##### 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,
    2003                                             
|          
|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 number 000-28229

Caliper Life Sciences, Inc.

(Exact name of registrant as specified in its
charter)


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

68 Elm Street

Hopkinton, MA 01748


(Address and zip code of principal executive
offices)


Registrants telephone number, including
area code: (508) 435-9500

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.    o

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 30, 2003, the aggregate market value of the voting
stock held by non-affiliates of the registrant was $81,533,612.
Excludes an aggregate of 7,126,762 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 28,613,988 at February 27, 2004.

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 2004 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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CALIPER LIFE SCIENCES, INC.

FORM 10-K

For the Fiscal Year Ended December 31,
2003


TABLE OF CONTENTS

|                                                   |  |                                                                                                                     |    |      |    | 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                   |  |                                                                                                                     |    | Page |   
|                                                   |  |                                                                                                                     |    |      |   
|PART I                                            
|Item 1.                                            |  | Business                                                                                                            |    |      | 2  | 
|Item 2.                                            |  | Properties                                                                                                          |    |      | 19 | 
|Item 3.                                            |  | Legal Proceedings                                                                                                   |    |      | 19 | 
|Item 4.                                            |  | Submission of Matters to a
    Vote of Security Holders                                                             |    |      | 20 | 
|PART II                                           
|Item 5.                                            |  | Market for Registrants
    Common Stock, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |    |      | 21 | 
|Item 6.                                            |  | Selected Financial Data                                                                                             |    |      | 22 | 
|Item 7.                                            |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                           |    |      | 25 | 
|Item 7A.                                           |  | Quantitative and Qualitative
    Disclosures about Market Risk                                                      |    |      | 50 | 
|Item 8.                                            |  | Financial Statements and
    Supplementary Data                                                                     |    |      | 52 | 
|Item 9.                                            |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                            |    |      | 52 | 
|Item 9A.                                           |  | Controls and Procedures                                                                                             |    |      | 52 | 
|PART III                                          
|Item 10.                                           |  | Directors and Executive
    Officers of the Registrant                                                              |    |      | 53 | 
|Item 11.                                           |  | Executive Compensation                                                                                              |    |      | 53 | 
|Item 12.                                           |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters              |    |      | 53 | 
|Item 13.                                           |  | Certain Relationships and
    Related Transactions                                                                  |    |      | 53 | 
|Item 14.                                           |  | Principal Accountant Fees
    and Services                                                                          |    |      | 53 | 
|PART IV                                           
|Item 15.                                           |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                 |    |      | 54 | 
|Signatures                                         |  |                                                                                                                     | 58 |     
|Ex-10.63 Key Employee Agreement 12/24/03 - Kisner 
|Ex-10.64 Consulting Agreement 1/1/04 Dr. Milligan 
|Ex-10.65 Letter Amendment 2/20/04 Michael R. Knapp
|Ex-10.66 Collaboration & Supply Agreement         
|Ex-10.67 Amended Key Employee Agreement-Knighton  
|Ex-10.68 Amended Key Employee Agrmnt - Hendrickson
|Ex-10.69 Ltr Amend to Mod Agrment 12/22/03-Amphora
|Ex-11.1 Subsidiaries of the Registrant            
|Ex-23.1 Consent of Ernst & Young LLP              
|Ex-31.1 Certification of CEO                      
|Ex-31.2 Certification of CFO                      
|Ex-32.1 Certification pursuant to Section 906 CEO 
|Ex-32.2 Certification pursuant to Section 906 CFO 



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 identified forward-looking statements by terminology
denoting future events such as 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, the Caliper
logo and LibraryCard are registered trademarks of Caliper Life
Sciences, Inc. Tablet Processing Workstation, TPW, iLink,
and inL10 are trademarks and Allegro, CLARA, MultiDose, Prelude,
RapidPlate, RapidTrace, Staccato, TurboVap, Twister, and Zymark
are registered trademarks of Zymark Corporation.



PART 1




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

Overview

Caliper Life Sciences, formerly Caliper
Technologies Corp., uses its core technologies of liquid
handling, automation, and LabChip microfluidics to create
leading edge tools for the life sciences industry. In 2003,
Caliper acquired Zymark Corporation, a pioneer and worldwide
leader in the field of liquid handling, laboratory automation
and robotics. Following this acquisition, Caliper reorganized
its senior management team, including a new Chief Executive
Officer, and adopted new strategies to deliver applications to
the life sciences industry that we believe will have more
immediate commercial relevance.

Within the life sciences industry, Caliper is
currently addressing three major markets: drug discovery and
development, genomics and proteomics and molecular diagnostics.
We believe that our products and technologies are uniquely
capable of addressing these markets in a number of ways. For
example, with the recent advances in genomics research and
subsequent surge of interest in protein functionality, there is
an increased industry need for high-throughput, cost-efficient
tools for DNA and protein experimentation. Products such as our
LabChip 90 system for high-throughput DNA and protein analysis
directly address this need by integrating and automating the
multiple steps required by conventional gel electrophoresis
experiments. In the drug discovery and development market,
pharmaceutical companies face the new challenge of their
increased research and development spending yielding fewer new
drugs. Caliper is focused on helping pharmaceutical companies
address this challenge by providing tools that help researchers
make better choices earlier in their drug discovery process, as
well as tools that are designed to increase the general speed
and efficiency of their high-throughput screening efforts.
Molecular diagnostics, another significant scientific frontier
that has evolved from the genomics revolution, holds enormous
potential to impact human health through earlier detection of
disease. However, existing molecular diagnostic tests tend to be
expensive, limiting their acceptance by health care
organizations already burdened by high costs. We believe that
our LabChip technologies can address the cost issues through
integration and miniaturization of the various steps required to
carry out these tests.

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We have three channels of distribution for our
products: direct to customers, indirect through our
international network of distributors, and through original
equipment manufacturer (OEM) channels. Through our
direct and indirect distributor channels, we sell complete
systems solutions, developed by Caliper, to end customers. 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 and distribution network activities as it
enables us to extend the commercial potential of our
microfluidic LabChip and advanced liquid handling technologies
into new industries and new applications with experienced
commercial partners. In the OEM channel we provide liquid
handling products, chips and enabling technologies to commercial
partners who then typically integrate the application solution
and market it to their end customers. By using direct, indirect
distribution, and OEM channels to maximize penetration of our
products and technologies into the marketplace, Caliper seeks to
position itself as a leader in the life science tools market.

On July 14 2003, Caliper completed the
acquisition of Zymark. Under the final terms of the transaction,
Caliper purchased Zymark for approximately $58 million in
cash and 3.15 million shares of Caliper common stock. The
agreement also provided for a potential additional earn-out
stock component of up to 1.575 million shares of Caliper
stock if specified targets for sales of Zymark products were met
in 2003 and 2004. The specified targets for 2003 were not met,
and so no shares were issued for 2003; up to 787,500 shares
of Caliper stock will be issued if the specified targets for
2004 are met.

Caliper is a leader in microfluidic lab-on-a-chip
technologies. We believe our LabChip systems can integrate the
capabilities and reduce the size of laboratories full of
equipment and people through miniaturizing, integrating and
automating many laboratory processes and putting them on a chip.
With Zymarks capabilities, we now manufacture and sell
products and services to a multitude of high profile companies
in the pharmaceutical, biotechnology, chemical, agriculture, and
food industries worldwide. By acquiring Zymark, Calipers
goals were to:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | access a global commercial infrastructure,                                                                                                                                                
|
| |  | access commercially experienced
    management, and                                                                                                                                       
|
| |  | bolster our income statement by increasing
    revenues and reducing expenses of the combined companies via
    acquisition synergies, and reduce our net losses and cash
    utilization.

With the combination of Zymark and Caliper
completed, the new entity Caliper Life Sciences is able to
leverage its LabChip technologies product discovery engine with
a proven substantial commercial organization focused on
developing new products and applications for our customers. We
believe that Zymarks advanced liquid handling capabilities
combined with our microfluidic technologies uniquely positions
us to develop and deliver laboratory automation products to
bridge the macro to micro challenges
within laboratory research operations.

Caliper was incorporated in Delaware on
July 26, 1995. Our principal offices are located at 68 Elm
Street, Hopkinton, Massachusetts, 01748 and our telephone number
is (508) 435-9500. We also have research and development,
operations and manufacturing facilities for LabChip devices in
Mountain View, California. We file or furnish electronically
with the Securities and Exchange Commission (or SEC) our annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports
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.caliperLS.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.

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Technologies



| |                                      
| | -------------------------------------
| | Microfluidic LabChip
    Technologies

We have developed our microfluidic LabChip
technology to provide significant advances in laboratory
experimentation for the pharmaceutical and other industries.
Microfluidic 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 miniaturized or microfabricated
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 applications. Our LabChip systems
miniaturize, integrate and automate experiments with the goal of
providing the benefits of improved data accuracy, reduced cost,
and higher speed, leading to expanded individual researcher
capability and improved enterprise-wide productivity.



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Miniaturization.Conventional laboratory equipment typically uses at least a drop
    of fluid, 1 to 100 microliters, to perform each experiment. In
    many LabChip applications, the sample volume needed from
    external sources is reduced to below 1 nanoliter, an improvement
    of up to 100,000-fold over conventional systems. In some
    processes within the chip, reagents are dispensed in the
    microchannels in volumes down to tens of picoliters, another
    10-100 fold reduction, which speeds analysis times and increases
    sample throughput. A microliter is one millionth of a liter, a
    nanoliter is one billionth of a liter, and a picoliter is one
    trillionth of a liter.
|
| |  | 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 and laboratory space.                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |                                
| | -------------------------------
| | Key Benefits of LabChip Systems



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improved Data Quality and
    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.                                                                                                                                                                             
|
| |  | Improved
    Sensitivity.When screening against
    drug targets such as kinases, the higher quality data from our
    LabChip systems allows customers to detect candidate compounds
    that inhibit the drug target at lower levels than can be
    detected with traditional microplate well-based assays. The
    ability to detect these low-level inhibition hits
    has two advantages: 1) increasing the pool of potential
    lead compounds by finding candidate compounds not detectable
    using other methods and 2) compounds that are active at
    lower inhibition levels potentially have higher selectivity for
    the drug target of interest, giving them a higher probability of
    becoming actual drug products.
|
| |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 using 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.



| |                                              
| | ---------------------------------------------
| | Liquid Handling & Automation
    Technologies

Zymark, prior to the acquisition, had a long
history of advanced liquid handling and laboratory automation
expertise that has resulted in a variety of proprietary
technologies, including software, that we use in robotics and
precision liquid handling systems. Current technologies in
development include:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | the miniaturization of fluidic systems,                                                 
|
| |  | robotics for transportation of higher density
    testing platforms, such as biochips,  
|
| |  | high-efficiency liquid handling
    workstations, and                                   
|
| |  | the development of software to automate, control
    and promote integration capability.

Our liquid handling systems provide fast and
accurate liquid transfers and plate reformatting in multiple
microplate formats and are characterized by their open and
modular design to address a wide range of applications. We have
developed some key technologies such as interchangeable
pipetting heads, a feature of our Sciclone ALH 3000, and
multi-channel pipetting capability, a feature of the Sciclone
inL10, that differentiate our liquid handling systems from those
of our competitors. The Sciclone inL10 is our most advanced
liquid handling system. In addition to many of the features of
the Sciclone ALH 3000, the Sciclone

5



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inL10 has high-speed solenoid valves that ensure
efficient non-contact (through-the-air) dispensing of nanoliter
volumes of liquids and reliable delivery to microplates. This
technology is able to generate real-time performance data and
automatically reacts to changing conditions such as temperature
that can alter the sample viscosity. Each pipetting channel can
dispense an independent volume and offers its own liquid level
detection capability, allowing scientists to poll a
plate to determine the liquid level/volume in each well. The
benefit of this type of control over the dispensing and
monitoring of fluids is higher quality data and increased
probability that a particular experiment will not have to be
repeated.


Products and Services

Our portfolio of products includes high- and
ultra-high-throughput screening systems, liquid handlers,
advanced robotics, storage devices, dissolution, extraction and
evaporation workstations, and easy-to-use software that controls
scheduling, integration and data management. In addition, we
derive a substantial portion of revenue from service and
aftermarket products, including consumable and accessory
products such as LabChip devices, pipette tips, filters,
glassware, and storage trays.



| |                                                                  
| | -----------------------------------------------------------------
| | High Throughput Screening Systems and
    Integrated Workstations

Allegro Automated
Systems.Our Allegro platform is
designed to eliminate screening bottlenecks while offering
maximum flexibility and performance across a range of drug
discovery applications, including high-throughput screening
(HTS), ultra-high-throughput screening (UHTS), and high-speed
preparation of 96- or 384-well microplates, which are plates
that have wells in them in which the reagents are
stored. The demand for maximum throughput in screening
procedures often requires a larger industrial process rather
than a laboratory workstation approach. The Allegro system
connects independent workstation modules consisting of storage
and incubation carousels, washers, liquid handlers and readers
in an assembly-line format. Modules are added to incorporate
additional steps or increase a systems capabilities.
Allegros ultra-high throughput is realized when
intramodule process times are kept under one minute. Under these
conditions, Allegro can process approximately 1,000 384-well
plates (384,000 assays) per day (two shifts).

LabChip 3000 Drug Discovery System (second
generation of the Caliper 250 Drug Discovery
System).The LabChip 3000 system is
our next generation microfluidic system for the drug discovery
market. The LabChip 3000 replaced the Caliper 250 which was
launched in September 2001 and was a very early version of a
microfluidic-based screening application system. The LabChip
3000 represents a significant advancement in industrial design,
functional reliability and reduced cost. The automated drug
discovery system performs unattended high-volume screening,
producing high quality data that minimizes false positives and
false negatives, and detects weak inhibitors with high accuracy,
potentially identifying drug candidates that conventional
techniques can miss. A broad suite of assays has been developed
for enzymatic drug targets such as kinases,
proteases and phosphatases. The LabChip 3000 is also capable of
running cell-based assays that screen the effects of candidate
drug compounds directly on cells.

The LabChip 3000 system uses our proprietary
sipper chips, which allow automated sampling from 96- or
384-well plates. Each chip has either 4 or 12
sippers, small glass tubes that are part of the
chip. Once the researcher prepares the chip and places it into a
LabChip 3000 system, minute quantities of sample can be
introduced, or sipped, through the capillary to 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 complete experiments.

Compared to its predecessor, the Caliper 250, the
LabChip 3000 is more robustly engineered, with a completely new
commercial design that reduces the overall size of the platform
to approximately one-third of its original size. We have reduced
the cost of manufacturing in order to produce acceptable profit
margins for the product, while also allowing for a lower price
to the end user. Assays developed for the Caliper 250 are
directly transferable to the LabChip 3000 system.

Staccato Automated
Workstations.The Staccato series of
systems provide fast, reliable scalable automation for drug
discovery, genomics, proteomics and drug development
laboratories. Staccato systems are

6



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available in three base configurations: Mini
Workstation Series, Application Series and Custom Systems
Series. Staccato Mini-Workstations offer the minimal amount of
equipment to automate basic liquid handling and material
management tasks. Staccato Application Series are pre-configured
and pre-integrated solutions for common applications such as
plate reformatting and replication, hit picking, ELISA and a
variety of cell-based assays. Staccato Custom Systems utilize
proven automation-friendly building blocks, iBlox, that are
designed into custom configurations as dictated by our users.


All Staccato Application and Custom Series
systems are controlled with our CLARA assay development and
schedule planning software. CLARA ties together robots,
incubators, readers, washers and other devices into one cohesive
system to increase laboratory automation and productivity.
Staccato Mini-Workstations can use either our CLARA or iLink
software, our easy to use method development and run-time
interface for end users.



| |                         
| | ------------------------
| | Advanced Liquid Handling

Sciclone ALH 3000.The Sciclone ALH 3000 Liquid Handling System provides fast and
accurate liquid transfers, reagent additions, and plate
reformatting for 96-, 384-, and 1536-well microplate formats.
Sciclone systems have an open and modular design so that they
can be configured to automate a variety of research and
diagnostic applications from genomics and proteomics sample
preparation to biomolecular and cell-based screening assays.

The ALH 3000 features interchangeable 96/384
pipetting heads that can pipette and dispense volumes from 100
nanoliters to 200 microliters, an independent 8-channel pipettor
for single well access, and bulk reagent dispense modules for
efficient reagent broadcasting. Available accessories include
the Sciclone Gripper, microplate shaker, positive pressure
filtration system, and temperature-controlled locators.

Sciclone inL10.Using the same base platform as the Sciclone ALH 3000, the inL10
uses metered nano-pipetting to pipette and dispense volumes from
10 nanoliters to 10 microliters. The inL10 provides real-time
performance feedback, including 100% dispense verification on
each channel and automatic clog detection. The system
automatically compensates for situations such as viscosity
changes due to fluctuating temperatures, enabling higher quality
data and enhanced experiment reliability. The inL10s
independent liquid level detection capability allows scientists
to poll a plate to determine the liquid level/volume
in each well.

The Sciclone inL10 offers many of the same
options and accessories that go with the ALH 3000, including the
Z-8 pipettor, bulk dispense modules, and multiple deck
accessories.

RapidPlate.The
RapidPlate 96/384 Workstation offers precise 96-and 384-well
liquid transfers in a small, highly scalable format. Utilizing
100 microliter and 200 microliter disposable tips, the
96-channel parallel pipetting head delivers liquids accurately
and precisely across a volume range of 1 to 200 microliters. The
six position rotary deck includes two positions that enable
indexing into 384 well plates, and one position that can be
fitted with an optional on-line fill reservoir/tip wash station.
The RapidPlate is an ideal stand-alone unit for plate
replication and reformatting applications, and its compact size
enables it to fit into standard bio-safety or chemical hoods, or
on any lab bench.



| |                               
| | ------------------------------
| | Plate Management &
    Storage

Twister I
and II.The Twister Universal
Microplate Handler automates the movement of microplates to and
from a microplate reader, washer, or other microplate-processing
instruments. Twister I has a capacity of 80 microplates,
and is used as a dedicated autoloader with a wide variety of
scientific instruments. The Twister I is sold exclusively
to OEM partners, and more than 3,400 Twisters are currently
installed in laboratories around the world.

Twister II provides increased capacity, up
to 400 standard microplates. Compatible with iLink software, the
Twister II has increased integration capabilities compared
to Twister I, providing extended walk-away time for
scientists and researchers. Over 400 Twister II units have
been shipped.

7



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| |                           
| | --------------------------
| | Separations &
    Analysis

Agilent 2100
Bioanalyzer.The first instrument
platform to be introduced for LabChip technology applications,
the Agilent 2100 Bioanalyzer is a desktop instrument designed to
perform a wide range of everyday scientific applications using a
menu of different LabChip kits. The 2100 Bioanalyzer uses our
planar chips, in which the researcher pipettes all
of the chemical reagents into the reservoirs of the chip,
including the various samples to be tested, before placing the
chip into the instrument. The chips and kits are manufactured by
Caliper, and Agilent manufactures and distributes the instrument
under a license from us.

Agilent launched the 2100 Bioanalyzer in
September 1999 and has continued to expand the menu of
applications. Current applications include DNA sizing and
concentration analysis, RNA sizing and concentration analysis,
protein sizing and concentration analysis and cell analysis. The
2100 Bioanalyzer integrates several experimental steps into one,
reducing analysis time from hours to minutes. Other benefits of
the system include significantly reduced sample consumption and
higher quality data than conventional slab gel electrophoresis
experiments.

LabChip 90 Automated Electrophoresis
System.Our LabChip 90, formerly
marketed under the name AMS 90 SE, automates the sizing and
concentration analysis of proteins and DNA fragments, and is
designed to meet the needs of higher-throughput research and
production laboratories that use SDS-PAGE and agarose gel
electrophoresis. Using our proprietary microfluidic sipper chips
to sample directly from 96-well or 384-well plates, the LabChip
90 provides walk-away automation, reduced analysis time, and
immediate reporting of high-quality sizing and concentration
data. For DNA and protein separations, the LabChip 90 provides
an automated, higher-throughput alternative to the Agilent 2100
Bioanalyzer.



| |                                                   
| | --------------------------------------------------
| | Pharmaceutical Development and Quality
    Control

MultiDose G3.The
MultiDose G3 is a fully automated dissolution testing system
that works within an open architecture, allowing the use of
industry standard accessories in a variety of configurations. It
performs eight unattended dissolution runs of different methods
and configurations without intervention. Benefits of the
workstation include decreased labor requirements and
technique-independent results. The MultiDose G3 operating system
is compliant with 21 CFR Part 11, the electronic
records/electronic signature requirement of the FDA, with audit
trail features that help make the investigation of
out-of-specification results more efficient.

Tablet Processing Workstation II
(TPW II).The TPW II
performs quantitative sample preparation on pharmaceutical
dosage forms such as tablets or capsules, automating processes
such as content uniformity testing and stability analysis from
preparation through sample introduction. The instrument provides
a complete audit trail consistent with the requirements for
21 CFR Part 11 compliance and is suitable for use in
method development and routine quality assurance work.

Prelude Workstation.The Prelude Workstation automates pharmaceutical sample
preparation for samples such as bulk drug substances, performing
tasks such as solvent addition, extraction, sample transfer,
mixing and dilutions. Capabilities also include on-line HPLC,
and UV detection. Used in pharmaceutical method development and
quality assurance labs, the Prelude operating system is in full
compliance with 21 CFR Part 11. Benefits of the
Prelude Workstation include increase in analyst productivity,
decrease in technician-to-technician variability, and easy
method transfer from one laboratory to another.



| |                                    
| | -----------------------------------
| | Application Development
    Systems

Caliper 42 System.The Caliper 42 system enables users to develop proficiency in
fundamental microfluidics techniques 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 a diverse chip menu.

