.                                                                                                                              
|        | 10 | .27(8)                  |  | Lease Agreement, dated June 23, 2000 and
    effective July 5, 2000, between Caliper and Martin CBP
    Associates, L.P.                                                                                                                                                  
|        | 10 | .28(8)(17)              |  | Promissory Note, dated July 17, 2000,
    between Caliper and Daniel L. Kisner, M.D.                                                                                                                                                                                      
|        | 10 | .29(4)(9)(17)           |  | Change of Control Sr. Mgmt Severance/ Equity
    Acceleration Plan.                                                                                                                                                                                                       
|        | 10 | .30(5)(10)              |  | Cross-License Agreement, dated March 12,
    2001 by and among Aclara Biosciences, Inc. and Caliper.                                                                                                                                                                      
|        | 10 | .31(10)                 |  | Common Stock Issuance Agreement, dated
    March 22, 2001.                                                                                                                                                                                                                
|        | 10 | .32(5)(10)              |  | Settlement Agreement and Mutual General Release,
    dated March 12, 2001 by and among Aclara Biosciences, Inc.
    and Caliper.                                                                                                                                          
|        | 10 | .33(5)(11)              |  | LabChip Solutions Agreement, dated as of
    September 21, 2001, by and between Amphora Discovery Corp.
    and Caliper.                                                                                                                                                  
|        | 10 | .34(4)(11)              |  | Consulting Agreement, entered into as of the 8th
    day of October 2001 by and between Amphora Discovery Corp., and
    Michael R. Knapp.                                                                                                                                
|        | 10 | .35(4)(11)              |  | Restricted Stock Purchase Agreement, entered into
    as of October 8, 2001, by and between Amphora Discovery
    Corp. and Michael R. Knapp.                                                                                                                             
|        | 10 | .36(4)(11)              |  | Consulting Agreement, entered into as of the 14th
    day of October 2001 by and between Amphora Discovery Corp., and
    James L. Knighton.                                                                                                                              
|        | 10 | .37(4)(11)              |  | Restricted Stock Purchase Agreement, entered into
    as of October 14, 2001, by and between Amphora Discovery
    Corp. and James L. Knighton.                                                                                                                           
|        | 10 | .38(5)(11)              |  | Technology Access Agreement Amendment, dated
    August 20, 2001, by and between Caliper and Eli Lilly and
    Company, amending Technology Access Agreement dated
    August 12, 1999.                                                                                   
|        | 10 | .39(13)(17)             |  | 2001 Non-Statutory Stock Option Plan.                                                                                                                                                                                                                                     
|        | 10 | .40(14)(17)             |  | Separation Agreement, dated August 9, 2001,
    between Caliper and Calvin Y.H. Chow.                                                                                                                                                                                     
|        | 10 | .41(5)(14)              |  | Technology Access Agreement Amendment, dated
    December 14, 2001, by and between Caliper and Amgen, Inc.,
    amending Technology Access Agreement dated December 21,
    1998.                                                                                         
|        | 10 | .42(14)                 |  | Amendment No. 2 to Technology Access
    Agreement, dated December 18, 2001, by and between Caliper
    and Amgen, Inc., amending Technology Access Agreement dated
    December 21, 1998.                                                                                
|        | 10 | .43(5)(14)              |  | Technology Access and Applications Development
    Agreement Amendment, dated December 19, 2001, by and
    between Caliper and Millennium Pharmaceuticals, Inc., amending
    Technology Access and Applications Development Agreement dated
    March 24, 2000.         
|        | 10 | .44(14)                 |  | Amendment No. 2 to Technology Access and
    Applications Development Agreement, dated February 28,
    2002, by and between Caliper and Millennium Pharmaceuticals,
    Inc., amending Technology Access and Applications Development
    Agreement dated March 24, 2000.
|        | 10 | .45(15)(17)             |  | Offer Letter and addendum, dated April 24,
    2002, between Caliper and Bruce E. MacMillan.                                                                                                                                                                              
|        | 10 | .46(15)(17)             |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Michael R. Knapp                                                                                                                                                                                      
|        | 10 | .47(15)(17)             |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and James L. Knighton                                                                                                                                                                                     
|        | 10 | .48(16)(17)             |  | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Dr. Daniel Kisner                                                                                                                                                                                     
|        | 10 | .49(16)(17)             |  | Separation Agreement, dated July 29, 2002,
    between Caliper and J. Wallace Parce                                                                                                                                                                                       
|        | 10 | .50(17)                 |  | Offer Letter, dated November 13, 2001,
    between Caliper and Susan A. Evans.                                                                                                                                                                                            
|        | 10 | .51(17)                 |  | Separation Agreement, dated November 1,
    2002, between Caliper and Susan A. Evans                                                                                                                                                                                      
|        | 10 | .52(18)                 |  | Sole Commercial Patent License Agreement,
    effective September 1, 1995, between UT-Battelle, LLC, the
    successor to Lockheed Martin Energy Research Corporation, and
    Caliper, as amended on November 1, 2002.                                                   



---



##### Table of Contents



|        |    |                         |  |                                                                                                                                        
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .53(18)                 |  | Modification of LabChip Solutions Agreement,
    dated as of December 12, 2002, by and between Amphora
    Discovery Corp. and Caliper.
|        | 23 | .1                      |  | Consent of Ernst & Young LLP, independent
    auditors.                                                                                
|        | 24 | .1                      |  | Power of Attorney (reference is made to the
    signature page of this report).                                                        
|        | 99 | .1                      |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.        
|        | 99 | .2                      |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.        



---



| |     |                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Previously filed as Exhibit 3.3 to our
    Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.                 
|
| | (2) | Previously filed as Exhibit 3.4 to our
    Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.                 
|
| | (3) | Previously filed as the like-numbered Exhibit to
    our Registration Statement on Form S-1, as amended, File
    No. 333-88827, filed on October 12, 1999 and
    incorporated by reference herein.   
|
| | (4) | Management contract or compensatory plan or
    arrangement.                                                                                                                                           
|
| | (5) | Confidential treatment has been granted for a
    portion of this exhibit.                                                                                                                             
|
| | (6) | Filed as the like-numbered exhibit to Annual
    Report of Form 10-K for the year ended December 31,
    1999 and incorporated by reference herein.                                                    
|
| | (7) | Previously filed as Exhibit 10.26 to
    Form 10-Q for the quarterly period ended March 31,
    2000 and incorporated by reference herein.                                                             
|
| | (8) | Previously filed as the like-numbered Exhibit to
    our Registration Statement on Form S-1, as amended, File
    No. 333-45942, filed on September 15, 2000, and
    incorporated by reference herein.
|
| | (9) | Previously filed as the liked-numbered an Exhibit
    to Form 10-K/ A for the year ended December 31, 2000
    and incorporated by reference herein.                                                   



|     |                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended March 31,
    2001 and incorporated by reference herein.              
|    
|(11) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2001 and incorporated by reference herein.          
|    
|(12) | Previously filed as Exhibit 99.1 to Current
    Report on Form 8-K filed December 19, 2001 and
    incorporated by reference herein.                                
|    
|(13) | Previously filed as Exhibit 99.1 to our
    Registration Statement on Form S-8, File No. 333-76636,
    filed January 11, 2002 and incorporated by reference herein.
|    
|(14) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2001 and
    incorporated by reference herein.                       
|    
|(15) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2002
    and incorporated by reference herein.               
|    
|(16) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2002 and incorporated by reference herein.          
|    
|(17) | Designates a management contract or compensatory
    plan or arrangement required to be filed as an exhibit to this
    form pursuant to Item 15(c) of this report. 
|    
|(18) | Confidential treatment has been requested for a
    portion of this exhibit.