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

We provide a full range of services to our
customer base around the world. In our technical support
centers, service engineers work with customers to tailor our
products to customers specific needs, thereby maximizing
each products efficiency and productivity. The range of
services we provide includes technical telephone support, field
engineering support for both emergency and preventative
maintenance, field applications support, formal classroom
training at Caliper and customer locations, a repair depot, and
loaner support. In addition, we offer other services that are
primarily targeted at the pharmaceutical quality control
laboratories, including on-site validation of equipment to meet
current Good Manufacturing Practices, transfer of manual methods
to automated methods, and applications support. Management
believes that our ability to service clients through its global
service infrastructure is an important competitive strength of
our company and will be a critical ingredient to growth in the
near and long-term future. Service contracts are typically for
one-year terms.

Key Corporate Partnerships

A key element of our growth strategy is the
formation of strategic collaborations with other life science
technology providers and our customers. We believe these
relationships will allow us to enhance our strong market
position by increasing our research and development
capabilities. Under these arrangements, our collaborators
typically fund a portion of our development costs for a
particular product and work with our research and development
team to develop new products that meet the needs of our customer
base.



| |                     
| | --------------------
| | Agilent Technologies

Agilent is a global, diversified technology
company focusing on high-growth markets in the communications,
electronics, life sciences and healthcare industries.

From May 1998 through May 2003, Agilent and
Caliper collaborated to create and distribute commercial
research products based on Caliper microfluidic LabChip
technologies. The relationship effectively combined
Agilents expertise in the Life Sciences marketplace with
Calipers microfluidic innovation to bring novel products
to market. In September 1999, Agilent introduced the 2100
Bioanalyzer system, which uses Calipers LabChip devices.
Since that time, Agilent and Caliper have expanded the Agilent
2100 Bioanalyzer application menu to nine LabChip kits capable
of RNA, DNA, protein and cell analyses.

Effective in May 2003, the collaboration
agreement was terminated by us as permitted under the terms of
the agreement. The existing collaboration agreement with Agilent
sets forth 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 us 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 operate under the existing
termination provisions of the collaboration agreement unless we
establish new terms with Agilent.

In our collaboration with Agilent, we had
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 us. We are presently
only receiving minimal development funding from Agilent as a
result of the termination of the agreement. However, we
anticipate some level of product development funding will be
received from Agilent this year.

Under the continuing terms of 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

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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 survives 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. 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. Agilent has a
non-exclusive license in the field of the collaboration to our
LabChip technology as it existed in May 2003 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.




| |           
| | ----------
| | Affymetrix

In January 2004, we established a collaboration
and supply agreement to develop and provide automated target
preparation instruments for Affymetrix commercialized
proprietary microarray system, its new high throughput array
system and other future microarray platforms. These new
automation systems are expected to substantially reduce array
processing time, reduce variability and labor costs, and enable
researchers to industrialize their genomic research.

The two companies will develop products that
leverage our expertise in high-throughput automation and
microfluidics with Affymetrix expertise in microarray
technology and applications. The first products are expected to
be launched late this year and will automate microarray target
preparation steps including hybridization, washing and staining.

Affymetrix will market and distribute the line of
automation products developed under the multi-year agreement. We
will serve as an OEM provider and partner with Affymetrix to
provide installation, training and field support for these new
automated systems.



| |                        
| | -----------------------
| | Amphora Discovery Corp.

Amphora, a company we created in September 2001,
has engaged in large-scale implementation of LabChip drug
discovery systems purchased directly from us. However, we no
longer have a significant ownership interest in Amphora.

Under our agreement with Amphora, we charge
Amphora both for systems purchased as well as datapoints
generated. Since its inception and through December 31,
2003, Amphora has purchased 21 Caliper 250 drug discovery
systems and $3.8 million in datapoints. Total revenues from
Amphora decreased from $6.2 million in 2002 to
$2.5 million in 2003, or 60%. Of the $2.5 million in
total 2003 sales, $499,000 related to drug discovery system
products sold to Amphora prior to 2003, and $1.7 million
related to datapoints. We expect Amphora to buy one additional
LabChip 3000 drug discovery system in 2004. Under our agreements
with Amphora, which we renegotiated in December 2002, Amphora is
not obligated to make any further datapoint payments to us until
they have generated the number of datapoints that Amphora is
entitled to as a result of the following payments they paid or
are required to pay us: a) $1.8 million minimum
datapoint payment for the 12 months ending
November 30, 2003; and b) any payments made pursuant
to a $2.2 million deferred contingent obligation through
quarterly payments based on Amphoras revenue or
commissions earned by Amphora for marketing assistance. If
Amphora generates fewer datapoints than the number to which they
are entitled due to the minimum payment and any contingent
payments made, our future datapoint revenues will be adversely
affected to the extent of this shortfall.



| |                     
| | --------------------
| | Bio-Rad Laboratories

In June 2003, Caliper and Bio-Rad entered into a
multi-year product development and commercialization agreement
to develop and market a novel microfluidics instrument system
for worldwide distribution. Caliper is contributing its
expertise in microfluidic LabChip technologies to automate,
integrate and

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miniaturize multiple experimental steps on a
small chip for ease of use, increased efficiency and higher
quality results versus conventional methods. Under the terms of
the agreement, Caliper will receive research and development
funding from Bio-Rad, will be paid royalties on all future sales
of instruments and software, and will be the exclusive
manufacturer of LabChip devices.




| |                              
| | -----------------------------
| | Wako Pure Chemical Industries

In 2001, Caliper established a collaboration with
Wako of Japan to develop a new microfluidics-based instrument
and chips designed for the worldwide immunodiagnostics market.
The new system is intended to provide a faster, more highly
automated, and more cost-effective approach to running
diagnostic blood panels in the clinical laboratory setting.

Under the terms of the agreement, Wako will
provide immunodiagnostic reagents for the system, while Caliper
will develop chips and microfluidic assays. An undisclosed third
party will be responsible for manufacturing the instrument
system, with Wako retaining primary distribution rights. Further
terms of the agreement are not being disclosed.

Backlog

We define backlog as the total value of open
orders for products and services that management has concluded
have a reasonable probability of being delivered over the
subsequent twelve month period. The level of backlog at
December 31, 2003 was approximately $14.7 million and
at December 31, 2002 was zero. The increase year over year
in backlog is the result of our acquisition of Zymark, prior to
which we did not maintain a backlog. For a portion of our sales,
we manufacture product based upon our forecast of customer
demand and maintain inventories of completed modules in advance
of receipt of orders from our customers. Our net sales in any
given quarter depend upon a combination of orders received in
that quarter for shipment in that quarter and shipments from
backlog, and from recognition of revenues that had been
previously recorded as deferred revenue pursuant to our revenue
recognition policy. Many of our products are typically shipped
within ninety days of purchase order receipt. As a result, we do
not believe that the amount of backlog at any particular date is
indicative of our future level of sales in any succeeding
quarter. Our backlog at the beginning of each quarter does not
include all product sales needed to achieve expected revenues
for that quarter. Consequently, we are dependent on obtaining
orders for products to be shipped in the same quarter that the
order is received. Moreover, customers may reschedule shipments,
and production difficulties could delay shipments. Accordingly,
we have limited visibility of future product shipments, and our
results of operations are subject to variability from quarter to
quarter.

Customers

Prior to acquiring Zymark, we received a
substantial portion of our revenue from a limited number of
sources. In the year ended December 31, 2003, revenue from
Agilent, our major collaboration partner, accounted for 17% of
our total revenue and 21% of our product revenue. Agilent
represented 11% of pro forma total revenue for 2003 (see
Note 3 of Notes to Consolidated Financial Statements). The
acquisition of Zymark resulted in an immediate broadening of our
customer base, as well as a broadening of our product line, and
as such we anticipate that the sources of revenue will be
significantly diversified in the future. In addition, the global
commercial infrastructure we acquired through the Zymark
acquisition enhances our ability to expand into new geographical
markets, further increasing the diversity of our customer base.
Our current customers include the worlds leading
pharmaceutical and biotechnology companies as well as OEM
providers of complementary life science solutions.

Approximately 71%, 92% and 97% of our total
revenues for 2003, 2002 and 2001, respectively, were derived
from customers in the United States. See Note 18 to our
financial statements located at the end of this Annual Report
for a description of revenues from external customers
attributable to geographic areas. Substantially all of our
long-lived assets are located in the United States.

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Research and Development

We have made substantial investments in
lab-on-a-chip research since our inception, and believe that we
have established a leading position in lab-on-a-chip technology.
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. With the re-alignment of Caliper following our
acquisition of Zymark, we have made some important changes to
our approach to research and development. First, we are now
emphasizing what we refer to as a sequential, rather than
parallel, approach to our R&D projects, meaning that we are
now undertaking R&D projects in a more sequential manner,
rather than pursuing all of our projects at the same time. In
doing this, we are prioritizing those projects that we believe
have the greatest potential commercial value. Second, we are now
also emphasizing a shared investment risk approach to R&D in
which we have our customers or potential customers share in the
expense of an R&D project. We believe that this shared
investment risk model is important not only because it reduces
our own R&D expense, but also provides important customer
validation that a particular R&D project has potential
commercial value to our customers. Through all of these
measures, we anticipate that in the future we will be able to
gain greater control of our significant R&D expenses. 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 running in parallel determines the
level of throughput. Accordingly, we have developed high yield
fabrication methods to enable us to cost-effectively manufacture
chips with many capillaries to perform high throughput
experimentation.

Instrument Manufacturing and Software
Design.We use the skills of
electrical engineers, optical engineers, mechanical engineers,
product designers and software engineers to create new
instrumentation and software. The instruments are designed to
optimize liquid handling and automation of life science
laboratory applications, or to control fluid movement and
detection functionality for our microfluidic chips. Software
engineers write computer programs to manage tasks such as
controlling chip functionality, collecting data, communicating
between different instrument modules or communicating between
Calipers and other manufacturers instruments.
Currently, our instrument research and development efforts are
focused on:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | the miniaturization of fluidics,                                                      
|
| |  | robotics for transportation of higher density
    testing platforms, such as biochips,
|
| |  | high-efficiency liquid handling workstations,                                         
|
| |  | the development of software to promote
    integration capability, and                
|
| |  | continued development of productivity
    workstations for genomics and biotech.      

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

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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.




| |                         
| | ------------------------
| | 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. A current area
of focus is kinase selectivity screening, for which we use our
LabChip devices to address the need of pharmaceutical drug
discovery labs to understand how candidate drug compounds react
with a particular kinase drug target relative to other kinase
molecules in the human body, with potential impact on the safety
and efficacy of the resultant drug. Our research efforts in this
area have included the development of more than 30 methods that
are provided to the customer to facilitate easy implementation
of their kinase selectivity screening efforts.

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.

We have increased our application focus on our
more traditional macrofluidic automation products as well such
as our products for liquid handling, plate handling, and
complete automated systems. Our applications group works closely
with key customers to understand their critical application
needs. These needs are then addressed directly by developing
specific automation configurations and software specified
methods, optimized for key applications such as cell based
assays, nucleic acid purification, mass spectrometry sample
preparation and others. For example, our Staccato platform has
been configured specifically for cell-based assays and is now
marketed as a standard application system.



| |                    
| | -------------------
| | 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 LabChip instrument
systems, we are expanding the menu of applications to include
assays that measure many important activities of cells and
proteins. 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. For the LabChip 90 automated
electrophoresis system, we recently announced a new LabChip
device for higher throughout protein separations, that is
scheduled to be released in April 2004. Extensions to our liquid
handling and automation product lines are ongoing. These include
the development of additional application-based Staccato systems
that take advantage of our iBLOX technology to rapidly
reconfigure these systems for specific applications and the
further development of our liquid handling automation to include
nanoliter dispensing and feedback control capability. We are
also developing extensions of certain existing products to
address applications of high interest to our partners such as
the automation of target preparation for Affymetrix
commercialized proprietary microarray system.

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Rare Molecule
Detection.Rare molecule detection has
potential utility for a variety of molecular diagnostic
applications including early detection and screening for a
variety of cancers. Like all experimentation processes, this
application is a combination of various fluid manipulations,
biochemical reactions and detection. We are developing an
integrated 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 rare molecule detection technology 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 system is still in development, we are capable
of 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 1-2 hours, we can do a complete amplification
and detection 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.

Our research and development expenses for the
years ended December 31, 2003, 2002, and 2001 were
approximately $35.5 million, $43.3 million and
$38.3 million, respectively. We expect research and
development spending to decrease in the future as we slow the
pace of discretionary spending on research programs, focus on
those opportunities with maximum commercial viability and share
the funding of R&D programs with other partners.

Manufacturing

Effective in November 2003, we consolidated all
instrument manufacturing into our Hopkinton, Massachusetts ISO
9001:2000 compliant manufacturing facility. ISO, the
International Standards Organization, sets international
standards for quality in product design, manufacturing and
distribution. We manufacture some subassemblies ourselves and
other components are made to our specifications by outside
vendors. The workstations are produced from components based on
a wide variety of proprietary technologies, including intricate
mechanical actuators, precision fluid handling systems,
computers and software. Our top suppliers are tracked monthly
using a scorecard to insure the quality and on-time delivery of
parts and subassemblies. The subassemblies are inspected and
tested using on-line procedures within each work cell before
being placed into final product assemblies. The workstations are
then put through an extensive testing cycle before being
released for shipment. Production cycle times range from several
hours to five days for more complex workstations.

We produce the systems by combining our products
with third-party vendor equipment, primarily detection
instrumentation. The systems are a combination of standard
components assembled in either standard or custom configurations
to meet a customers specific needs. The components are
built exactly like the workstation products, and using CLARA
software, the components are integrated to create an application
to effectively run complex assays on these system
configurations. A typical production cycle ranges from 30 to
90 days from receipt of order to shipment of a system.
Customer acceptance at both our factory and the customers
site guarantees that the system is performing to the
customers specifications.

We manufacture all of our chips in a
Class 1000 clean room facility in Mountain View,
California. Caliper is ISO 9001:2000 compliant for the
development, manufacture and distribution of its chips, reagents
and systems. Agilent manufactures and distributes the Agilent
2100 Bioanalyzer under a license from Caliper. 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

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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
12 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

We encounter competition from a number of life
science tools companies, especially in the areas of
high-throughput screening, liquid handling, and separations
analysis. We anticipate that our competitors will come primarily
from:



| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies providing competitive liquid handling
    and automation products for screening applications similar to
    ours, including systems integrators, but based on established
    technologies, and incremental improvements to these products;
|
| |  | companies developing new non-chip technologies
    that can be used in applications similar to the ones that can be
    served by our LabChip technology.                                                                                            

In order to compete against vendors of
conventional products, we will need to demonstrate the
advantages of our products over alternative well-established
technologies and products. We will also need to demonstrate the
potential economic value of our products relative to these
conventional technologies and products. Lastly, we will need to
demonstrate the value of combining our LabChip products with our
own conventional liquid handling and automation solutions to
further differentiate our products from our competitors
products. Some of the companies that provide conventional
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, Micronics,
Microfluidic Systems and Nanostream. Other companies known to
have initiated microfluidic programs include Aclara Biosciences,
Motorola, 3M, Applied Biosystems, and Cepheid. 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 in the future. Under the
terms of our agreement, Agilent has a non-exclusive,
royalty-bearing license to certain of our LabChip technologies.
Under the terms of this license, Agilent is able to develop,
make and sell products in the field of our collaboration with
Agilent.

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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 December 31, 2003, we owned or held
licenses to 215 issued U.S. patents and approximately 150
pending U.S. patent applications, some of which derive from
a common parent application. The issued U.S. patents expire
between 2011 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 762
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;                                                          
|
| |  | automated liquid handling systems;                                                       
|
| |  | chip-based assay chemistries and methods;                                                
|
| |  | chip compatible sample accession;                                                        
|
| |  | software for control of microfluidic based
    systems and data analysis; and            
|
| |  | chip manufacturing processes.                                                            

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

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predicted at this time, although such costs are
not expected to be material to our financial position or results
of operations.


Other Business Risks

In addition to the risks to our business
associated with suppliers, competition and intellectual property
discussed above, our business is subject to a number of other
significant risks, including the risks that our LabChip products
may not achieve wide market acceptance, we may not be successful
in developing new and enhanced liquid handling products, and we
may not be successful in obtaining all of the cost saving and
other synergies expected from the Zymark acquisition. These and
other risks that may cause our actual results, financial
performance or achievements to be materially different from our
present expectations are discussed in more detail below under
Factors Affecting Operating Results contained in
Part II  Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which discussion is incorporated by reference
here.

Employees

As of December 31, 2003, we had a total of
454 employees, including 100 in research and development, 199 in
operations and service, 84 in sales and marketing and 71 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

The following are our executive officers and key
employees, together with their ages and biographical information:

E. Kevin Hrusovsky,42,was appointed President and
CEO of Caliper Life Sciences immediately following the
acquisition of Zymark by Caliper in July 2003. Prior to the
acquisition, Mr. Hrusovsky served as President and CEO for
Zymark starting in late 1996. Before joining Zymark,
Mr. Hrusovsky was Director of International Business,
Agricultural Chemical Division and President of the
Pharmaceutical Division for FMC Corporation. Prior to FMC,
Mr. Hrusovsky held several management positions at E.I.
DuPont de Nemours. He also serves as a board member of the
Association for Laboratory Automation. He received his B.S. in
Mechanical Engineering from Ohio State University, an M.B.A.
from Ohio University, an Extended M.B.A. from Harvard
University, and an Honorary Doctorate from Framingham State
College for his contributions to Life Sciences.

Daniel L. Kisner, M.D.,57,has served as our Chairman
of the Board since July 1, 2002, and served as our
President and Chief Executive Officer from February 1999 through
June 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,49, was named our Chief Operating
Officer and Chief Financial Officer effective July 14, 2003
upon Calipers acquisition of Zymark. Mr. Knighton
originally joined Caliper in September 1999 as our Vice
President and Chief Financial Officer, was promoted to Executive
Vice President in April 2001 and to President and Chief
Financial Officer until Calipers acquisition of Zymark.
Mr. Knightons employment will terminate on
March 31, 2004 pursuant to the terms of the amended
separation agreement. 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

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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.


Bruce J. Bal,45,was appointed to the position of Vice President, Operations
and Service following the combination of Caliper with Zymark.
Mr. Bal joined Zymark in 1997 as Vice President of R&D
and Operations. He previously worked at FMC Corporation in the
Biotechnology Division as Director of Operations. He has also
held a wide range of management positions in his 13 years
at E.I. DuPont de Nemours and was general manager of United
States Pollution Control, Inc. in Utah. Mr. Bal received a
B.S. in Chemical Engineering from the University of Wisconsin in
1981 and an MBA from Loyola University, Louisiana in 1986.

Enrique Bernal,65,
was appointed to the position of Vice President, Instrument
R&D following the combination of Caliper with Zymark.
Mr. Bernal joined Zymark in February 1999, prior to which
he worked at Galileo Corporation of Sturbridge, Massachusetts, a
developer and manufacturer of electro-multipliers and optical
fiber products, where he was responsible for all engineering
functions and product development. Previously, he had spent
29 years at Honeywell Inc. He received a B.S. in Physics
from the College of St. Thomas, and a Masters in Physics from
the University of Minnesota.

Andrea Chow, Ph.D.,46, was appointed to the position of
Vice President, Microfluidics R&D, in December 2003. Prior
to that, she held the position of Senior Director of
Microfluidics at Caliper. Before joining Caliper in 1997,
Dr. Chow conducted research at the Lockheed Palo Alto
Research Laboratories and SRI International, and completed a
postdoctoral fellowship at the University of Bristol in the
United Kingdom. Dr. Chow received her B.S. degree in
Chemical Engineering from the University of Southern California
in 1980, and M.S. and Ph.D. degrees in Chemical Engineering from
Stanford University in 1981 and 1984, respectively.

Stephen E. Creager,50, joined Caliper in October 2002 as
Associate General Counsel and was appointed Vice President and
General Counsel in June 2003. Prior to joining Caliper,
Mr. Creager was Vice President of Business Development for
Tyco Electronics, an operating unit of Tyco International
involved in the development and manufacture of electronic
components, with approximately $12 billion of annual
revenue. In this role, he provided the legal support for the
business development initiatives of Tyco Electronics, including
the acquisition of over 40 businesses. Prior to taking on these
business development responsibilities at Tyco Electronics,
Mr. Creager served as the General Counsel of Tyco
Electronics. Prior to that, Mr. Creager served as Associate
General Counsel of Raychem Corporation, a manufacturer of
electronic components, from November 1993 until August 1999,
when Raychem was acquired by Tyco Electronics. Prior to that,
Mr. Creager was in private legal practice for nine years.
Mr. Creager received a Bachelor of Arts degree from The
Evergreen State College, and a Masters of Philosophy degree in
economics and a J.D. degree, both from Yale University.

Anthony T. Hendrickson,50,was named Vice President of
Finance in September 2002 and has served as our Corporate
Controller and Chief Accounting Officer since April 2000.
Mr. Hendricksons employment will terminate on
March 31, 2004 pursuant to the terms of the amended
separation agreement. 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.

William C. Kruka,43, joined Caliper in 2002 as Vice President, Business
Development. Prior to joining Caliper, Mr. Kruka was Senior
Manager of Business Development with Applied Biosystems Group,
an Applera Corporation business, a leading life science tool
provider. In this role, he led the business development
initiatives for proteomics, including related mass spectrometry;
sample preparation; chromatography and

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microfluidic technologies. These initiatives
included developing strategy, formulating deal structures and
negotiating collaborations, licensing deals and divestitures. He
also chaired an internal business development council that
addressed strategic and operational matters from a
cross-functional business and technology perspective. Prior to
Applied Biosystems, Mr. Kruka held a number of corporate
business development, sales and marketing positions with
Perkin-Elmer.


Auro Nair, Ph.D.,43, was appointed to the position of
Vice President, North American Sales of Caliper Life Sciences
following the combination of Caliper and Zymark, where since
1998 he had led Zymarks North American Sales organization
to record sales growth. Prior to arriving at Zymark,
Dr. Nair managed Quality Compliance and Analytical Services
at Glaxo Wellcome, Singapore, where he was responsible for all
analytical chemistry support for two manufacturing plants and a
pilot facility. Dr. Nair received his Ph.D. in Analytical
Chemistry from the University of Oklahoma.

Mark Roskey, Ph.D.,44, was appointed to the position of
Vice President, Worldwide Marketing following the combination of
Caliper and Zymark, where he had held this role since he joined
Zymark in December 2001. Prior to that, Dr. Roskey worked
at Applied Biosystems for 6 years, a life sciences company,
where he served as Director of Marketing. He has more than
13 years of experience in product research, development and
strategic marketing with complex biological solutions and
automated instrument systems. Dr. Roskey completed a
postdoctoral fellowship in Molecular Immunobiology at the
Harvard Medical School, and holds a Ph.D. in Microbiology from
the University of Notre Dame.

Jean-Louis Rufener,59, was appointed to the position of
Vice President, International Operations following the
combination of Caliper and Zymark. At Zymark, he had held this
position since becoming a member of Zymarks executive team
when Zymark acquired Scitec Automation Holdings in August 1999.
During his tenure at Scitech, a liquid handling and laboratory
automation company, Mr. Rufener held the position of
President and CEO. Prior to Scitec, Mr. Rufener was
President of Tecan Corporation. Mr. Rufener completed his
primary and secondary education in Switzerland, and graduated
with a degree in Chemical Engineering from the Institute of
Technology in Bern Canon, Switzerland.



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

Our headquarters is located in Hopkinton, MA,
where we occupy two leased buildings totaling approximately
120,000 square feet which include research and development,
instrument manufacturing and administration. The Massachusetts
leases will expire in 2005 unless we exercise our option to
extend. In addition, we have three buildings totaling
approximately 110,000 square feet of leased space in
Mountain View, California, of which we occupied approximately
80,000 square feet as of December 31, 2003. Our
Mountain View facilities are primarily used for microfluidics
research and development, LabChip manufacturing, and certain
administrative functions. We are currently reviewing options to
sublease the currently unoccupied 28,800 square feet and to
further consolidate our facilities in Mountain View. 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
subsidiaries are engaged in marketing, sales and service
activities in Europe and Japan. In total, our subsidiaries
occupy leased space of approximately 34,000 square feet
under leases which expire through 2012. We believe that our
current facilities, based upon our long-term strategic
facilities plan, are adequate for our needs through the fourth
quarter of 2005, and we are assessing the need for alternative
and/or additional space to meet our future needs. Any facilities
that we are able to locate and lease may be on terms that are
expensive to us, depending upon the supply of such facilities
and market conditions, both of which 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

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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. In May 2003, a Memorandum of
Understanding was executed by counsel for plaintiffs, issuers
and their insurers setting forth the terms of a settlement that
would result in the termination of all claims brought by
plaintiffs against the issuers and individual defendants named
in the IPO Lawsuits. On July 7, 2003, a Special Litigation
Committee of the Caliper Board of Directors approved the
settlement terms described in that Memorandum of Understanding.
Draft documentation to effect this settlement is in the process
of being finalized by executive committees for the plaintiffs,
the issuers and their insurers. The settlement will be subject
to numerous conditions, including approval by Judge Scheindlin.


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
asserted that Molecular Devices Corp.s IMAP and Reagent
Assay Kits willfully infringe one or more claims of United
States Patent No. 6,287,774, which Caliper owns.
Calipers complaint sought both injunctive relief
precluding further infringement of the patent and damages. The
answer to the Complaint was filed on May 8, 2002 and
asserted a counterclaim seeking a declaratory judgment that the
patent is not infringed and is invalid. Caliper believes the
counterclaim was 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 asserted a
counterclaim seeking a declaratory judgment that both Caliper
patents are invalid, unenforceable and not infringed. Caliper
believes the Amended Counterclaim was without merit. On
January 28, 2003, Caliper filed a motion for preliminary
injunction, which was scheduled to be heard in May 2003, but
deferred by the court pending a patent claim construction
hearing. The claim construction hearing occurred at the end of
June 2003. During the first week of November 2003, Caliper
entered into a settlement of this lawsuit, and Calipers
claims against Molecular Devices and Molecular Devices
counterclaims against Caliper were dismissed with prejudice. In
connection with this settlement, Caliper and Molecular Devices
entered into a nonexclusive license agreement pursuant to which
Molecular Devices has agreed to pay to Caliper a one-time
licensing fee as well as royalties based on future sales of IMAP
products.



|        |                                                        
|------- | -------------------------------------------------------
|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, 2003.

20



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PART II




|        |                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

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 2003: |                |      |   |       |     |  |   |      
|             | First Quarter  |      | $ | 3.50  |     |  | $ | 2.92  | 
|             | Second Quarter |      | $ | 4.56  |     |  | $ | 3.41  | 
|             | Third Quarter  |      | $ | 6.25  |     |  | $ | 5.21  | 
|             | Fourth Quarter |      | $ | 6.66  |     |  | $ | 5.61  | 
|            
|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  | 

As of December 31, 2003, there were
approximately 184 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 following selected financial data for each of
the years ended December 31, 2003, 2002 and 2001 have been
derived from our audited financial statements included elsewhere
in this Annual Report. Selected financial data for the years
ended December 31, 2000 and 1999 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,               |        
|                                                                                          |                                                         |                                       |        
|                                                                                          |                                                         | 2003                                  |         |        | 2002    |   |         | 2001   |        |   | 2000    |        |        | 1999 |        
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|                                                                                          |                                                         |                                      
|                                                                                          |                                                         | (In thousands, except per share data) |        
|Statements of Operations Data(1):                                                         |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|Revenue:                                                                                  |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                          | Product revenue                                         |                                       | $       | 29,563 |         |   | $       | 10,378 |        |   | $       | 8,799  |        |      | $       | 3,201  |        |   | $       | 1,211  |       
|                                                                                          | Service revenue                                         |                                       |         | 5,879  |         |   |         | 37     |        |   |         |       |        |      |         |       |        |   |         |       |       
|                                                                                          | Related party revenue                                   |                                       |         | 2,489  |         |   |         | 6,155  |        |   |         | 3,912  |        |      |         |       |        |   |         |       |       
|                                                                                          | License fees and contract revenue                       |                                       |         | 11,480 |         |   |         | 9,263  |        |   |         | 16,877 |        |      |         | 15,363 |        |   |         | 10,876 |       
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|                                                                                          |                                                         | Total revenue                         |         |        | 49,411  |   |         |        | 25,833 |   |         |        | 29,588 |      |         |        | 18,564 |   |         |        | 12,087 | 
|Costs and expenses:                                                                       |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                                                          | Cost of product revenue                                 |                                       |         | 23,253 |         |   |         | 7,906  |        |   |         | 4,784  |        |      |         | 2,519  |        |   |         | 921    |       
|                                                                                          | Cost of service revenue                                 |                                       |         | 2,486  |         |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       |       
|                                                                                          | Cost of product revenue  related party                 |                                       |         | 241    |         |   |         | 3,021  |        |   |         | 2,103  |        |      |         |       |        |   |         |       |       
|                                                                                          | Research and development                                |                                       |         | 35,529 |         |   |         | 43,317 |        |   |         | 38,263 |        |      |         | 33,478 |        |   |         | 17,494 |       
|                                                                                          | Selling, general and administrative                     |                                       |         | 25,454 |         |   |         | 17,534 |        |   |         | 15,545 |        |      |         | 9,787  |        |   |         | 5,312  |       
|                                                                                          | Amortization of deferred stock compensation,
    net(2) |                                       |         | 1,000  |         |   |         | 378    |        |   |         | 2,540  |        |      |         | 4,545  |        |   |         | 3,885  |       
|                                                                                          | Amortization of intangibles                             |                                       |         | 2,756  |         |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       |       
|                                                                                          | Restructuring charges                                   |                                       |         | 11,535 |         |   |         | 314    |        |   |         |       |        |      |         |       |        |   |         |       |       
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|                                                                                          |                                                         | Total costs and expenses              |         |        | 102,254 |   |         |        | 72,470 |   |         |        | 63,235 |      |         |        | 50,329 |   |         |        | 27,612 | 
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|Operating loss                                                                            |                                                         |                                       | (52,843 | )      |         |   | (46,637 | )      |        |   | (33,647 | )      |        |      | (31,765 | )      |        |   | (15,525 | )     
|Interest income, net                                                                      |                                                         |                                       | 2,227   |        |         |   | 4,353   |        |        |   | 9,970   |        |        |      | 7,468   |        |        |   | 1,152   |       
|Other income, net                                                                         |                                                         |                                       | 1,279   |        |         |   | 1,320   |        |        |   |        |        |        |      |        |        |        |   |        |       
|Litigation settlement and reimbursement                                                   |                                                         |                                       |        |        |         |   |        |        |        |   | 27,500  |        |        |      | 13,274  |        |        |   |        |       
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|Income (loss) before taxes and cumulative effect
    of change in accounting principle(4) |                                                         |                                       | (49,337 | )      |         |   | (40,964 | )      |        |   | 3,823   |        |        |      | (11,023 | )      |        |   | (14,373 | )     
|Provisions for income taxes                                                               |                                                         |                                       | (190    | )      |         |   |        |        |        |   |        |        |        |      |        |        |        |   |        |       
|Cumulative effect of a change in accounting
    principle                                 |                                                         |                                       |        |        |         |   |        |        |        |   |        |        |        |      | (2,294  | )      |        |   |        |       
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|Net income (loss)                                                                         |                                                         |                                       | (49,527 | )      |         |   | (40,964 | )      |        |   | 3,823   |        |        |      | (13,317 | )      |        |   | (14,373 | )     
|Accretion on redeemable convertible preferred
    stock(3)                                |                                                         |                                       |        |        |         |   |        |        |        |   |        |        |        |      |        |        |        |   | (2,328  | )     
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        
|Net income (loss) attributable to common
    stockholders                                 |                                                         | $                                     | (49,527 | )      |         | $ | (40,964 | )      |        | $ | 3,823   |        |        | $    | (13,317 | )      |        | $ | (16,701 | )     
|                                                                                          |                                                         |                                       |         |        |         |   |         |        |        |   |         |        |        |      |        

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|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                         |  |                                      
|                                                                                                         |  | Year Ended December 31,               |       
|                                                                                                         |  |                                       |       
|                                                                                                         |  | 2003                                  |        |   | 2002 |   |        | 2001 |  |   | 2000   |  |  | 1999 |        
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|                                                                                                         |  |                                      
|                                                                                                         |  | (In thousands, except per share data) |       
|Net income (loss) per common share, basic:                                                               |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|Net income (loss) before cumulative effect of a
    change in accounting principle                       |  | $                                     | (1.88  | ) |      | $ | (1.68  | )    |  | $ | 0.16   |  |  | $    | (0.50   | ) |  | $ | (4.56   | )
|Cumulative effect of a change in accounting
    principle                                                |  |                                       |       |   |      |   |       |      |  |   |       |  |  |      | (0.11   | ) |  |   |        |  
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Net income (loss) per share, basic                                                                       |  | $                                     | (1.88  | ) |      | $ | (1.68  | )    |  | $ | 0.16   |  |  | $    | (0.61   | ) |  | $ | (4.56   | )
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Shares used in computing net income (loss) per
    common share, basic                                   |  |                                       | 26,396 |   |      |   | 24,403 |      |  |   | 23,997 |  |  |      | 21,853  |   |  |   | 3,663   |  
|Net income (loss) per common share, diluted:                                                             |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|Net income (loss) before cumulative effect of a
    change in accounting principle                       |  | $                                     | (1.88  | ) |      | $ | (1.68  | )    |  | $ | 0.15   |  |  | $    | (0.50   | ) |  | $ | (4.56   | )
|Cumulative effect of a change in accounting
    principle                                                |  |                                       |       |   |      |   |       |      |  |   |       |  |  |      | (0.11   | ) |  |   |        |  
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Net income (loss) per share, diluted                                                                     |  | $                                     | (1.88  | ) |      | $ | (1.68  | )    |  | $ | 0.15   |  |  | $    | (0.61   | ) |  | $ | (4.56   | )
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Shares used in computing net income (loss) per
    common share, diluted                                 |  |                                       | 26,396 |   |      |   | 24,403 |      |  |   | 25,634 |  |  |      | 21,853  |   |  |   | 3,663   |  
|Pro forma amounts assuming the change in
    accounting principle was applied retroactively (unaudited): |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |         |   |  |   |         |  
|Net loss                                                                                                 |  |                                       |        |   |      |   |        |      |  |   |        |  |  | $    | (11,023 | ) |  | $ | (14,267 | )
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Net loss per share, basic and diluted                                                                    |  |                                       |        |   |      |   |        |      |  |   |        |  |  | $    | (0.50   | ) |  | $ | (0.92   | )
|                                                                                                         |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      |        
|Shares used in computing pro forma net loss per
    share, basic and diluted                             |  |                                       |        |   |      |   |        |      |  |   |        |  |  |      | 21,853  |   |  |   | 15,578  |  

|                                                 |  |                          |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|------------------------------------------------ |  | ------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                 |  |                         
|                                                 |  | Years Ended December 31, |        
|                                                 |  |                          |        
|                                                 |  | 2003                     |         |  | 2002 |   |         | 2001 |  |   | 2000    |  |  | 1999 |        
|                                                 |  |                          |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                                 |  |                         
|                                                 |  | (In thousands)           |        
|Balance Sheet Data(1):                           |  |                          |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash, cash equivalents and marketable securities |  | $                        | 66,717  |  |      | $ | 154,323 |      |  | $ | 166,176 |  |  | $    | 191,699 |  |  | $ | 100,216 | 
|Working capital                                  |  |                          | 66,244  |  |      |   | 155,583 |      |  |   | 195,310 |  |  |      | 187,475 |  |  |   | 95,234  | 
|Total assets                                     |  |                          | 168,036 |  |      |   | 179,878 |      |  |   | 222,543 |  |  |      | 212,514 |  |  |   | 108,847 | 
|Long-term obligations, less current portion      |  |                          | 646     |  |      |   | 1,986   |      |  |   | 3,749   |  |  |      | 3,534   |  |  |   | 3,906   | 
|Total stockholders equity                       |  |                          | 134,797 |  |      |   | 167,558 |      |  |   | 206,564 |  |  |      | 196,457 |  |  |   | 97,863  | 



---



|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The statement of operations data include the
    results of Zymark beginning July 14, 2003, the date of
    acquisition. The balance sheet includes the balances of Zymark
    as of December 31, 2003. As such,

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| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | comparison of the 2003 selected financial data to
    selected financial data for the prior years presented may not be
    meaningful. See Note 3 of Notes to Consolidated Financial
    Statements.

|    |  |                                                                                 |  |                          |       |  |      |   |      |      |  |   |       |  |  |      |       |  |  |   |       | 
|--- |  | ------------------------------------------------------------------------------- |  | ------------------------ | ----- |  | ---- | - | ---- | ---- |  | - | ----- |  |  | ---- | ----- |  |  | - | ----- | 
|    |  |                                                                                 |  |                         
|    |  |                                                                                 |  | Years Ended December 31, |      
|    |  |                                                                                 |  |                          |      
|    |  |                                                                                 |  | 2003                     |       |  | 2002 |   |      | 2001 |  |   | 2000  |  |  | 1999 |      
|    |  |                                                                                 |  |                          |       |  |      |   |      |      |  |   |       |  |  |      |      
|(2) |  | Amortization of deferred stock compensation, net,
    related to the following: |  |                          |       |  |      |   |      |      |  |   |       |  |  |      |       |  |  |   |       | 
|    |  | Cost of product revenue                                                         |  | $                        | 56    |  |      | $ |     |      |  | $ |      |  |  | $    |      |  |  | $ |      | 
|    |  | Research and development                                                        |  |                          | 384   |  |      |   | (315 | )    |  |   | 610   |  |  |      | 1,601 |  |  |   | 1,094 | 
|    |  | Selling, general and administrative                                             |  |                          | 560   |  |      |   | 693  |      |  |   | 1,930 |  |  |      | 2,944 |  |  |   | 2,791 | 
|    |  |                                                                                 |  |                          |       |  |      |   |      |      |  |   |       |  |  |      |      
|    |  | Total                                                                           |  | $                        | 1,000 |  |      | $ | 378  |      |  | $ | 2,540 |  |  | $    | 4,545 |  |  | $ | 3,885 | 
|    |  |                                                                                 |  |                          |       |  |      |   |      |      |  |   |       |  |  |      |      



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | 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.                                                                                                                                                                                                                                                                 
|   
|(4) | 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 related
    agreement. This change resulted in a $2.3 million
    cumulative effect of a change in accounting principle which was
    reported as a change in 2000. The cumulative effect was
    initially recorded as deferred revenue over the remaining terms
    of the underlying contractual agreements.

24



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 uses its core technologies of liquid
handling, automation, and LabChip microfluidics to create
leading edge tools for the life sciences industry. Within the
life sciences industry, Caliper is currently addressing three
major markets: drug discovery and development, genomics and
proteomics and molecular diagnostics. Caliper is well positioned
to lead the industry in these markets by evolving the
companys liquid handling, detection, and integration
platforms into technologically advanced LabChip systems that
offer efficiency, versatility, and high quality data.

Since its founding in 1995, the strategy of the
company has been to invest in microfluidic technology in order
to develop innovative solutions to improve, and in some cases
provide new, applications in the life science tools space. That
investment over the last eight years has been considerable and
the company has, in fact, developed numerous products by itself
and in collaboration with partners (e.g., Agilent). These
products have been introduced commencing in 1999 up through the
present. However, during this time a number of factors occurred
that hindered Caliper from becoming financially self-sufficient
from an operating cash flow perspective. The general economy has
been extremely challenging for suppliers of capital equipment
used for research in the biotechnology and pharmaceutical
industries, combined with the challenge of gaining adoption of
Calipers radically new microfluidic technology in markets
where established alternatives are available, especially with
Calipers undeveloped commercial infrastructure. The
process and challenges of building and maintaining a commercial
organization of sufficient scale were significant. Early in 2003
it became apparent to Calipers management that the overall
adoption rate of our products was not robust enough to support
Calipers ongoing R&D and commercialization expenses.
Even though Calipers cash balances were significant, there
was no assurance that the cash resources would provide
sufficient liquidity for the company to get to a positive cash
flow state.



| |                   
| | ------------------
| | Zymark Acquisition

In an effort to address these challenges and not
sacrifice the core strategy of the company Caliper acquired
Zymark Corporation, a pioneer and leader in the field of
laboratory automation, robotics and advanced liquid handling
solutions, in July 2003. Zymark, founded in 1981, manufactured
and sold products and services to a multitude of customers in
the pharmaceutical, biotechnology, chemical, agriculture and
food industries worldwide. Our strategy now is to evolve the
companys various product platforms into technologically
advanced liquid handling and LabChip systems that offer
efficiency, versatility, and high quality data to customers for
genomics and proteomics, and drug discovery research
applications. Additionally, the company is focusing research
efforts in the molecular diagnostics market to develop LabChip
systems for early disease diagnosis, and is actively pursuing
technical feasibility studies with partners. We utilize three
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. Following the acquisition of Zymark, we
also sell our products through a global network of approximately
30 independent distributors, who in turn sell our products to
end-users.

On July 14, 2003, we completed the
acquisition of Zymark. The principal goals of the acquisition
included 1) gaining access to a global sales and marketing
distribution platform to accelerate adoption and

25



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##### Table of Contents



penetration of our microfluidic technologies,
2) accelerating our commercial transition by building upon
the capabilities of a more commercially experienced management
team, and 3) bolstering Calipers path to
profitability by increasing revenues, reducing expenses through
combination synergies and reducing our net losses and cash
utilization.


The acquisition of Zymark resulted in a
substantial increase in our overall customer base and expanded
our ability to market our products, including into new
geographic territories. We anticipate the acquisition of Zymark
will allow us to leverage our microfluidic LabChip technology
and product discovery engine with Zymarks proven
substantial commercial organization focused on laboratory
automation. We acquired Zymark from The Berwind Company LLC
(Berwind) for approximately $55.7 million in
cash, $2.5 million in acquisition costs and
3.15 million shares of our common stock with an aggregate
value of $14.6 million based on our average closing stock
price for the five (5) days preceding the definitive stock
purchase agreement with Berwind dated June 9, 2003. The
purchase terms also provide for Caliper to issue Berwind an
additional 1.575 million shares if certain financial
targets are met. These targets were not met in 2003, causing
787,500 contingent shares to lapse. If targets are met in 2004,
we will be obligated to issue the remaining 787,500 contingent
shares.



| |                        
| | -----------------------
| | Strategy and Objectives

Following the completion of the Zymark
acquisition, we established the following strategies and
objectives:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue development of innovative product
    solutions, using our microfluidic technologies and laboratory
    automation expertise, to develop key applications in the life
    sciences industry.
|
| |  | Penetrate new markets using our expanded
    commercial infrastructure and via a shared R&D investment
    model with OEM partners.                                                                  
|
| |  | Commercialize new products for drug discovery and
    development, and genomics and proteomics research.                                                                                             
|
| |  | Achieve positive cash flows from operations by
    the 4th quarter of 2005.                                                                                                                          
|
| |  | Increase the percentage of our total revenue from
    sales of aftermarket sources such as chips, services and annual
    maintenance contracts to 50% of total revenues by 2008.                    

As part of this strategy, we are focused on
realizing synergies that we expected from the acquisition by
reducing costs, creating a more efficient company, and
increasing our sales and marketing focus and adoption of our
technologies. Since the completion of the acquisition, we have
integrated sales, marketing, manufacturing, service and
administration and have conducted two reductions in force to
reduce our overall combined expense structure. We are working on
fewer research and development project areas at any given time,
enabling us to be more focused, productive and efficient with
this investment. We are also using our combined direct and
strategic partnership channels to maximize penetration within
the life science research and diagnostics markets. While these
initiatives are providing early positive indications, there can
be no assurance that our efforts will be successful.



| |                                      
| | -------------------------------------
| | Key Issues for Future
    Performance

As our performance unfolds the company must
address certain key issues:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenues  We must grow revenues
    significantly to meet the companys goal of reaching
    positive cash flow from operations by the 4th quarter of
    2005.                                                                                                                                    
|
| |  | Improvement in Gross Margins  We need
    to improve our gross margins by increasing volume, especially in
    the area of chips, to increase capacity utilization, and by
    achieving a larger proportion of our sales from higher margin
    products such as consumable products and services.
|
| |  | Cost Control  It is essential for us
    to continue to control costs in order to allow an operating cash
    flow break-even point to occur at lower overall revenues.                                                                                                                            

26



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##### Table of Contents



We may consider other actions to further control
costs, as well as suitable acquisition candidates, over the next
several years to help us address these factors.

Many of our microfluidic technologies, which we
developed prior to our acquisition of Zymark in July 2003, are
still in the early stages of development, and our drug discovery
systems incorporating these technologies have only recently
begun to be used commercially. If our drug discovery systems do
not gain further market acceptance, we will be unable to
generate significant sales of these products and our revenue may
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.

To increase the likelihood that our microfluidic
technologies gain market acceptance, a core element of our
business strategy is to broaden our network of commercial OEM
partners in order to access new applications and new markets. We
believe that this will allow us to more effectively leverage the
commercial potential of microfluidics in ways that would be
difficult to achieve, from both a research investment and
infrastructure perspective. 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.

Even though we experienced significant revenue
growth as a result of the Zymark acquisition, we believe our
revenues during the last two years have been adversely impacted
by the sluggish economic climate with its effect of reducing
capital spending by pharmaceutical and other research companies.
In the future, we believe that our strategy to expand the
proportion of our revenue from higher margin, recurring sources
such as LabChip products, datapoints generated, and automated
disposable dispenser tips, and to continue to expand our base of
service business revenues will lessen the potential negative
impact of reduced capital spending patterns on our business.
Zymarks business has historically experienced a modest
level of seasonality in the pattern of sales. Typically, in the
second half of the year, the number of customer orders received
is greater than those received in the first half of the year.
This trend may not continue, however, given our
managements intention to emphasize sources of higher
margin, recurring revenues that have the potential to drive
greater operational efficiency and less seasonal impact.



| |                       
| | ----------------------
| | Customer Concentration

Prior to 2001, we derived our revenues
principally from a fee-based technology access program model
pursuant to which Caliper obtained funds from customers in
return for such customers early access to Calipers
technology. During 2002, Caliper transitioned away from the
technology access program model to a commercial product
business. For the year ended December 31, 2002, sales of
products accounted for 61% of our revenue and licensing and
contract services accounted for 39% of our revenue. During 2002,
Amphora alone accounted for 24% of our total revenue and 34% of
our product revenue, and Agilent alone accounted for 39% of our
total revenue and 35% of our product revenue. With the
acquisition of Zymark, we expect services will be a more
significant source of revenue. For the year ended
December 31, 2003, which included the financial results of
Zymark after July 14, 2003, sales of products accounted for
65% of our revenue, licensing and contract services accounted
for 23% of our revenue, and services accounted for 12% of our
revenue. During the year ended December 31, 2003, Agilent,
which accounted for 17% of total revenues (11% on a pro forma
basis, see Note 3 of Notes to Consolidated Financial
Statements), and 21% of our product revenues, was our only
customer to account for more than 10% of our overall revenues.
Amphora, which was no longer considered a related party as of
December 31, 2003, accounted for just 5% of our overall
revenues during 2003. As a result of our expanded commercial
revenue base following our acquisition of Zymark, we expect
ongoing revenues from Agilent and Amphora to account for a
lesser percentage of our overall revenues.

27



---



##### Table of Contents





| |           
| | ----------
| | Highlights

In addition to the acquisition of Zymark, the
following highlights and events occurred during 2003 and the
first part of 2004:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We terminated our collaboration agreement with
    Agilent on May 8, 2003 in order to gain more flexibility in
    commercializing new products with other commercial partners, and
    gain greater ability to market and sell our products in the
    field of collaborations directly to end users. Due to this
    termination, we are now operating with Agilent under the terms
    of the collaboration agreement that survived the termination of
    the agreement, including reciprocal supply agreements set forth
    in the termination provisions of the agreement.
|
| |  | We entered into a multi-year product development
    and commercialization agreement with Bio-Rad to develop and
    market a novel microfluidic instrument for worldwide
    distribution.                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | We completed a multi-year, multi-million dollar
    agreement with Affymetrix to automate target preparations for
    Affymetrix proprietary microarray system platforms.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We launched several new products and product
    extensions that leverage our expertise in commercial product
    development including: LabChip 3000 drug discovery system,
    LabChip 90 automated electrophoresis system, Sciclone inL10
    automated liquid system, and Staccato iBLOX automated workstation                                                                                                                                                                                                                                                               
|
| |  | We settled the patent infringement lawsuit
    against Molecular Devices, which resulted in a nonexclusive
    license agreement pursuant to which Molecular Devices paid
    Caliper a one-time license fee and will pay royalties on future
    sales of its IMAP products.                                                                                                                                                                                                                                                                                                    
|
| |  | We expanded our intellectual property portfolio.
    Caliper was granted or assigned 55 U.S. patents, bringing
    our U.S. patent count to 215 at December 31, 2003. We
    also filed 65 new U.S. patent applications, increasing the
    total number of U.S. patents in prosecution to
    approximately 150 at year end.                                                                                                                                                                                                                                                    
|
| |  | We reorganized our senior management team,
    including the appointment of a new CEO, in connection with the
    integration of Zymark and Caliper, relocated our headquarters to
    Hopkinton, Massachusetts, and consolidated all of our instrument
    manufacturing into our Hopkinton, Massachusetts manufacturing
    operation.                                                                                                                                                                                                                                         
|
| |  | We completed several reductions in force to
    reduce our expenses and closed one of our three facilities in
    Mountain View, California.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | We launched the new company name, Caliper Life
    Sciences, Inc., reflecting our unified strategy of focusing
    on life sciences applications.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | We appointed two new Board members who contribute
    significant healthcare business expertise to the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | We completed a voluntary stock option exchange
    program initiated in November 2002 that allowed employees having
    stock options with exercise prices $100 per share or lower
    to exchange for new, lower prices options. The exchange was
    completed on May 20, 2003.                                                                                                                                                                                                                                                                                                

Certain of the key events summarized above are
further explained in the discussion that follows.

Relationship with Agilent TechnologiesIn May 2002, we notified Agilent of
our election to terminate the collaboration agreement between
the companies, effective as of May 8, 2003. We established
a broad relationship with Agilent in May 1998 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.

The collaboration agreement provided for Agilent
to fund our research and development expenditures related to the
collaboration, reimburse us for our costs of supplying chips and
reagents to Agilent and pay us a

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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.


Under the termination provisions of the
collaboration agreement 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 sales
of the Agilent 2100 Bioanalyzer will also decrease in the same
time periods, although at somewhat different rates. In addition,
Agilent received a non-exclusive license in the field of the
collaboration, to Calipers then existing LabChip
technology as of the date of termination, 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. As a result of the termination of the collaboration
agreement, we are presently only receiving minimal development
funding from Agilent. However, it is possible that the parties
may decide to collaborate on the development of new commercial
research products in the future. In 2003, we experienced a
$2.8 million decline in contract revenues from Agilent, but
as further described in Results of Operations, other
new sources of contract revenues, including revenue under our
collaboration with Bio-Rad Laboratories, helped to more than
offset this decline.

Effective November 2003, Caliper has 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 also provides
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.

Relationship with Bio-Rad
Laboratories.In June 2003, Caliper
and Bio-Rad entered into a multi-year product development and
commercialization agreement to develop and market a novel
microfluidics instrument system for worldwide distribution.
Caliper, is contributing its expertise in LabChip technologies
to automate, integrate and miniaturize multiple experimental
steps on a small chip for increased efficiency, ease of use, and
higher quality results versus conventional methods. Under the
terms of the agreement, Caliper will receive research and
development funding from Bio-Rad, will be paid royalties on all
future sales of instruments and software, and will be the
exclusive manufacturer of LabChip devices.

Relationship with
Affymetrix.On January 13, 2004,
Caliper and Affymetrix entered into a multi-year collaboration
and supply agreement to develop and provide automated target
sample preparation instruments for Affymetrix
commercialized proprietary microarray system and future GeneChip
platforms. We expect these new automation systems to
substantially reduce array processing time, reduce variability
and labor costs, and enable researchers to industrialize their
genomic research. The two companies will develop products that
leverage Calipers expertise in high-throughput automation
and microfluidics with Affymetrix expertise in microarray
technology and applications. We expect the first products to be
launched by late 2004 and that they will automate microarray
target preparation steps including hybridization, washing and
staining.

Relationship with Amphora Discovery
Corp.We no longer have a significant
ownership interest in Amphora. We initially had a 28% ownership
interest in Amphora, which was reduced to 13% as of
December 31, 2002, and to less than 1% as of
December 31, 2003 as a result of equity financings by
Amphora. For the period from September 2001, when Caliper owned
28% of Amphora, through Amphoras latest financing in
December 2003, we accounted for our interest in Amphora under
the equity method of accounting. Under this method, which
required deferral of our gross profit on sales of drug discovery
systems

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to Amphora based upon our ownership level, we
recognized the deferred amount as revenue as Amphora recorded
depreciation on its Caliper 250 drug discovery systems. As of
December 31, 2003, since Amphora is no longer a related
party, we have fully recognized revenue from all prior sales to
Amphora. We do not intend to make future equity investments in
Amphora.


Since its inception and through December 31,
2003, Amphora has purchased 21 Caliper 250 drug discovery
systems and $3.8 million in datapoints. Total revenues from
Amphora decreased from $6.2 million in 2002 to
$2.5 million in 2003, or 60%. Of the $2.5 million in
total 2003 sales, $499,000 related to drug discovery system
products sold prior to 2003. Amphora is not obligated to make
any further datapoint payments to us until they have generated
the number of datapoints that Amphora is entitled to as a result
of the following payments they paid or are required to pay us:
a) $1.8 million minimum datapoint payment for the
12 months ending November 30, 2003; and b) any
payments made pursuant to a $2.2 million deferred
contingent obligation through quarterly payments based on
Amphoras revenue or commissions earned by Amphora for
marketing assistance. If Amphora generates fewer datapoints than
the number to which they are entitled due to the minimum payment
and any contingent payments made, our future datapoint revenues
will be adversely affected to the extent of this shortfall.

Intellectual
Property.Key to our business strategy
has also been the development of an extensive intellectual
property portfolio. Consistent with this strategy, we have
endeavored to protect our patent portfolio as appropriate. This
resulted in litigation with Aclara Biosciences, which began in
1999, and with Molecular Devices, which began in 2002. 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. During the year ended December 31, 2003,
we collected the final $2.5 million for minimum royalties
from Aclara. In November 2003, we settled the patent
infringement lawsuit against Molecular Devices, which resulted
in a nonexclusive license agreement pursuant to which Molecular
Devices paid Caliper a one-time license fee and will pay
royalties on future sales of its IMAP products.

Restructuring
Activities.Since early September of
2002 and over the course of the following 12 months, the
continuing broad economic slowdown and the adverse impact of
reduced research and development spending by biopharmaceutical
companies required us to streamline our business to better align
our organizational structure with these depressed market
conditions and customer demand. Prior to and independent of the
Zymark acquisition, we conducted two reductions in force as
follows:



| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In September 2002, we conducted our first
    reduction in force that resulted in a downsizing of our employee
    work force by 28 people, primarily in our research and
    development staff, incurring a restructuring charge of
    $314,000; and
|
| |  | In May 2003, we further downsized of our employee
    workforce by 26 people, again primarily in our research and
    development staff incurring a restructuring charge of $322,000.                                                                 

As a result of the Zymark acquisition, we
conducted two reductions in force in order to properly size our
efforts to the marketplace and increase organizational
efficiencies within our newly combined company, and closed one
of our facilities, as described below:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In August 2003, we downsized our newly combined
    workforce by 37 people with all functional groups affected
    except for research and development, incurring a restructuring
    charge of $774,000                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | In December 2003, we downsized our workforce by
    37 people, mainly affecting research and development and
    executive management, incurring a restructuring charge of
    $2.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In December 2003, we recorded a $7.7 million
    charge, based upon the estimated net present value of our future
    lease payments related to the closure of one of our Mountain
    View facilities, net of anticipated sublease rentals, including
    leasehold improvement write-offs and other asset disposals of
    $319,000 related to the building closure. The facility lease
    accrual charge involved certain key assumptions including the
    amount, if any, of any future sublease rentals. Our current
    assumptions take into consideration the going market rate for
    leases of similar properties, which is approximately 80-90%

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| |  |                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | below our current lease. As such, a decrease in
    anticipated sublease rentals would not materially affect our
    estimated liability.

When fully concluded, we estimate the annualized
savings of the above reductions in force to be approximately
$9.5 million.

Stock Option
Exchange.On October 16, 2002, we
announced that our Board of Directors approved a voluntary stock
option exchange program for employees. Under the exchange
program, we offered employees the opportunity to exchange
outstanding stock options with exercise prices of $100 per
share or lower for new stock options to be granted at an
exercise price determined on the date the new stock options were
granted. Participating employees received new stock options in
exchange for outstanding stock options at an exchange ratio of
one-for-one. In accordance with the exchange program, on
November 19, 2002, we cancelled stock options covering
approximately 2.18 million shares of our common stock. We
granted new options to purchase approximately 1.96 million
shares of our common stock on May 20, 2002, the first
business day that was six months and one day after the
cancellation of the exchanged options. Employees received the
same vesting as with their previous options, except that any
future vesting of the replacement options was delayed during the
exchange period. In addition, participating employees were
prohibited from exercising the replacement options for six
months after the date of exchange. The exercise price per share
of the new options is $3.63, the fair market value of Caliper
common stock at the close of regular trading on May 19,
2003.

Critical Accounting Policies

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. We use estimates
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, we do not recognize revenue
until such customer acceptance has been obtained. In connection
with our adoption of EITF Issue 00-21, Revenue
Arrangements with Multiple Deliverables, revenue
arrangements entered into after July 1, 2003 that include
multiple deliverables are divided into separate units of
accounting if the deliverables meet certain criteria, including
whether the delivered items have stand alone value and whether
there is evidence of fair value of the undelivered items. In
addition, we allocate the consideration among the separate units
of accounting based on their fair values, and consider the
applicable revenue recognition criteria separately for each of
the separate units of accounting. We determine fair
value of undelivered items based upon our historic selling
prices, or where no historic information exists, based upon
managements estimate of the probable selling prices for
such undelivered items.

Customer and Accounts
Receivables.We currently have an
allowance for doubtful accounts of $252,000 as of
December 31, 2003 based on the aging of our accounts
receivable balances and our historical experience of defaults
and write-offs. We evaluate the need for an allowance for
doubtful accounts based upon our analysis of factors including
accounts receivable aging, historical bad debts, customer
concentrations, changes in customer credit-worthiness and
current economic trends. 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 Reserves and
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

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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
reserve for or 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 we project will no longer be used in the
manufacturing process. We generally define excess inventory as
inventory in excess of projected usage, which we determine 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.


Goodwill.We perform
a test for the impairment of goodwill annually following the
related acquisition, or more frequently if events or
circumstances indicate that goodwill may be impaired. Because we
have a single operating and reportable business segment, we
perform this test by comparing the fair value of the Company
with its book value, including goodwill. If the fair value
exceeds the book value, goodwill is not impaired. If the book
value exceeds the fair value, we would calculate the potential
impairment loss by comparing the implied fair value of goodwill
with the book value. If the implied goodwill is less than the
book value, an impairment charge would be recorded.

Impairment.We
review 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, we assess recoverability of
assets to be held and used by a comparison of the carrying
amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. We perform the
recoverability measurement and estimating of undiscounted cash
flows 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, we calculate the
resulting impairment charge to be recorded based on the amount
by which the carrying amount of assets exceeds the fair value of
the assets. We report assets to be disposed of at the lower of
the carrying amount or fair value less costs to sell. In
December 2003, we recorded an impairment charge of $214,000
related to Caliper 250 drug discovery instruments carried in
property and equipment.

Warranty Expense.At
the time we recognize revenue, 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. Warranty expense was
$1.0 million during 2003.

Restructuring
Charges.We established exit plans for
each of the restructuring activities which took place in 2003
and 2002 and accounted for these plans in accordance with EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Benefits and Other Costs to Exit an Activity (including
Certain Costs incurred in a Restructuring), Statement of
Financial Accounting Standards (SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, and SEC Staff Accounting Bulletin No. 100
(SAB 100), Restructuring and
Impairment. In accordance with such standards, management
makes certain judgmental estimates related to these
restructuring charges. We specifically identified all positions
which were to be eliminated and notified the affected employees
prior to the end of the quarter in which the related
restructuring charge was recorded. The consolidation of
facilities required us to make estimates including with respect
to contractual rental commitments or lease buy-outs for office
space being vacated and related costs, and leasehold improvement
write-downs, offset by estimated sub-lease income. We review on
at least a quarterly basis our sub-lease assumptions. These
estimates include anticipated rates to be charged to a
sub-tenant and the timing of the sub-lease arrangement. If the
rental markets change, our sub-lease

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assumptions may not be accurate and changes in
these estimates might be necessary and could materially affect
our financial condition and results of operations. For a further
discussion of our restructuring activities, see Note 11,
Restructuring Charges, in the Notes to Consolidated Financial
Statements for the year ended December 31, 2003.


Derivatives.In
connection with the adoption of Statements of Financial
Accounting Standards (SFAS) Nos. 133 and 149, 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. As of December 31, 2003, 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), and its related
interpretations, 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 for use in valuing employee stock
options. Under APB 25, we do not recognize compensation
expense because the exercise price of our employee stock options
equals the market price of the underlying stock on the date of
grant. We amortize deferred compensation related to stock
options, if recorded, using the graded vesting method. Statement
of Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123, requires the
disclosure of pro forma information regarding net loss and net
loss per share as if we had accounted for its stock options
under the fair value method. If we were to adopt this approach,
we would incur significantly higher compensation expenses. 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 currently have net operating loss (NOL)
carryforwards that can be utilized to offset future income for
federal and state tax purposes. These NOLs generate a
significant deferred tax asset. However, we have recorded a 100%
valuation allowance against this deferred tax asset as we have
determined that it is more likely than not that we will not be
able to fully utilize the NOLs. Should our assumptions regarding
the utilization of these NOLs change, we may reduce some or all
of this valuation allowance, which would result in the recording
of an income tax benefit. In evaluating the potential exposure
associated with the various tax filing positions, we accrue
charges for possible exposures. Based on the annual evaluations
of tax positions, we believe we have appropriately filed our tax
returns and accrued for possible exposures. To the extent we
were to prevail in matters for which accruals have been
established or be required to pay amounts in excess of reserves,
our effective tax rate in a given financial period might be
materially impacted.

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Results of Operations

Our financial results for the year ended
December 31, 2003 include the financial results of Zymark
from the date of acquisition, July 14, 2003, through
December 31, 2003.



| |        
| | -------
| | Revenue

|              |                                   |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |        |        |   |  |     |     |    |   |        |        | 
|------------- | --------------------------------- | -------------- | ------ | ------ | -------- | - | ------ | -------- | ------------ |  | ---- | --- | -- | -------- | ------ | ------------ | -------- | - | ------ | ------ | - |  | --- | --- | -- | - | ------ | ------ | 
|              |                                   | Year Ended     |        |        |          |   |        |          | Year Ended   |  |      |     |    |          |        | Year Ended   |         
|              |                                   | December 31,   |        |        |          |   |        |          | December 31, |  |      |     |    |          |        | December 31, |         
|              |                                   | 2003           |        |        | $ Change |   |        | % Change |              |  | 2002 |     |    | $ Change |        |              | % Change |   |        | 2001   |  
|              |                                   |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |        |        |  
|              |                                   |               
|              |                                   | (In Thousands) |       
|              | Product revenue                   |                | $      | 29,563 |          |   | $      | 19,185   |              |  |      | 185 | %  |          | $      | 10,378       |          |   | $      | 1,579  |   |  |     | 18  | %  |   | $      | 8,799  | 
|              | Service revenue                   |                |        | 5,879  |          |   |        | 5,842    |              |  |      | n/a |    |          |        | 37           |          |   |        | 37     |   |  |     |    |    |   |        |       | 
|              | Related party revenue             |                |        | 2,489  |          |   |        | (3,666   | )            |  |      | (60 | )% |          |        | 6,155        |          |   |        | 2,243  |   |  |     | 57  | %  |   |        | 3,912  | 
|              | License fees and contract revenue |                |        | 11,480 |          |   |        | 2,217    |              |  |      | 24  | %  |          |        | 9,263        |          |   |        | (7,614 | ) |  |     | (45 | )% |   |        | 16,877 | 
|              |                                   |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |        |        |  
|Total Revenue |                                   | $              | 49,411 |        |          | $ | 23,578 |          |              |  | 91   | %   |    | $        | 25,833 |              |          | $ | (3,755 | )      |   |  | (13 | )%  |    | $ | 29,588 |       
|              |                                   |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |        |        |  

Total Revenue.The
increase in total revenue in 2003 was due almost exclusively to
the additional revenues from Zymark, offset, in part, by the
decrease in related party sales to Amphora. In 2002, total
revenues decreased as a result of a significant decline in
license and contract revenues after the discontinuation of our
Technology Access Program in 2001, offset in part by increased
product sales, including related party sales to Amphora, and
sales to our commercial collaboration partner, Agilent.

Product Revenue.The
increase in product revenue in 2003 was due almost exclusively
to the revenue added by the acquired Zymark products. The
remainder of the 2003 product revenue increase resulted from
higher revenue from Agilent, offset by a net decline in sales of
our other products, especially Caliper 250 drug discovery system
sales. In 2002, product revenue increased primarily as a result
of a 52% increase in revenue from Agilent. Sales of our drug
discovery products increased 7% overall in 2002, driven by
increased datapoint revenues of $385,000, which offset a 4%
decline in Caliper 250 drug discovery system sales and a 70%
decline in Caliper 42 system revenues, the later due to
lack of sizable market demand for this product. Sales of AMS 90
products were relatively unchanged in 2002 as compared to 2001.

Service Revenue.Prior to the acquisition of Zymark, we did not have significant
service revenue. The increase in 2003 primarily consisted of
annual maintenance contracts and support services associated
with the installed base of Zymark products.

Related Party
Revenue.In 2003, related party
revenue from Amphora declined primarily due to a decrease in
Caliper 250 drug discovery system sales. As of December 31,
2003, Amphora was no longer considered a related party as
Calipers ownership interest in Amphora declined to less
than 1%. In 2002, related party revenue increased primarily due
to increases of approximately $600,000 in Caliper 250 drug
discovery system sales, $1.1 million in datapoint revenues,
and $500,000 in contracted assay development services. Caliper
no longer employs the equity method of accounting for its
investment in Amphora, and fully recognized $267,000 of
previously deferred revenues on sales to Amphora as of December
2003.

License Fees and Contract
Revenue.In 2003, license fees and
contract revenues increased primarily due to an increase in
license fees and contract revenues from non-Agilent
collaborations, including Zymark research and development
collaborations, and an initial license fee received from
Molecular Devices under a non-exclusive license arrangement
entered into as a result of a comprehensive settlement of our
patent infringement lawsuit against Molecular Devices in
November 2003. These sources of revenue were partially offset by
a $2.8 million decline in research and development funding
from Agilent as we concluded several development programs
related to the Agilent 2100 Bioanalyzer product line. In 2002,
license and contract revenue decreased primarily due to a
$4.3 million decrease in contract revenue from our
Technology Access Program partners after discontinuance of this
program in 2001, a $2.5 million decrease in license fees
from Aclara for the Ramsey family of patents, a
$1.4 million decrease in Agilent contract revenue and a
$540,000

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decrease in government contract research revenue.
These decreases were partially offset by a $1.1 million
increase in application development contract services provided
to AMS 90 customers.




| |                
| | ---------------
| | Cost of Revenue

|                      |                       |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |       |       |  |  |     |     |  |   |       |       | 
|--------------------- | --------------------- | -------------- | ------ | ------ | -------- | - | ------ | -------- | ------------ |  | ---- | --- | -- | -------- | ------ | ------------ | -------- | - | ----- | ----- |  |  | --- | --- |  | - | ----- | ----- | 
|                      |                       | Year Ended     |        |        |          |   |        |          | Year Ended   |  |      |     |    |          |        | Year Ended   |         
|                      |                       | December 31,   |        |        |          |   |        |          | December 31, |  |      |     |    |          |        | December 31, |         
|                      |                       | 2003           |        |        | $ Change |   |        | % Change |              |  | 2002 |     |    | $ Change |        |              | % Change |   |       | 2001  | 
|                      |                       |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |       |       | 
|                      |                       |               
|                      |                       | (In thousands) |       
|Cost of               |                       |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |       |       |  |  |     |     |  |   |       |      
|                      | Product revenue       |                | $      | 23,253 |          |   | $      | 15,347   |              |  |      | 194 | %  |          | $      | 7,906        |          |   | $     | 3,122 |  |  |     | 65% |  |   | $     | 4,784 | 
|                      | Service revenue       |                |        | 2,486  |          |   |        |         |              |  |      |    |    |          |        |             |          |   |       |      |  |  |     |    |  |   |       |      | 
|                      | Related party revenue |                |        | 241    |          |   |        | (2,780   | )            |  |      | (92 | )% |          |        | 3,021        |          |   |       | 918   |  |  |     | 44% |  |   |       | 2,103 | 
|                      |                       |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |       |       | 
|Total Cost of Revenue |                       | $              | 25,980 |        |          | $ | 15,053 |          |              |  | 138  | %   |    | $        | 10,927 |              |          | $ | 4,040 |       |  |  | 59% |     |  | $ | 6,887 |      
|                      |                       |                |        |        |          |   |        |          |              |  |      |     |    |          |        |              |          |   |       |       | 

Cost of Product
Revenue.In 2003, cost of product
revenue increased primarily due to the increase in product
revenues generated from sales of Zymark products. In addition,
this overall increase included a $1.2 million write-off of
excess or obsolete Caliper 250 instrument inventory that has
been replaced by the LabChip 3000 drug discovery system, and
amortization of $494,000 related to the purchase accounting
step-up of acquired Zymark inventories. Following the
prioritization of our R&D programs, some of our chip
manufacturing labor and overhead costs are no longer being
utilized for R&D programs. With our increased commercial
focus following the Zymark acquisition, the idle capacity within
chip manufacturing is now classified as cost of product
revenues. This shift in expense increased cost of product
revenue by $1.2 million for the four month period ended
December 31, 2003, including $1.0 million in the
fourth quarter of 2003, and we expect will have a similar
continuing impact on cost of product revenue in 2004, thereby
adversely affecting our product gross margins. In 2002, cost of
product revenue increased primarily due to the increase in
Agilent product revenue (in the Agilent case we sell our LabChip
kits and reagents at cost, and share in the gross margin
received by Agilent on sales of Agilent Bioanalyzer 2100
instruments and LabChip kits and reagents  generally,
this results in a lower profit margin compared to when we sell
our own products directly). In addition, we incurred $663,000 of
product warranty cost and wrote off $701,000 of excess or
obsolete inventory in 2002 versus no such cost and writeoffs in
2001 as we had only begun to commercialize in 2001. Profit
margins on product revenues were 21%, 24% and 46% respectively
in 2003, 2002 and 2001. The decrease in product gross margin
percentage in 2003 was caused by several factors including
7 percentage points attributable to the inventory write-off
and amortization discussed above, 4 percentage points
caused by the shift of chip manufacturing costs from R&D
programs, and the effects of a partial year of Zymark included
in 2003 operating results. The decrease in product gross margin
percentage in 2002 was caused by several factors including
7 percentage points attributable to the inventory
write-off, the 6 percentage points attributable to the
increased warranty costs and the remainder primarily due to the
increase in lower margin Agilent revenues.

Cost of Service
Revenue.Cost of service revenue in
2003 represents costs incurred in relation to providing billable
services and supporting installed systems under annual
maintenance contracts, including parts replacement and service
labor and overhead.

Cost of Related Party
Revenue.In 2003, cost of related
party revenue decreased as a result of the significant decline
in sales of Caliper 250 drug discovery system sales to Amphora,
with revenues in 2003 coming primarily from datapoints and
non-product related sources. In 2002, cost of related party
revenue increased primarily due to warranty costs of $444,000
related to installed systems 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.

35



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##### Table of Contents





| |                   
| | ------------------
| | Operating Expenses

|                                                 |  |                |        |  |          |   |        |          |              |  |      |    |  |          |        |              |          |   |        |      |  |  |     |    |  |   |        | 
|------------------------------------------------ |  | -------------- | ------ |  | -------- | - | ------ | -------- | ------------ |  | ---- | -- |  | -------- | ------ | ------------ | -------- | - | ------ | ---- |  |  | --- | -- |  | - | ------ | 
|                                                 |  | Year Ended     |        |  |          |   |        |          | Year Ended   |  |      |    |  |          |        | Year Ended   |         
|                                                 |  | December 31,   |        |  |          |   |        |          | December 31, |  |      |    |  |          |        | December 31, |         
|                                                 |  | 2003           |        |  | $ Change |   |        | % Change |              |  | 2002 |    |  | $ Change |        |              | % Change |   |        | 2001 | 
|                                                 |  |                |        |  |          |   |        |          |              |  |      |    |  |          |        |              |          |   |        |      | 
|                                                 |  |               
|                                                 |  | (In thousands) |       
|Research and development                         |  | $              | 35,529 |  |          | $ | (7,788 | )        |              |  | (18  | )% |  | $        | 43,317 |              |          | $ | 5,054  |      |  |  | 13  | %  |  | $ | 38,263 | 
|Selling, general and administrative              |  |                | 25,454 |  |          |   | 7,920  |          |              |  | 45   | %  |  |          | 17,534 |              |          |   | 1,989  |      |  |  | 13  | %  |  |   | 15,545 | 
|Amortization of deferred stock compensation, net |  |                | 1,000  |  |          |   | 622    |          |              |  | 165  | %  |  |          | 378    |              |          |   | (2,162 | )    |  |  | (85 | )% |  |   | 2,540  | 
|Amortization of intangible assets                |  |                | 2,756  |  |          |   | 2,756  |          |              |  |     |    |  |          |       |              |          |   |       |      |  |  |    |    |  |   |       | 
|Restructuring charges                            |  |                | 11,535 |  |          |   | 11,221 |          |              |  |     |    |  |          | 314    |              |          |   | 314    |      |  |  |    |    |  |   |       | 
|                                                 |  |                |        |  |          |   |        |          |              |  |      |    |  |          |        |              |          |   |        |      | 
|                                                 |  | $              | 76,274 |  |          | $ | 14,731 |          |              |  | 22   | %  |  | $        | 61,543 |              |          | $ | 5,195  |      |  |  | 1   | %  |  | $ | 56,348 | 
|                                                 |  |                |        |  |          |   |        |          |              |  |      |    |  |          |        |              |          |   |        |      | 

Research and Development
Expenses.In 2003, research and
development expenses declined despite the acquisition of Zymark
which contributed $2.8 million to our overall ongoing
R&D expenses, primarily due to our R&D prioritization
efforts and the associated employee downsizing actions, which
are described in Restructuring Chargesbelow. In 2002,
R&D expenses increased due to expanded efforts to increase
revenues through the development of new products and
applications, including initial LabChip 3000 development, and
activities associated with continuing microfluidic chip
development, partner collaborations and product scale-up. We
expect research and development spending to decline in 2004 as
compared to 2003 as a result of our downsizing activities in
2003 and R&D prioritization efforts, only expanding in
subsequent years based on customer demand, market conditions and
our commercial growth.

Selling, General and Administrative
Expenses.In 2003, SG&A expenses
increased primarily due to the additional costs of Zymark,
offset in part by cost synergies realized through our
integration efforts. In 2002, SG&A expenses increased
primarily due an increase in employment costs related to our
first full year of a marketing and sales function, and general
increases in other SG&A expenses as a result of our expanded
commercial activities. We expect selling, marketing and product
promotion expenses to increase over the next several years to
support the more global commercialization of our products
through the experienced sales force and commercial
infrastructure provided by the acquisition of Zymark. We
anticipate general and administrative expenses to increase only
as revenue increases, but at a lesser rate.

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 stock awards including stock
options. During 1998 and 1999, we recorded deferred stock
compensation totaling $13.2 million. We are amortizing this
amount over the respective vesting periods using the graded
vesting method. In 2003, we recorded deferred compensation of
$2.2 million related to stock awards granted to retain
certain key executives and employees in connection with our
acquisition and subsequent integration with Zymark. We recorded
amortization expense related to deferred stock compensation in
2003 and 2002 net of reversals of $17,000 and
$1.0 million, respectively, of stock compensation expense
recognized in previous periods as a result of forfeited options.
Of the $1.8 million of remaining deferred stock
compensation included within stockholders equity as of
December 31, 2003, we expect to record amortization of
deferred compensation expense of $800,000 during 2004 and the
remaining $1.0 million during future periods beyond 2004.
The amount of deferred compensation expense to be recorded in
future periods may further decrease if unvested options and
restricted stock awards for which deferred compensation has been
recorded are subsequently canceled.

Restructuring
Charges.We recognized restructuring
charges in 2003 and 2002 related to the following:



| |     
| | ----
| | 2003



| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $7.7 million charge, based upon the
    estimated net present value of our future lease payments related
    to the closure of one of our Mountain View facilities, net of
    anticipated sublease rentals, including leasehold improvement
    write-offs and other asset disposals of $319,000 related to the
    building closure.

36



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | The facility lease accrual charge involved
    certain key assumptions including the amount, if any, of any
    future sublease rentals. Our current assumptions take into
    consideration the going market rate for leases of similar
    properties, which is approximately 80-90% below our current
    lease. As such, a decrease in anticipated sublease rentals would
    not materially affect our estimated liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | We recorded total charges of $3.8 million
    during 2003 for three downsizing actions related to severance
    and benefits, including $401,000 of non-cash charges related to
    acceleration of stock option vesting for certain terminated
    employees. Two of such reductions in force were completed
    following our acquisition of Zymark, and were principally
    related to elimination of redundant positions, the relocation of
    instrument manufacturing to Hopkinton, MA, and the
    prioritization of research and development programs. These
    actions resulted in the elimination of 100 positions, including
    52% in research and development, 24% in manufacturing operations
    and service, and 24% in selling, general and administration. As
    of December 31, 2003, approximately $2.1 million of
    the $3.8 million remained in accrued restructuring charges,
    most of which will be paid out through April 2004.



| |     
| | ----
| | 2002



| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We recorded a charge of $314,000 in September
    2002, in response to depressed market conditions and to be
    better aligned with customer demand. This action resulted in the
    elimination of 28 positions, including 75% in research and
    development with the remaining divided equally between
    manufacturing and administrative functions.



| |                                           
| | ------------------------------------------
| | Interest and Other Income and
    Expenses

|                                        |  |                |       |   |          |   |        |          |              |  |      |    |  |          |        |              |          |   |         |      |  |  |     |    |  |   |        |  
|--------------------------------------- |  | -------------- | ----- | - | -------- | - | ------ | -------- | ------------ |  | ---- | -- |  | -------- | ------ | ------------ | -------- | - | ------- | ---- |  |  | --- | -- |  | - | ------ | -
|                                        |  | Year Ended     |       |   |          |   |        |          | Year Ended   |  |      |    |  |          |        | Year Ended   |         
|                                        |  | December 31,   |       |   |          |   |        |          | December 31, |  |      |    |  |          |        | December 31, |         
|                                        |  | 2003           |       |   | $ Change |   |        | % Change |              |  | 2002 |    |  | $ Change |        |              | % Change |   |         | 2001 | 
|                                        |  |                |       |   |          |   |        |          |              |  |      |    |  |          |        |              |          |   |         |      | 
|                                        |  |               
|                                        |  | (In thousands) |      
|Interest income                         |  | $              | 2,639 |   |          | $ | (3,607 | )        |              |  | (58  | )% |  | $        | 6,246  |              |          | $ | (5,801  | )    |  |  | (48 | )% |  | $ | 12,047 |  
|Interest expense                        |  |                | (412  | ) |          |   | (1,481 | )        |              |  | (78  | )% |  |          | (1,893 | )            |          |   | (184    | )    |  |  | (8  | )% |  |   | (2,077 | )
|Other income, net                       |  |                | 1,279 |   |          |   | (41    | )        |              |  | (3   | )% |  |          | 1,320  |              |          |   | 1,320   |      |  |  |    |    |  |   |       |  
|Litigation settlement and reimbursement |  |                |      |   |          |   |       |          |              |  |     |    |  |          |       |              |          |   |        |      |  |  |    |    |  |   | 27,500 |  
|                                        |  |                |       |   |          |   |        |          |              |  |      |    |  |          |        |              |          |   |         |      | 
|                                        |  | $              | 3,506 |   |          | $ | (2,167 | )        |              |  | (38  | )% |  | $        | 5,673  |              |          | $ | (31,797 | )    |  |  | (85 | )% |  | $ | 37,470 |  
|                                        |  |                |       |   |          |   |        |          |              |  |      |    |  |          |        |              |          |   |         |      | 

Interest Income (Expense),
Net.Interest income decreased in both
2003 and 2002 primarily due to lower cash, cash equivalents and
marketable securities balances, on average, over the previous
years due to cash used in operating and investing activities
and, to a lesser extent, the declining interest rate yields
occurring each year. In 2003, interest income was particularly
lower due to approximately $52 million of cash used to
acquire Zymark in July 2003. Interest expense decreased in both
2003 and 2002 due to the reduction of our financing obligations.

Other Income, Net.Other income net, consists primarily of mark-to-market
unrealized gains and losses related account balances denominated
in another currency, and changes in the fair value of derivative
instruments. Other income, net of $1.3 million in 2003
resulted primarily from the effect of realized and unrealized
foreign currency gains, offset in part by the disposal of
surplus manufacturing equipment no longer needed in our
operations. Other income net, in 2002 was primarily due to
realized gains on marketable securities.

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.

37



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##### Table of Contents



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, $32.5 million
received from the comprehensive settlement agreement with
Aclara, and equipment financing under sale-leaseback
arrangements. As of December 31, 2003, we had received net
proceeds of $231.2 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.

As of December 31, 2003, we had
$66.7 million in cash, cash equivalents and marketable
securities, as compared to $154.3 million as of
December 31, 2002 and $166.2 million as of
December 31, 2001. In July 2003, we used cash of
$52.4 million to acquire Zymark, which was net of
$5.8 million of Zymarks cash on hand on the date of
acquisition. As such, our cash flow changes in operating assets
and liabilities are net of the acquired current assets and
liabilities of Zymark. The inclusion of Zymarks results of
operations after July 14, 2003 had a significant impact on
the business in 2003 and the comparability of operating results
and cash flows on a year-over-year basis.

Cash Flows

|                           |  |                |         |   |            |   |            |              |  |   |            |            |  |              |        |   |  |   |         |  
|-------------------------- |  | -------------- | ------- | - | ---------- | - | ---------- | ------------ |  | - | ---------- | ---------- |  | ------------ | ------ | - |  | - | ------- | -
|                           |  | Year Ended     |         |   |            |   | Year Ended |              |  |   |            | Year Ended | 
|                           |  | December 31,   |         |   | Increase   |   |            | December 31, |  |   | Increase   |            |  | December 31, |       
|                           |  | 2003           |         |   | (Decrease) |   |            | 2002         |  |   | (Decrease) |            |  | 2001         |       
|                           |  |                |         |   |            |   |            |              |  |   |            |            |  |              |       
|                           |  |               
|                           |  | (In thousands) |        
|Cash provided by (used in) |  |                |         |   |            |   |            |              |  |   |            |            |  |              |        |   |  |   |         |  
|Operating Activities       |  | $              | (31,049 | ) |            | $ | (20,642    | )            |  | $ | (10,407    | )          |  | $            | 12,176 |   |  | $ | (22,583 | )
|Investing Activities       |  | $              | 25,074  |   |            | $ | 9,388      |              |  | $ | 15,686     |            |  | $            | 21,586 |   |  | $ | (5,900  | )
|Financing Activities       |  | $              | (1,465  | ) |            | $ | (1,715     | )            |  | $ | 250        |            |  | $            | (2,594 | ) |  | $ | 2,844   |  

Operating
Activities.In 2003, our cash used in
operations increased from 2002 primarily due to the
$32.5 million payment we received from Aclara in 2002 under
the terms of our 2001 settlement agreement. Excluding the cash
we received from Aclara in 2002, our cash used for operating
activities in 2003 would have improved in comparison to 2002.
This improvement is primarily attributable to the reductions in
force that we implemented during 2002 and 2003, and other cost
cutting measures including more focused R&D activities,
which were reflected in our financial results including as
follows:



| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | although our net loss increased by
    $8.6 million to $49.5 million in 2003 from a net loss
    of $41.0 million in 2002, our 2003 net loss included
    increases in non cash items of $10.6 million in
    restructuring charges, $4.4 million in depreciation and
    amortization and $1.0 million in other items, and
|
| |  | the amount of cash that went toward increasing
    working capital in 2003, which included changes in working
    capital influenced by the Zymark acquisition, was less than the
    amount cash that went toward increasing working capital in 2002
    after excluding the effects of the Aclara payment.               

In 2002, our operating cash flows included the
$32.5 million Aclara payment, but this increase was offset
by:



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased cash needs relative to higher operating
    expenses and decreased product profit margins, and                                                                                                         
|
| |  | increases in the amount of cash investment in
    working capital, including an increase in inventories due to our
    commercial product revenue build-up, and a decrease in the
    amount of deferred revenue.

Investing
Activities.In 2003, the increase in
net cash provided by investing activities was caused by
$4.1 million decrease in the amount of property and
equipment purchases compared to 2002, and a $5.3 million
net increase in cash generated after we utilized a portion of
the proceeds from net sales of marketable securities to acquire
the stock of Zymark. In 2002, the increase in cash provided by
investing activities was due to a $20.2 million increase in
cash generated from net sales of marketable securities, and
$1.4 million decrease in the amount of property and
equipment purchases compared to 2001.

38



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##### Table of Contents



Financing
Activities.In 2003, cash used in
financing activities decreased as a result of increased
sale-leaseback debt payments, a decline in sale-leaseback
financing proceeds, and a decline in proceeds from common stock
sales. In 2002, cash provided by financing activities decreased
due primarily to decreases in sale-leaseback financing proceeds
and proceeds from common stock sales.

As of December 31, 2003, we had commitments
under leases and other obligations as follows:

|                                  |            |                                            |   |                   |                |                 |                   |             |       |   |     |     |     | 
|--------------------------------- | ---------- | ------------------------------------------ | - | ----------------- | -------------- | --------------- | ----------------- | ----------- | ----- | - | --- | --- | --- | 
|                                  |            |                                            |   |                   |                | Other Long-term |                  
|                                  |            |                                            |   |                   |                | Obligations     |                  
|                                  |            |                                            |   | Obligations Under |                |                 | included in Other |            
|                                  |            | Operating                                  |   |                   | Sale-Leaseback |                 |                   | Non-current |      
|                                  |            | Leases                                     |   |                   | Arrangements   |                 |                   | Liabilities |      
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|                                  |            |                                           
|                                  |            | (In thousands)                             |  
|Years ending December 31:         |            |                                            |   |                   |                |                 |                   |             |       |   |     |    
|                                  | 2004       |                                            | $ | 7,625             |                |                 | $                 | 1,646       |       |   | $   | 377 |    
|                                  | 2005       |                                            |   | 7,422             |                |                 |                   | 342         |       |   |     | 377 |    
|                                  | 2006       |                                            |   | 6,370             |                |                 |                   |            |       |   |     |    |    
|                                  | 2007       |                                            |   | 6,071             |                |                 |                   |            |       |   |     |    |    
|                                  | 2008       |                                            |   | 4,057             |                |                 |                   |            |       |   |     |    |    
|                                  | Thereafter |                                            |   | 454               |                |                 |                   |            |       |   |     |    |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|                                  |            | Total minimum lease and principal payments |   | $                 | 31,999         |                 |                   |             | 1,988 |   |     |     | 754 | 
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Amount representing interest      |            |                                            |   |                   |                |                 | 136               |             |       |   | 62  |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Present value of future payments  |            |                                            |   |                   |                |                 | 1,852             |             |       |   | 692 |    
|Current portion of obligations    |            |                                            |   |                   |                |                 | 1,521             |             |       |   | 377 |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Noncurrent portion of obligations |            |                                            |   |                   |                | $               | 331               |             |       | $ | 315 |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      

As of December 31, 2003, we also had a
non-cancelable purchase commitment in the amount of
approximately $307,000 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
obligations to UT-Batelle, which exceeded certain minimums set
forth in the amendment, were $581,000 and $81,000 in 2003 and
2002, respectively. 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 obligations under these licenses
rise over time, but never exceed $213,000 per year.

Our capital requirements depend on numerous
factors including market acceptance of our products, the
resources we devote to developing and supporting our products,
acquisitions and other factors. We expect to devote substantial
capital resources to continue our research and development
efforts, to expand our support and product development
activities, and for other general corporate activities. Based on
our long term strategic plan updated for the recent acquisition
of Zymark, we believe that our current cash balances, together
with the revenue to be derived from our commercial partners, our
commercial sales from our microfluidic and lab automation
products and services will be sufficient to fund our operations
at least through the year 2005. Our future capital requirements
will depend on many factors, including, among others:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | continued market acceptance of our microfluidic
    and lab automation products;                                                
|
| |  | continued scientific progress in our
    microfluidic, lab automation and robotic 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;                                      

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| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                        

We ended 2003 with $66.7 million in total
cash, cash equivalents and marketable securities. We have
provided financial projections that we expect to attain positive
cash flows from operations by the fourth quarter of 2005, and we
believe our current cash balances are more than adequate to
satisfy our cash needs at least through the end of 2005. Our
actual cash needs could vary considerably, however, depending on
opportunities that arise over the course of 2004 and 2005.
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.

Financial
Projections.We are providing
financial projections for the first quarter and full year 2004,
and our longer-range objectives for generating positive cash
flows from operations, as set forth below. The key financial
projections we are providing are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We expect full year revenues for 2004 to be
    approximately $80 to $85 million, and first quarter 2004
    revenues to be approximately $15 to $18 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | We expect total selling, general and
    administrative, and research and development expenses to be
    between $58 and $62 million, incorporating the effects of
    the shift in R&D costs described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We expect our gross profit, calculated by
    subtracting projected cost of product and service revenues from
    our total projected revenues, to be between 38% and 42% of total
    revenues, depending significantly on our overall mix of total
    revenues. Included in cost of revenues are estimated expenses of
    approximately $1.0 million per quarter that were previously
    included in research and development expenses prior to September
    2003. The change reflects the current utilization of chip
    manufacturing labor and overhead costs as indirect costs of
    product revenue, whereas prior to September 2003 this production
    capacity was used to satisfy R&D program needs.
|
| |  | We expect to use cash of between $20 million
    and $25 million during 2004, including an estimated $3.0 to
    $4.0 million to be used for capital expenditures including
    a new Enterprise Resource Management System to replace our
    current systems which we deem inadequate to support our expected
    future growth. We expect cash, cash equivalents and marketable
    securities to be in excess of $40 million at
    December 31, 2004.                                                                                                                                                                                                                                                           
|
| |  | We expect to attain positive cash flows from
    operations by the fourth quarter of 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

We have incurred operating losses since our
inception and expect to incur losses for the foreseeable future.
While we have significantly reduced our research and development
expenses, we will continue to make significant investments in
R&D over the next several years. We believe that our
acquisition of Zymark will have the effect of increasing
revenues and decreasing our overall net loss in the near terms.
The financial projections that we have provided above
forward-looking statements that are subject to risks and
uncertainties, and are only made as of the date of the filing of
this Form 10-K. These projections are based upon
assumptions that we have made and believe to be reasonable.
However, actual results may vary significantly from these
projections due to the risks and uncertainties inherent in our
business as described in the section entitled Factors
Affecting Operating Results below.

Impact of Inflation

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

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Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an interpretation of ARB 51.
The primary objectives of this interpretation are to provide
guidance on the identification of entities for which control is
achieved through means other than through voting rights
(variable interest entities) and how to determine
when and which business enterprise (the primary
beneficiary) should consolidate the variable interest
entity. This new model for consolidation applies to an entity in
which either (i) the equity investors (if any) do not have
a controlling financial interest; or (ii) the equity
investment at risk is insufficient to finance that entitys
activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises
with a variable interest in a variable interest entity, make
additional disclosures. Certain disclosure requirements of
FIN 46 were effective for financial statements issued after
January 31, 2003.

In December 2003, the FASB issued FIN No. 46
(revised December 2003), Consolidation of Variable
Interest Entities to address certain FIN 46
implementation issues. The effective dates and impact of
FIN 46 and FIN 46-R are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. Special purpose entities
    (SPEs) created prior to February 1,
    2003.We must apply either the
    provisions of FIN 46 or early adopt the provisions of
    FIN 46-R at the end of the first interim or annual
    reporting period ending after December 15, 2003.                                                                                  
|
| | ii. Non-SPEs created prior to
    February 1, 2003.We are required
    to adopt FIN 46-R at the end of the first interim or annual
    reporting period ending after March 15, 2004.                                                                                                                                                                           
|
| | iii. All entities, regardless of whether
    a SPE, that were created subsequent to January 31,
    2003.The provisions of FIN 46
    were applicable for variable interests in entities obtained
    after January 31, 2003. We are required to adopt
    FIN 46-R at the end of the first interim or annual
    reporting period ending after March 15, 2004.

The adoption of the provisions applicable to SPEs
and all other variable interests obtained after January 31,
2003 did not have a material impact on our financial statements.
We are currently evaluating the impact of adopting FIN 46-R
applicable to Non-SPEs created prior to February 1, 2003but do not expect a material impact.

In May 2003, the FASB issued
SFAS No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity Status.SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many
of those instruments were previously classified as equity.
SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003; otherwise it is
effective at the beginning of the first interim period beginning
after June 15, 2003. 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 SFAS 150.

Factors Affecting Operating Results



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



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

Many of our microfluidic technologies, which we
developed prior to our acquisition of Zymark on July 14,
2003, are still in the early stages of development, and our drug
discovery and automated electrophoresis systems incorporating
these technologies have only recently begun to be used
commercially. If these systems do not gain further market
acceptance, we will be unable to generate significant sales of
these products and our revenue may grow more slowly than
expected or decline. The commercial success of our LabChip
products will depend upon capital spending by our potential
customers, and market acceptance of the merits of our drug
discovery and automated electrophoresis systems by
pharmaceutical and biotechnology companies, academic

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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 LabChip products;
|
| |  | capital spending by our customers and potential
    customers, which has been sluggish as a result of current
    economic conditions and other industry-specific factors; and   
|
| |  | our ability to market our drug discovery systems.                                                                                                                                

Because the LabChip products and automated
electrophoresis systems have been in operation for only 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 endorse 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 high throughput 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. Our microfluidic-based drug
discovery systems are now being marketed and sold principally by
the sales and marketing organization we acquired with our recent
acquisition of Zymark. These systems and the technologies on
which they are based are new to this sales and marketing
organization, which may limit our ability to effectively market
and sell these systems.



| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are not successful in developing new and
    enhanced liquid handling and other life sciences products, our
    products may not gain market acceptance and we may lose market
    share to our competitors.

The life sciences productivity tools equipment
market, the principal market for the traditional products of
Zymark, is very competitive and is characterized by rapid
technological change and frequent new product introductions. The
commercial success of our liquid handling systems and other
products depends upon continued and expanding market acceptance
of our systems and products by pharmaceutical and biotechnology
companies and genomics research organizations, and upon
availability to address quickly any performance problems that
our customers encounter. We anticipate that our competitors will
introduce new, enhanced products in this market in the near
future. Our future success will depend on our ability to offer
new products and technologies that researchers believe are an
attractive alternative to current products and technologies,
that address the evolving needs of our customers and that are
technologically superior to new products that may be offered by
our competitors. We may experience difficulties or delays in our
development efforts for new products, and we may not ultimately
be successful in developing them. Any significant delay in
releasing new products in this market could adversely affect our
reputation, give a competitor a first-to-market advantage or
cause a competitor to achieve greater market share.



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

We intend to continue developing new, lower cost
versions of our microfluidic-based 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 more widely
used and we may experience a decline in revenue or slow revenue
growth and may not achieve or maintain profitability. Further,
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 easier for our customers to develop their own custom assays
in a microfluidic format. We are also developing kinase
profiling and selectivity screening kits. If we are not able to
complete the development of

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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 are subject to the capital spending
patterns of the pharmaceutical industry, which over the past
several years have been adversely impacted by general economic
conditions, industry consolidation and increased
competition.

Many of our instrument products represent
relatively large capital expenditures by our customers. During
the past several years many of our customers and potential
customers, particularly in the pharmaceutical industry, have
reduced their capital spending budgets because of generally
adverse prevailing economic conditions, consolidation in the
industry and increased pressure on the profitability of
pharmaceutical companies, due in part to more competition from
generic drugs. If our customers and potential customers do not
increase their capital spending budgets, because of continuing
adverse economic conditions or further consolidation in the
industry, we could face weak demand for our products, in
particular our products used for high-throughput screening. If
the demand for our instrument products is weak because of
constrained capital spending by our pharmaceutical industry
customers and potential customers, we may not achieve our
targets for revenue and cash flow from operations.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Our recent acquisition of Zymark and other
    potential acquisitions may have unexpected consequences or
    impose additional costs on us.

Our business is highly competitive and our growth
is dependent upon market growth 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, such as our acquisition of Zymark. From time to
time, we consider and evaluate potential business combinations
both involving our acquisition of another company and
transactions involving the sale of Caliper through, among other
things, a possible merger or consolidation of our business into
that of another entity. 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;                                                                                                               
|
| |  | potential cost and disruptions caused by the
    integration of financial reporting systems and development of
    uniform standards, controls, procedures and policies;                                     
|
| |  | accounting consequences, including amortization
    of acquired intangible assets or other required purchase
    accounting adjustments, resulting in variability or reductions
    of our reported 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 these
    markets have stronger market positions;                                              
|
| |  | the potential loss of key employees of Caliper or
    the acquired company due to the employment uncertainties
    inherent in the acquisition process;                                                      
|
| |  | the assumption of known and potentially unknown
    liabilities of the acquired company;                                                                                                                     
|
| |  | we may find that the acquired company or assets
    do not further our business strategy or that we paid more than
    what the company or assets are worth;                                                 
|
| |  | our relationship with current and new employees
    and customers could be impaired;                                                                                                                         
|
| |  | the acquisition may result in litigation from
    terminated employees or third parties who believe a claim
    against us would be valuable to pursue;                                                      

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| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our due diligence process may fail to identify
    significant issues with product quality, product architecture
    and legal contingencies, among other matters; and
|
| |  | insufficient revenues to offset increased
    expenses associated with acquisitions.                                                                                  

Acquisitions may also cause us to:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | issue common stock that would dilute our current
    stockholders percentage ownership;                                                           
|
| |  | record goodwill and non-amortizable intangible
    assets that will be subject to impairment testing and potential
    periodic impairment charges;
|
| |  | incur amortization expenses related to certain
    intangible assets;                                                                              
|
| |  | incur reductions in deferred revenue of the
    acquired company, resulting in lower future revenues; or                                           
|
| |  | incur other large and immediate write-offs.                                                                                                        

We cannot assure you that our acquisition of
Zymark and any future acquisitions will be successful and will
not adversely affect our business. We must also maintain our
ability to manage any growth effectively. Failure to manage
growth effectively and successfully integrate acquisitions we
make could harm our business.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | 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 the years 2004 and 2005,
primarily as a result of a current sluggish economic climate,
dampened life sciences research spending by many of our
customers and expected continuing expenses for manufacturing
capabilities, research and product development costs and general
and administrative costs. We may never achieve profitability. As
of December 31, 2003, we had an accumulated deficit of
approximately $135.1 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
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.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 continue to
fluctuate in the future, even with our combination with Zymark,
as a result of many factors, some of which are outside of our
control. For example, many of our products represent relatively
large capital expenditures for our customers, which leads to
variations in the amount of time it takes for us to sell our
products because customers may take several months or longer to
evaluate and obtain the necessary internal approvals for the
purchase of our products. In addition, a significant portion of
our revenues is derived from sales of relatively high-priced
products, and these sales are generally made by purchase orders
and not long-term contracts. Delays in receipt of anticipated
orders for higher-priced products could lead to substantial
variability of revenue from quarter to quarter. Furthermore,
Zymark has historically received purchase orders and shipped a
significant portion of each quarters product orders near
the end of the quarter. If that pattern continues, even short
delays in the receipt of orders or shipment of products at the
end of a quarter could result in shipment during the next
quarter, which could have a material adverse effect on results
of operations for the quarter in which the shipment did not
occur. In addition, Zymarks business has historically been
affected by capital spending patterns of its customers with a
greater percentage of purchases, and therefore higher revenues,
occurring in the second half of the year. There can be no
assurance that this trend will continue. For all of these and
other reasons, 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.

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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 and intangible assets are not affected
directly by variations in revenue.



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 products 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 for
LabChip products in Mountain View, California, and one
manufacturing location for instruments and other products
located in Hopkinton, Massachusetts. 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 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 chip 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. As our exclusive collaboration with Agilent
terminated in May 2003 pursuant to the notice we delivered to
Agilent, Agilent now has the option to manufacture chips itself
rather than continue to receive its supply of chips from
Caliper. Accordingly, we face uncertainty regarding future
demand for these chips from our manufacturing operations.



| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because a small number of customers and
    Agilent have accounted for, and may 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. Although our acquisition of Zymark in
July 2003 expanded our customer base, Zymark has also
historically obtained a significant portion of its revenue from
a relatively small number of customers. During the year ended
December 31, 2003, Agilent accounted for 17% of total
revenues, (11% on a pro forma basis  see Note 3
to Consolidated Financial Statements), and our next three
largest customers collectively accounted for another 13% of
total revenues. Accordingly, if we were to lose any one or more
of these important customers, our revenue could decrease
significantly.



| |                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our revenue could decline due to the
    termination of our agreement with Agilent because of a number of
    different factors, including a reduction in our gross margin
    share of Agilent 2100 Bioanalyzer and LabChip products sold by
    Agilent or reduced sales of such products by Agilent due to
    competition from us or our other commercial partners.

Our commercial relationship with Agilent is
currently in a state of transition due to our termination of the
collaboration agreement with Agilent, effective in May 2003. We
are now operating under the surviving provisions of that
agreement. We will continue to 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.

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Although we anticipate that future sales of the
Agilent 2100 Bioanalyzer system will further expand our revenue
base, under the surviving provisions of our agreement with
Agilent our gross margin share of collaboration products sold by
Agilent will begin to decline at the end of 2004. If sales of
these products do not increase fast enough to offset the decline
in our gross margin share, the amount of revenue we receive from
Agilent will decline.


In addition, under the surviving terms of our
agreement with Agilent, we granted to Agilent a non-exclusive,
royalty-bearing license to certain of our LabChip technologies
existing as of the termination date for Agilent to develop, make
and sell products in the field of the collaboration.
Consequently, there is the possibility that Agilent may
manufacture its own supply of LabChip products, rather than
purchasing them from us, or that we may experience competition
from Agilent in the future, which would reduce our ability to
sell products independently or through other commercial partners.

Now that our agreement with Agilent is
terminated, Agilents sales of collaboration products could
be reduced due to competition from us or our other commercial
partners. In such event, the revenue we would realize from
Agilent could be reduced by more than the revenue we receive
from other commercial partners. 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.

Finally, we anticipate research and development
funding from Agilent to continue to decline in 2004 unless we
enter into new research and development funding agreements. If
we do not negotiate a new agreement with Agilent, 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.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | 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, especially our Chief Executive Officer, and
certain of our 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, and, with the acquisition
of Zymark, in the Boston metropolitan area, where demand for
personnel with these skills remains 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.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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

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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, especially
in our microfluidics business. 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 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 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.



| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on a single-source supplier
    for the glass used in our LabChip products and if we are unable
    to buy this glass on a timely basis, we will not be able to
    deliver our LabChip 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 obtain some of the components and
    subassemblies included in our systems from a single source or a
    limited group of suppliers, and the partial or complete loss of
    one of these suppliers could cause production delays and a
    substantial loss of revenue.

We rely on outside vendors to manufacture many
components and subassemblies for our products. Certain
components, subassemblies and services necessary for the
manufacture of our products are provided by a sole supplier or
limited group of suppliers, some of which are our competitors.
We currently purchase additional components, such as optical,
electronic and pneumatic devices, in configurations specific to
our

47



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##### Table of Contents



requirements that, together with certain other
components, such as computers, are integrated into our products.
We maintain only a limited number of long-term supply agreements
with our suppliers.


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



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

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



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 a single
location to produce Zymarks laboratory automation and
robotics systems, with no alternative facilities. These
facilities and some pieces of manufacturing equipment are
difficult to replace and could require substantial replacement
lead-time. Our manufacturing facilities may be affected by
natural disasters such as earthquakes and floods. Earthquakes
are of particular significance since the microfluidic
manufacturing facility is located in Mountain View, California,
an earthquake-prone area. In the event our existing
manufacturing facilities 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.

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.

48



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##### Table of Contents





| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Our net operating loss and tax credit
    carryforwards may expire if we do not achieve or maintain
    profitability.

As of December 31, 2003, we had federal and
state net operating loss carryforwards of approximately
$101.5 million and $26.7 million. We also had federal
and state research and development tax credit carryforwards of
approximately $3.1 million and $3.1 million,
respectively. The federal net operating loss and credit
carryforwards will expire at various dates beginning in the year
2009 through 2023 if not utilized. The state net operating
losses will begin to expire in year 2004, if not utilized.

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.

Because of our 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.

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 12, 2004, 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;
|
| |  | our ability to successfully integrate
    Zymarks and Calipers operations; and                     
|
| |  | general market volatility for technology stocks.                                                     

These factors and fluctuations, as well as
general economic, political and market conditions, may
materially adversely affect the market price of our common stock.

We
have been sued, 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 against Caliper and certain of
its officers and directors as described under
Part I  Item 3. Legal
Proceedings. This and 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.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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

49



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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.







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

Foreign Currency

As a multinational company, we are subject to
changes in foreign currency fluctuations. As our international
sales grow, exposure to volatility in exchange rates could have
a material adverse impact on our financial results. The exchange
risk is generally related to non-dollar intercompany receivables
and advances with our European and Asian subsidiary operations.
To date, exchange rate fluctuations have had little impact on
our financial results.

Interest Rate Sensitivity

Our exposure to market risk for changes in
interest rates relates primarily to our investment portfolio.
Fixed rate securities may have their fair market value adversely
impacted due to fluctuations in interest rates, while floating
rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes
in interest rates or we may suffer losses in principal if forced
to sell securities that have declined in market value due to
changes in 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. We
estimate 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.

Our equipment sale-leaseback financings,
amounting to $1.9 million as of December 31, 2003, are
all at fixed rates and, therefore, have minimal exposure to
changes in interest rates.

Our primary investment objective is to preserve
principal while at the same time maximizing yields without
significantly increasing risk. Our portfolio includes money
markets funds, commercial paper, medium-term notes, corporate
notes, government securities, asset-backed securities, and
corporate bonds. The diversity of our portfolio helps us to
achieve our investment objective. As of December 31, 2003
and 2002, the average remaining maturity of our investment
portfolio was approximately 1 year. All of our instruments
are held other than for trading purposes.

The following table presents by year of maturity
the amounts of our cash equivalents and investments, and related
weighted average interest rates, that may be subject to interest
rate risk as of December 31, 2003 (dollars in thousands):

|                                          |               |                       |        |        |      |   |        |        |      |              |        |        |      |      |        |        |      |   |        |        |  | 
|----------------------------------------- | ------------- | --------------------- | ------ | ------ | ---- | - | ------ | ------ | ---- | ------------ | ------ | ------ | ---- | ---- | ------ | ------ | ---- | - | ------ | ------ |  | 
|                                          |               |                       |        |        |      |   |        |        |      | Fair Value   |       
|                                          |               |                       |        |        |      |   |        |        |      | December 31, |       
|                                          |               | 2004                  |        |        | 2005 |   |        | 2006   |      |              | Total  |        |      | 2003 |       
|                                          |               |                       |        |        |      |   |        |        |      |              |        |        |      |      |       
|Cash and money market funds:              |               |                       |        |        |      |   |        |        |      |              |        |        |      |      |        |        |      |   |        |       
|                                          | Fixed rate    |                       | $      | 8,889  |      |   |        |       |      |              |        |       |      |      | $      | 8,889  |      |   | $      | 8,889  | 
|                                          |               | Average interest rate |        |        | 0.07 | % |        |        |     |              |        |        |     |      |        |        | 0.07 | % |        |        |  | 
|Available for sale marketable securities: |               |                       |        |        |      |   |        |        |      |              |        |        |      |      |        |        |      |   |        |       
|                                          | Fixed rate    |                       | $      | 12,391 |      |   | $      | 28,723 |      |              | $      | 11,268 |      |      | $      | 52,382 |      |   | $      | 52,710 | 
|                                          |               | Average interest rate |        |        | 5.23 | % |        |        | 4.07 | %            |        |        | 2.75 | %    |        |        | 4.05 | % |        |        |  | 
|                                          | Variable rate |                       | $      | 3,253  |      |   | $      | 1,853  |      |              |        |       |      |      | $      | 5,106  |      |   | $      | 5,118  | 
|                                          |               | Average interest rate |        |        | 1.45 | % |        |        | 1.36 | %            |        |        |     |      |        |        | 1.42 | % |        |        |  | 
|Total securities                          |               | $                     | 24,533 |        |      | $ | 30,576 |        |      | $            | 11,268 |        |      | $    | 66,377 |        |      | $ | 66,717 |       
|                                          |               | Average interest rate |        |        | 2.85 | % |        |        | 3.90 | %            |        |        | 2.75 | %    |        |        | 3.30 | % |        |        |  | 

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This differs from our position at
December 31, 2002, which the following table presents
(dollars in thousands):

|                                          |               |                       |        |        |      |   |        |        |      |              |        |        |      |      |         |         |      |   |         |         |  | 
|----------------------------------------- | ------------- | --------------------- | ------ | ------ | ---- | - | ------ | ------ | ---- | ------------ | ------ | ------ | ---- | ---- | ------- | ------- | ---- | - | ------- | ------- |  | 
|                                          |               |                       |        |        |      |   |        |        |      | Fair Value   |       
|                                          |               |                       |        |        |      |   |        |        |      | December 31, |       
|                                          |               | 2003                  |        |        | 2004 |   |        | 2005   |      |              | Total  |        |      | 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 | % |         |         |  | 

51



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|        |                                                
|------- | -----------------------------------------------
|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 19.






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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

We evaluated our disclosure controls and
procedures and our internal controls and procedures
for financial reporting as of December 31, 2003. This
evaluation was done under the supervision and with the
participation of management, including our chief executive
officer and our chief financial officer.

(a) Evaluation of disclosure controls and
procedures. Disclosure controls are procedures that are designed
with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act
of 1934, such as this Annual Report on Form 10-K, is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions (SEC) rules and forms. Disclosure
controls are also designed with the objective of ensuring that
such information is accumulated and communicated to our
management, including the chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure.

Subject to the limitations set forth below, based
on their evaluation, as of the end of this reporting period, the
chief executive officer and the chief financial officer have
concluded that our disclosure controls and procedures are
effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.

(b) Changes in internal controls. Internal
controls over financial reporting are procedures which are
designed with the objective of providing reasonable assurance
that: (1) our transactions are properly authorized; (2) our
assets are safeguarded against unauthorized or improper use; and
(3) our transactions are properly recorded and reported,
all to permit the preparation of our financial statements in
conformity with accounting principles generally accepted in the
United States. Among other matters, we evaluated our internal
controls over financial reporting to determine whether there
were any significant deficiencies or material
weaknesses, and sought to determine whether Caliper has
identified any acts of fraud involving personnel who have a
significant role in Calipers internal controls. In the
professional auditing literature, significant
deficiencies may be interpreted as being comparable as
reportable conditions; these are control issues that
could have a significant adverse effect on the ability to
record, process, summarize and report financial data in the
financial statements. A material weakness is defined
in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error
or fraud may occur in amounts that would be material in relation
to the financial statements and would not be detected within a
timely period by employees in the normal course of performing
their assigned functions.

There were no changes in our internal controls
over financial reporting during the quarter ended
December 31, 2003 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.

Consistent with Section 10A(i)(2) of the
Securities Exchange Act of 1934, as added by Section 202 of
the Sarbanes-Oxley Act of 2003, 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.

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PART III




|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information concerning our directors is set forth
in 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, 2004 (the Proxy Statement) and
incorporated by reference here. 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 by reference here.
Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 is set forth under the section
entitled Section 16(a) Beneficial Ownership Reporting
Compliance contained in our Proxy Statement and is
incorporated herein by reference.

We have not yet adopted a Code of Ethics that
applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions. We are in the process of preparing
and adopting such a code, and anticipate doing so prior to our
filing of our Proxy Statement.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information concerning director and executive
compensation required by this Item 11 is set forth in the
sections entitled Compensation of Directors,
Compensation of Executive Officers,
Compensation Committee Interlocks and Insider
Participation contained in our Proxy Statement and
incorporated by reference here.



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

Information concerning security ownership of
certain beneficial owners and management required by this
Item 12 is set forth in the section entitled Security
Ownership of Certain Beneficial Owners and Management
contained in our Proxy Statement and incorporated by reference
here.

Information concerning securities authorized for
issuance under equity compensation plans required by this
Item 12 is set forth in the table entitled Equity
Compensation Plan Information and information thereunder
contained in our Proxy Statement and incorporated by reference
here.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information concerning certain relationships and
related transactions required by this Item 13 is set forth
in the section entitled Certain Relationships and Related
Transactions contained in our Proxy Statement and
incorporated by reference here.



|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Information concerning principal accountant fees
and services required by this Item 12 is set forth in the
section entitled Proposal 2  Ratification
Of Selection Of Independent Auditors contained in our
Proxy Statement and incorporated by reference here.

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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,
    2003 and 2002                                              |  |      | F-3 | 
|Consolidated Statements of Operations 
    For the Years ended December 31, 2003, 2002 and 2001           |  |      | F-4 | 
|Consolidated Statement Stockholders
    Equity  For the Years ended December 31, 2003,
    2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash flows 
    For the Years ended December 31, 2003, 2002 and 2001           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                 |  |      | F-7 | 



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

Schedule II, Valuation and Qualifying
Accounts is included on page F-32 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.



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

|               |                |  |                         |                                                                                                                                                     
|-------------- | -------------- |  | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |                |  | Description of Document
|               |                |  |                        
|               | 2.1(21)        |  |                         | Stock Purchase Agreement, by and among Caliper,
    Berwind Corporation and The Berwind Company LLC, dated
    June 9, 2003.                        
|               | 2.2(21)        |  |                         | Amendment No. 1 to the Stock Purchase
    Agreement, by and among Caliper, Berwind Corporation and The
    Berwind Company LLC, dated July 10, 2003.
|               | 3.1(1)         |  |                         | Amended and Restated Certificate of Incorporation
    of Caliper.                                                                                   
|               | 3.2(11)        |  |                         | Certificate of Designation Of Series A
    Junior Participating Preferred Stock.                                                                    
|               | 3.3(2)         |  |                         | Restated Bylaws of Caliper.                                                                                                                         
|               | 3.4(22)        |  |                         | 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(11)        |  |                         | 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)(16) |  |                         | 1999 Equity Incentive Plan.                                                                                                                         
|               | 10.4(3)(4)(16) |  |                         | 1999 Employee Stock Purchase Plan.                                                                                                                  
|               | 10.5(3)(4)     |  |                         | 1999 Non-Employee Directors Stock Option
    Plan.                                                                                                 
|               | 10.6(3)(4)(16) |  |                         | Employment Agreement, dated January 18,
    1999, between Caliper and Daniel L. Kisner, M.D.                                                        
|               | 10.7(3)(4)(16) |  |                         | 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.                                        

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|               |                 |  |                         |                                                                                                                                                                                        
|-------------- | --------------- |  | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |                 |  | Description of Document
|               |                 |  |                        
|               | 10.10(3)(5)     |  |                         | Collaboration Agreement, dated May 2, 1998,
    between Caliper and Hewlett-Packard Company (now Agilent).                                                                             
|               | 10.17(3)(4)     |  |                         | Consulting Agreement, dated April 30, 1997,
    between Caliper and Dr. David V. Milligan.                                                                                             
|               | 10.18(3)(4)(16) |  |                         | 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)(16) |  |                         | Promissory Note, dated March 25, 1997,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                                 
|               | 10.21(3)(4)(16) |  |                         | Option Agreement, dated August 9, 1995,
    between Caliper and Michael R. Knapp, Ph.D.                                                                                                
|               | 10.22(3)(4)(16) |  |                         | 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)(16)    |  |                         | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated October 11, 1996.                                                                             
|               | 10.25(6)(16)    |  |                         | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated February 2, 2000.                                                                             
|               | 10.27(7)        |  |                         | Lease Agreement, dated June 23, 2000 and
    effective July 5, 2000, between Caliper and Martin CBP
    Associates, L.P.                                                               
|               | 10.28(7)(6)     |  |                         | Promissory Note, dated July 17, 2000,
    between Caliper and Daniel L. Kisner, M.D.                                                                                                   
|               | 10.29(4)(8)(16) |  |                         | Change of Control Sr. Mgmt Severance/ Equity
    Acceleration Plan.                                                                                                                    
|               | 10.30(5)(9)     |  |                         | Cross-License Agreement, dated March 12,
    2001 by and among Aclara Biosciences, Inc. and Caliper.                                                                                   
|               | 10.31(9)        |  |                         | Common Stock Issuance Agreement, dated
    March 22, 2001.                                                                                                                             
|               | 10.32(5)(9)     |  |                         | Settlement Agreement and Mutual General Release,
    dated March 12, 2001 by and among Aclara
    Biosciences, Inc. and Caliper.                                                       
|               | 10.33(5)(10)    |  |                         | LabChip Solutions Agreement, dated as of
    September 21, 2001, by and between Amphora Discovery Corp.
    and Caliper.                                                               
|               | 10.34(4)(10)    |  |                         | 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)(10)    |  |                         | Restricted Stock Purchase Agreement, entered into
    as of October 8, 2001, by and between Amphora Discovery
    Corp. and Michael R. Knapp.                                          
|               | 10.36(4)(10)    |  |                         | 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)(10)    |  |                         | Restricted Stock Purchase Agreement, entered into
    as of October 14, 2001, by and between Amphora Discovery
    Corp. and James L. Knighton.                                        
|               | 10.38(5)(10)    |  |                         | 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(12)(16)   |  |                         | 2001 Non-Statutory Stock Option Plan.                                                                                                                                                  
|               | 10.46(14)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Michael R. Knapp.                                                                                                  
|               | 10.47(14)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and James L. Knighton.                                                                                                 
|               | 10.48(15)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Dr. Daniel Kisner.                                                                                                 
|               | 10.49(15)(16)   |  |                         | Separation Agreement, dated July 29, 2002,
    between Caliper and J. Wallace Parce.                                                                                                   

55



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|               |           |  |                         |                                                                                                                                                                                                                        
|-------------- | --------- |  | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |           |  | Description of Document
|               |           |  |                        
|               | 10.52(17) |  |                         | 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(17) |  |                         | Modification of LabChip Solutions Agreement,
    dated as of December 12, 2002, by and between Amphora
    Discovery Corp. and Caliper.                                                                                
|               | 10.54(18) |  |                         | Retention Agreement, dated February 26,
    2003, between Caliper and Michael Merion.                                                                                                                                  
|               | 10.55(18) |  |                         | Collaboration Agreement, dated June 4, 2003,
    between Caliper and Bio-Rad Laboratories, Inc.                                                                                                                        
|               | 10.56(19) |  |                         | Key Employee Agreement, dated July 14, 2003,
    between Caliper and E. Kevin Hrusovsky.                                                                                                                               
|               | 10.57(19) |  |                         | Key Employee Agreement, dated July 8, 2003,
    between Caliper and Michael R. Knapp.                                                                                                                                  
|               | 10.58(19) |  |                         | Key Employee Agreement, dated July 2, 2003,
    between Caliper and James L. Knighton.                                                                                                                                 
|               | 10.59(19) |  |                         | Key Employee Agreement, dated July 10, 2003,
    between Caliper and Anthony T. Hendrickson.                                                                                                                           
|               | 10.60(19) |  |                         | Key Employee Agreement, dated September 17,
    2003, between Caliper and William M. Wright III.                                                                                                                       
|               | 10.61(19) |  |                         | Letter Agreement, dated September 17, 2003,
    between Caliper and Berwind Company LLC regarding the
    Appointment of a Berwind Nominee to the Caliper Board of
    Directors.                                      
|               | 10.62(20) |  |                         | Acquisition Equity Incentive Plan.                                                                                                                                                                                     
|               | 10.63(4)  |  |                         | Key Employee Agreement Amendment, dated
    December 24, 2003, between Caliper and Dr. Daniel
    Kisner.                                                                                                              
|               | 10.64(4)  |  |                         | Consulting Agreement, dated January 1, 2004,
    between Caliper and Dr. David V. Milligan.                                                                                                                            
|               | 10.65(4)  |  |                         | Letter Amendment, dated February 20, 2004,
    between Caliper Michael R. Knapp.                                                                                                                                       
|               | 10.66(17) |  |                         | Collaboration and Supply Agreement, dated
    January 9, 2004, among Caliper, Zymark Corporation and
    Affymetrix, Inc.                                                                                              
|               | 10.67(4)  |  |                         | Amended and Restated Key Employee Agreement,
    dated January 22, 2004, between Caliper and James L.
    Knighton.                                                                                                    
|               | 10.68(4)  |  |                         | Amended and Restated Key Employee Agreement,
    dated January 22, 2004, between Caliper and Anthony T.
    Hendrickson.                                                                                               
|               | 10.69(17) |  |                         | Letter amendment to Modification Agreement, dated
    December 22, 2003 between Caliper and Amphora Discovery
    Corp.                                                                                                
|               | 11.1      |  |                         | Subsidiaries of the Registrant.                                                                                                                                                                                        
|               | 23.1      |  |                         | Consent of Ernst & Young LLP,
    independent auditors.                                                                                                                                                                
|               | 24.1      |  |                         | Power of Attorney (reference is made to the
    signature page of this report).                                                                                                                                        
|               | 31.1      |  |                         | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                
|               | 31.2      |  |                         | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                
|               | 32.1      |  |                         | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                        
|               | 32.2      |  |                         | 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.

56



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##### Table of Contents





| |     |                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 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.
|
| | (8) | Previously filed as the like-numbered Exhibit to
    Form 10-K/ A for the year ended December 31, 2000 and
    incorporated by reference herein.                                                       
|
| | (9) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended March 31,
    2001 and incorporated by reference herein.                                                 



|     |                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2001 and incorporated by reference herein.              
|    
|(11) | Previously filed as Exhibit 99.1 to Current
    Report on Form 8-K filed December 19, 2001 and
    incorporated by reference herein.                                    
|    
|(12) | 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.
|    
|(13) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2001 and
    incorporated by reference herein.                           
|    
|(14) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2002
    and incorporated by reference herein.                   
|    
|(15) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2002 and incorporated by reference herein.              
|    
|(16) | 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.     
|    
|(17) | Confidential treatment has been requested for a
    portion of this exhibit.                                                                                            
|    
|(18) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2003
    and incorporated by reference herein.                   
|    
|(19) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2003 and incorporated by reference herein.              
|    
|(20) | Previously filed as Exhibit 99.1 to our
    Registration Statement on Form S-8, File
    No. 333-106946, filed June 10, 2003 and incorporated
    by reference herein.  
|    
|(21) | Previously filed as the like-numbered Exhibit to
    Form 8-K filed July 25, 2003 and incorporated by
    reference herein.                                             
|    
|(22) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2002 and
    incorporated by reference herein.                           



| |                        
| | -----------------------
| | (b) Reports on Form 8-K

On November 6, 2003, Caliper filed a Current
Report on Form 8-K announcing under Item 12 that it
was furnishing its financial results for the third quarter of
fiscal 2003.



| |             
| | ------------
| | (c) Exhibits

See Item 15(a) above.



| |                                  
| | ---------------------------------
| | (d) Financial Statement Schedules

See Item 15(a)(2) above.

57



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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.



| |                            
| | ---------------------------
| | CALIPER LIFE SCIENCES, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ E. KEVIN HRUSOVSKY

| |                        
| | -----------------------
| |                        
| | E. Kevin Hrusovsky     
| | Chief Executive Officer

Date: March 15, 2004

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that each
person whose signature appears below constitutes and appoints E.
Kevin Hrusovsky 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/ E. KEVIN HRUSOVSKYE. Kevin Hrusovsky         |  | Chief Executive Officer, President,
    and Director
    (principal executive officer) |  | March 15, 2004
|                                                
|/s/ JAMES L. KNIGHTONJames L. Knighton           |  | Chief Financial Officer
    (principal financial officer)                              |  | March 15, 2004
|                                                
|/s/ ANTHONY T. HENDRICKSONAnthony T. Hendrickson |  | Vice President Finance and Corporate
    Controller
    (principal accounting officer) |  | March 15, 2004
|                                                
|/s/ DANIEL L. KISNERDaniel L. Kisner, M.D.       |  | Chairman of the Board of Directors                                                     |  | March 15, 2004
|                                                
|/s/ DAVID V. MILLIGANDavid V. Milligan, Ph.D.    |  | Vice Chairman of the Board of Directors                                                |  | March 15, 2004

58



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|                                                   |  |          |  |                |  | 
|-------------------------------------------------- |  | -------- |  | -------------- |  | 
|                                                   |  |          |  |               
|Signatures                                         |  | Title    |  | Date          
|                                                   |  |          |  |               
|                                                  
|/s/ ROBERT C. BISHOP,Robert C. Bishop, Ph.D.       |  | Director |  | March 15, 2004
|                                                  
|/s/ EDGAR J. CUMMINSEdgar J. Cummins               |  | Director |  | March 15, 2004
|                                                  
|/s/ ANTHONY B. EVNIN, Ph.D.Anthony B. Evnin, Ph.D. |  | Director |  | March 15, 2004
|                                                  
|/s/ KATHRYN TUNSTALLKathryn Tunstall               |  | Director |  | March 15, 2004

59



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.

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 Life Sciences, Inc.


We have audited the accompanying consolidated
balance sheets of Caliper Life Sciences, Inc. (formerly
Caliper Technologies Corp.) as of December 31, 2003 and
2002, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2003. 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 Life
Sciences, Inc. at December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2003, 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

Boston, Massachusetts

February 6, 2004


F-2



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |         |        |         |         |         | 
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | -------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                                   |                                                                                                                                                                  |                           
|                                                                                   |                                                                                                                                                                  | December 31,               |                                           
|                                                                                   |                                                                                                                                                                  |                            |                                           
|                                                                                   |                                                                                                                                                                  | 2003                       |                                            |          | 2002    |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  |                           
|                                                                                   |                                                                                                                                                                  | (In thousands, except      |                                           
|                                                                                   |                                                                                                                                                                  | share and per share data)  |                                           
|ASSETS                                                                            
|Current assets:                                                                    |                                                                                                                                                                  |                            |                                            |          |         |         |        |        
|                                                                                   | Cash and cash equivalents                                                                                                                                        |                            | $                                          | 8,889    |         |         | $      | 16,184  |        
|                                                                                   | Marketable securities                                                                                                                                            |                            |                                            | 57,828   |         |         |        | 138,139 |        
|                                                                                   | Accounts receivable, net of allowance for
    doubtful accounts of $252 and $119 at December 31, 2003 and
    2002, respectively                                 |                            |                                            | 9,476    |         |         |        | 1,754   |        
|                                                                                   | Accounts receivable  related party                                                                                                                              |                            |                                            | 30       |         |         |        | 115     |        
|                                                                                   | Inventories                                                                                                                                                      |                            |                                            | 11,580   |         |         |        | 5,964   |        
|                                                                                   | Prepaid expenses and other current assets                                                                                                                        |                            |                                            | 3,451    |         |         |        | 1,508   |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  | Total current assets       |                                            |          | 91,254  |         |        |         | 163,664 |        
|Security deposits                                                                  |                                                                                                                                                                  |                            | 3,381                                      |          |         |         | 3,000  |        
|Property and equipment, net                                                        |                                                                                                                                                                  |                            | 9,106                                      |          |         |         | 12,545 |        
|Notes receivable from officers                                                     |                                                                                                                                                                  |                            | 178                                        |          |         |         | 215    |        
|Developed technology, net                                                          |                                                                                                                                                                  |                            | 13,002                                     |          |         |         |       |        
|Intangible assets, net                                                             |                                                                                                                                                                  |                            | 3,407                                      |          |         |         |       |        
|Goodwill                                                                           |                                                                                                                                                                  |                            | 47,262                                     |          |         |         |       |        
|Other assets, net                                                                  |                                                                                                                                                                  |                            | 446                                        |          |         |         | 454    |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  | Total assets               |                                            | $        | 168,036 |         |        | $       | 179,878 |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                  
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                          
|Current liabilities:                                                               |                                                                                                                                                                  |                            |                                            |          |         |         |        |        
|                                                                                   | Accounts payable                                                                                                                                                 |                            | $                                          | 3,212    |         |         | $      | 1,227   |        
|                                                                                   | Accrued compensation                                                                                                                                             |                            |                                            | 4,148    |         |         |        | 2,458   |        
|                                                                                   | Other accrued liabilities                                                                                                                                        |                            |                                            | 8,689    |         |         |        | 1,110   |        
|                                                                                   | Deferred revenue and customer deposits                                                                                                                           |                            |                                            | 7,063    |         |         |        | 874     |        
|                                                                                   | Current portion of long-term obligations                                                                                                                         |                            |                                            | 377      |         |         |        |        |        
|                                                                                   | Current portion of sale-leaseback arrangements                                                                                                                   |                            |                                            | 1,521    |         |         |        | 2,412   |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  | Total current liabilities  |                                            |          | 25,010  |         |        |         | 8,081   |        
|Noncurrent portion of sale-leaseback arrangements
    and other current maturities |                                                                                                                                                                  |                            | 331                                        |          |         |         | 1,986  |        
|Deferred revenue                                                                   |                                                                                                                                                                  |                            | 26                                         |          |         |         | 267    |        
|Other noncurrent liabilities                                                       |                                                                                                                                                                  |                            | 7,872                                      |          |         |         | 1,986  |        
|Commitments and contingencies (Note 9)                                             |                                                                                                                                                                  |                            |                                            |          |         |         |        |        
|Stockholders equity:                                                              |                                                                                                                                                                  |                            |                                            |          |         |         |        |        
|                                                                                   | Preferred stock, $0.001 par value;
    5,000,000 shares authorized; no shares issued and
    outstanding                                                         |                            |                                            |         |         |         |        |        |        
|                                                                                   | Common stock, $0.001 par value;
    70,000,000 shares authorized; 28,382,043 and
    24,694,451 shares issued and outstanding in 2003 and 2002,
    respectively |                            |                                            | 28       |         |         |        | 25      |        
|                                                                                   | Additional paid-in capital                                                                                                                                       |                            |                                            | 271,232  |         |         |        | 252,219 |        
|                                                                                   | Deferred stock compensation                                                                                                                                      |                            |                                            | (1,808   | )       |         |        | (637    | )      
|                                                                                   | Accumulated deficit                                                                                                                                              |                            |                                            | (135,093 | )       |         |        | (85,566 | )      
|                                                                                   | Accumulated other comprehensive income                                                                                                                           |                            |                                            | 438      |         |         |        | 1,517   |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  | Total stockholders equity |                                            |          | 134,797 |         |        |         | 167,558 |        
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        
|                                                                                   |                                                                                                                                                                  |                            | Total liabilities and stockholders equity |          | $       | 168,036 |        |         | $       | 179,878 | 
|                                                                                   |                                                                                                                                                                  |                            |                                            |          |         |        

See accompanying notes.

F-3



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                       |                                                         |                                         |                          |        |       |         |         |        |        |        |         |        |        |        | 
|---------------------------------------------------------------------- | ------------------------------------------------------- | --------------------------------------- | ------------------------ | ------ | ----- | ------- | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | 
|                                                                       |                                                         |                                        
|                                                                       |                                                         | Years Ended December 31,                |                         
|                                                                       |                                                         |                                         |                         
|                                                                       |                                                         | 2003                                    |                          |        | 2002  |         |         | 2001   |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|                                                                       |                                                         |                                        
|                                                                       |                                                         | (In thousands, except per share data)   |                         
|Revenue:                                                               |                                                         |                                         |                          |        |       |         |         |        |        |        |         |       
|                                                                       | Product revenue                                         |                                         | $                        | 29,563 |       |         | $       | 10,378 |        |        | $       | 8,799  |       
|                                                                       | Service revenue                                         |                                         |                          | 5,879  |       |         |         | 37     |        |        |         |       |       
|                                                                       | Related party revenue                                   |                                         |                          | 2,489  |       |         |         | 6,155  |        |        |         | 3,912  |       
|                                                                       | License fees and contract revenue                       |                                         |                          | 11,480 |       |         |         | 9,263  |        |        |         | 16,877 |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|                                                                       |                                                         |                                         | Total revenue            |        |       | 49,411  |         |        |        | 25,833 |         |        |        | 29,588 | 
|Costs and expenses:                                                    |                                                         |                                         |                          |        |       |         |         |        |        |        |         |       
|                                                                       | Cost of product revenue                                 |                                         |                          | 23,253 |       |         |         | 7,906  |        |        |         | 4,784  |       
|                                                                       | Cost of service revenue                                 |                                         |                          | 2,486  |       |         |         |       |        |        |         |       |       
|                                                                       | Cost of product revenue  related party                 |                                         |                          | 241    |       |         |         | 3,021  |        |        |         | 2,103  |       
|                                                                       | Research and development                                |                                         |                          | 35,529 |       |         |         | 43,317 |        |        |         | 38,263 |       
|                                                                       | Selling, general and administrative                     |                                         |                          | 25,454 |       |         |         | 17,534 |        |        |         | 15,545 |       
|                                                                       | Amortization of deferred stock compensation,
    net(1) |                                         |                          | 1,000  |       |         |         | 378    |        |        |         | 2,540  |       
|                                                                       | Amortization of intangible assets                       |                                         |                          | 2,756  |       |         |         |       |        |        |         |       |       
|                                                                       | Restructuring charges                                   |                                         |                          | 11,535 |       |         |         | 314    |        |        |         |       |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|                                                                       |                                                         |                                         | Total costs and expenses |        |       | 102,254 |         |        |        | 72,470 |         |        |        | 63,235 | 
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|Operating loss                                                         |                                                         |                                         | (52,843                  | )      |       |         | (46,637 | )      |        |        | (33,647 | )     
|                                                                       |                                                         | Interest income                         |                          |        | 2,639 |         |         |        | 6,246  |        |         |        | 12,047 |       
|                                                                       |                                                         | Interest expense                        |                          |        | (412  | )       |         |        | (1,893 | )      |         |        | (2,077 | )     
|                                                                       |                                                         | Other income, net                       |                          |        | 1,279 |         |         |        | 1,320  |        |         |        |       |       
|                                                                       |                                                         | Litigation settlement and reimbursement |                          |        |      |         |         |        |       |        |         |        | 27,500 |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|Income (loss) before income taxes                                      |                                                         |                                         | (49,337                  | )      |       |         | (40,964 | )      |        |        | 3,823   |       
|Provision for income taxes                                             |                                                         |                                         | 190                      |        |       |         |        |        |        |        |        |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|Net income (loss)                                                      |                                                         | $                                       | (49,527                  | )      |       | $       | (40,964 | )      |        | $      | 3,823   |       
|                                                                       |                                                         |                                         |                          |        |       |         |         |        |       
|Net income (loss) per share, basic                                     |                                                         | $                                       | (1.88                    | )      |       | $       | (1.68   | )      |        | $      | 0.16    |       
|Shares used in computing net income (loss) per
    common share, basic |                                                         |                                         | 26,396                   |        |       |         | 24,403  |        |        |        | 23,997  |       
|Net income (loss) per share, diluted                                   |                                                         | $                                       | (1.88                    | )      |       | $       | (1.68   | )      |        | $      | 0.15    |       
|Shares used in computing net income (loss) per
    share, diluted      |                                                         |                                         | 26,396                   |        |       |         | 24,403  |        |        |        | 25,634  |       



---



|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Amortization of deferred stock compensation, net,
    pertaining to employees employed in the following areas:

|                                    |       |   |     |       |  |   |      |     |  |   |       |       | 
|----------------------------------- | ----- | - | --- | ----- |  | - | ---- | --- |  | - | ----- | ----- | 
|Cost of product revenue             |       | $ | 56  |       |  | $ |     |     |  | $ |      |      
|Research and development            |       |   | 384 |       |  |   | (315 | )   |  |   | 610   |      
|Selling, general and administrative |       |   | 560 |       |  |   | 693  |     |  |   | 1,930 |      
|                                    |       |   |     |       |  |   |      |     | 
|                                    | Total |   | $   | 1,000 |  |   | $    | 378 |  |   | $     | 2,540 | 
|                                    |       |   |     |       |  |   |      |     | 

See accompanying notes.

F-4



---



##### Table of Contents



CALIPER LIFE SCIENCES, INC.

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, 2000                                                                                       |  |                               | 23,688,455 |  |            | $           | 23 |          |  | $ | 249,004      |   |       | $             | (4,772 | )     |               | $ | (48,425  | )      |  | $ | 628    |   |  | $ | 196,458 |  
|Net income                                                                                                          |  |                               |           |  |            |             |   |          |  |   |             |   |       |               |       |       |               |   | 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 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 |  
|                                                                                                                    |  |                               |            |  |            |             |    |          |  |   |              |   |       |               |        |       |               |   |          |        | 
|Net loss                                                                                                            |  |                               |           |  |            |             |   |          |  |   |             |   |       |               |       |       |               |   | (49,527  | )      |  |   |       |   |  |   | (49,527 | )
|Foreign currency translation gain/loss                                                                              |  |                               |           |  |            |             |   |          |  |   |             |   |       |               |       |       |               |   |         |        |  |   | 98     |   |  |   | 98      |  
|Change in unrealized gain on available-for-sale
    securities                                                      |  |                               |           |  |            |             |   |          |  |   |             |   |       |               |       |       |               |   |         |        |  |   | (1,177 | ) |  |   | (1,177  | )
|                                                                                                                    |  |                               |            |  |            |             |    |          |  |   |              |   |       |               |        |       |               |   |          |        | 
|Comprehensive loss                                                                                                  |  |                               |           |  |            |             |   |          |  |   |             |   |       |               |       |       |               |   |         |        |  |   |       |   |  |   | (50,606 | )
|Issuance of common stock upon exercise of stock
    options and in connection with the employee stock purchase plan |  |                               | 537,592    |  |            |             |   |          |  |   | 1,419        |   |       |               |       |       |               |   |         |        |  |   |       |   |  |   | 1,419   |  
|Issuance of common stock for the purchase of
    Zymark Corporation                                                 |  |                               | 3,150,000  |  |            |             | 3  |          |  |   | 14,588       |   |       |               |       |       |               |   |         |        |  |   |       |   |  |   | 14,591  |  
|Issuance of restricted common stock to employees                                                                    |  |                               |           |  |            |             |   |          |  |   | 2,188        |   |       |               | (2,188 | )     |               |   |         |        |  |   |       |   |  |   |        |  
|Amortization of deferred stock compensation                                                                         |  |                               |           |  |            |             |   |          |  |   |             |   |       |               | 1,017  |       |               |   |         |        |  |   |       |   |  |   | 1,017   |  
|Reversal of deferred stock compensation
    amortization due to forfeited options                                   |  |                               |           |  |            |             |   |          |  |   | (17          | ) |       |               |       |       |               |   |         |        |  |   |       |   |  |   | (17     | )
|Compensation expense associated with
    modifications to certain stock options                                     |  |                               |           |  |            |             |   |          |  |   | 401          |   |       |               |       |       |               |   |         |        |  |   |       |   |  |   | 401     |  
|Stock options issued to non-employees                                                                               |  |                               |           |  |            |             |   |          |  |   | 434          |   |       |               |       |       |               |   |         |        |  |   |       |   |  |   | 434     |  
|                                                                                                                    |  |                               |            |  |            |             |    |          |  |   |              |   |       |               |        |       |               |   |          |        | 
|Balances at December 31, 2003                                                                                       |  |                               | 28,382,043 |  |            | $           | 28 |          |  | $ | 271,232      |   |       | $             | (1,808 | )     |               | $ | (135,093 | )      |  | $ | 438    |   |  | $ | 134,797 |  
|                                                                                                                    |  |                               |            |  |            |             |    |          |  |   |              |   |       |               |        |       |               |   |          |        | 

See accompanying notes.

F-5



---



##### Table of Contents



CALIPER LIFE SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |         |        |         |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------- | ---------------------------------- | ------ | ------ | ------- | -------- | ----- | ------ | ------- | -------- | ------- | ------ | ------- | -
|                                                                                      |                                                                                |                                               
|                                                                                      |                                                                                | Years Ended December 31,                       |                                   
|                                                                                      |                                                                                |                                                |                                   
|                                                                                      |                                                                                | 2003                                           |                                    |        | 2002   |         |          | 2001  |       
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|                                                                                      |                                                                                |                                               
|                                                                                      |                                                                                | (In thousands)                                 |                                   
|Operating activities                                                                  |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|Net income (loss)                                                                     |                                                                                | $                                              | (49,527                            | )      |        | $       | (40,964  | )     |        | $       | 3,823    |        
|Adjustments to reconcile net income (loss) to net
    cash from operating activities: |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|                                                                                      | Gain on settlement of litigation and non-cash
    license revenue              |                                                |                                    |       |        |         |          |      |        |         |          | (32,500 | )     
|                                                                                      | Depreciation and amortization                                                  |                                                |                                    | 10,169 |        |         |          | 5,795 |        |         |          | 3,693   |       
|                                                                                      | Amortization of deferred stock compensation, net                               |                                                |                                    | 1,000  |        |         |          | 378   |        |         |          | 2,540   |       
|                                                                                      | Stock options issued to non-employees                                          |                                                |                                    | 434    |        |         |          | 452   |        |         |          | 80      |       
|                                                                                      | Non-cash restructuring charge                                                  |                                                |                                    | 10,623 |        |         |          |      |        |         |          |        |       
|                                                                                      | Loss from disposal of fixed assets                                             |                                                |                                    | 313    |        |         |          |      |        |         |          |        |       
|                                                                                      | Changes in operating assets and liabilities, net
    of acquisition of Zymark: |                                                |                                    |        |        |         |          |       |        |         |          |         |       
|                                                                                      |                                                                                | Accounts receivable and other receivable       |                                    |        | (1,296 | )       |          |       | 27,389 |         |          |         | 1,715  |        
|                                                                                      |                                                                                | Inventories                                    |                                    |        | 4,343  |         |          |       | (2,553 | )       |          |         | (1,205 | )      
|                                                                                      |                                                                                | Prepaid expenses and other current assets      |                                    |        | (577   | )       |          |       | 803    |         |          |         | (86    | )      
|                                                                                      |                                                                                | Security deposits and other assets             |                                    |        | (289   | )       |          |       | 314    |         |          |         | (134   | )      
|                                                                                      |                                                                                | Notes receivable from officers                 |                                    |        | 37     |         |          |       | 260    |         |          |         | 140    |        
|                                                                                      |                                                                                | Accounts payable and other accrued liabilities |                                    |        | (463   | )       |          |       | 172    |         |          |         | (2,146 | )      
|                                                                                      |                                                                                | Accrued compensation                           |                                    |        | (4,212 | )       |          |       | (677   | )       |          |         | 1,189  |        
|                                                                                      |                                                                                | Deferred revenue                               |                                    |        | (1,299 | )       |          |       | (2,162 | )       |          |         | (654   | )      
|                                                                                      |                                                                                | Other non-current liabilities                  |                                    |        | (401   | )       |          |       | 386    |         |          |         | 962    |        
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|                                                                                      |                                                                                |                                                | Net cash from operating activities |        |        | (31,145 | )        |       |        | (10,407 | )        |         |        | (22,583 | )
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|Investing activities                                                                  |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|Purchases of marketable securities                                                    |                                                                                |                                                | (44,257                            | )      |        |         | (168,689 | )     |        |         | (188,539 | )      
|Proceeds from sales of marketable securities                                          |                                                                                |                                                | 115,164                            |        |        |         | 114,116  |       |        |         | 104,829  |        
|Proceeds from maturities of marketable securities                                     |                                                                                |                                                | 8,232                              |        |        |         | 76,018   |       |        |         | 84,983   |        
|Purchases of property and equipment                                                   |                                                                                |                                                | (1,533                             | )      |        |         | (5,759   | )     |        |         | (7,173   | )      
|Acquisition of Zymark, net of cash acquired                                           |                                                                                |                                                | (52,436                            | )      |        |         |         |       |        |         |         |        
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|                                                                                      |                                                                                |                                                | Net cash from investing activities |        |        | 25,170  |          |       |        | 15,686  |          |         |        | (5,900  | )
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|Financing activities                                                                  |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|Proceeds under sale-leaseback arrangements                                            |                                                                                |                                                |                                   |        |        |         | 822      |       |        |         | 2,531    |        
|Payments of obligations under sale-leaseback
    arrangements                         |                                                                                |                                                | (2,884                             | )      |        |         | (2,200   | )     |        |         | (1,960   | )      
|Proceeds from issuance of common stock                                                |                                                                                |                                                | 1,419                              |        |        |         | 1,628    |       |        |         | 2,273    |        
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|                                                                                      |                                                                                |                                                | Net cash from financing activities |        |        | (1,465  | )        |       |        | 250     |          |         |        | 2,844   |  
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|Effect of exchange rates on changes in cash and
    cash equivalents                  |                                                                                |                                                | 145                                |        |        |         |         |       |        |         |         |        
|Net increase (decrease) in cash and cash
    equivalents                              |                                                                                |                                                | (7,295                             | )      |        |         | 5,529    |       |        |         | (25,639  | )      
|Cash and cash equivalents at beginning of year                                        |                                                                                |                                                | 16,184                             |        |        |         | 10,655   |       |        |         | 36,294   |        
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|Cash and cash equivalents at end of year                                              |                                                                                | $                                              | 8,889                              |        |        | $       | 16,184   |       |        | $       | 10,655   |        
|                                                                                      |                                                                                |                                                |                                    |        |        |         |          |       |       
|Supplemental disclosure of cash flow
    information                                  |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|Interest paid                                                                         |                                                                                | $                                              | 412                                |        |        | $       | 642      |       |        | $       | 629      |        
|Income taxes paid                                                                     |                                                                                | $                                              | 171                                |        |        | $       |         |       |        | $       |         |        
|Supplemental disclosure of significant
    non-cash investing activities              |                                                                                |                                                |                                    |        |        |         |          |       |        |         |          |        
|Other receivable                                                                      |                                                                                | $                                              |                                   |        |        | $       |         |       |        | $       | 26,949   |        
|Stock issued for acquisition of Zymark                                                |                                                                                | $                                              | 14,591                             |        |        | $       |         |       |        | $       |         |        
|Investment in common stock                                                            |                                                                                | $                                              |                                   |        |        | $       |         |       |        | $       | 4,563    |        
|Other assets                                                                          |                                                                                | $                                              |                                   |        |        | $       |         |       |        | $       | 988      |        

See accompanying notes.

F-6



---



##### Table of Contents



CALIPER LIFE SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



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

Caliper Life Sciences, Inc.
(Caliper), formerly known as Caliper Technologies
Corp., was incorporated in the state of Delaware on
July 26, 1995. Caliper uses its core technologies of liquid
handling, automation, and LabChip microfluidics to create
leading edge products for the life sciences industry. These
products perform laboratory experiments for use in the
pharmaceutical industry and other industries.



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

Calipers financial statements include the
accounts of its wholly owned subsidiaries including Zymark
Corporation (US), Zymark Limited (UK), Zymark Ltd. (Canada),
Zymark Europe (Belgium), Zymark GmbH (Germany), Caliper Europe
GmbH (Germany), Zymark SA (France), and Zymark AG (Switzerland).
The operating results of the Zymark entities have been included
beginning July 14, 2003 (See Note 3). All significant
intercompany balances 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. Those instruments with original
maturities between three and twelve months are considered to be
short-term marketable securities. 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.

As a result of a January 2001 settlement
agreement with Aclara Biosciences, Inc., 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, 2003, Caliper has minimal
(less than 1%) ownership in Amphora Discovery Corp due to not
participating in its latest round of financing, and therefore
wrote-off the value of its investment, $37,000, in December 2003.



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

Customer 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.

F-7



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Inventories for use in the manufacture of
Calipers instruments include electronic components,
devices and accessories either produced or purchased from
original equipment manufacturers. Inventories for use in the
manufacture of LabChip technologies consist primarily of glass,
quartz and reagents. 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 overhead.



| |                       
| | ----------------------
| | 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
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. Caliper had not incurred any impairment losses through
December 31, 2002. In December 2003, Caliper recorded a
charge of $214,000 classified as research and development
expense as a result of the impairment of certain Caliper 250
drug discovery instruments.



| |                                        
| | ---------------------------------------
| | 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
(SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities.

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.

F-8



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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



| |               
| | --------------
| | General Policy

Caliper recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collectability 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. Services offered by
Caliper are generally recognized as revenue as the services are
performed. 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. No sales made by Caliper
include any return rights or privileges. Based upon
Calipers prior experience, sales returns are not
significant, and therefore, Caliper has made no provision for
sales returns or other allowances. Provision is made at the time
of sale for estimated costs related to Calipers warranty
obligations to customers.

Effective July 1, 2003, Caliper adopted
Emerging Issues Task Force (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. This Issue, which became effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003, applies to contractual arrangements that
contain multiple contractual elements such as consumables or
other product related accessories, extended annual maintenance
agreements, and services including installation, validation and
training. Under EITF Issue 00-21, revenue arrangements with
multiple deliverables are divided into separate units of
accounting if the deliverables in the arrangement meet certain
criteria. The criteria applied to multiple element arrangements
are whether a) each delivered element has standalone value
to the customer, b) there is objective and reliable
evidence of fair value of the undelivered elements and
c) delivery of the undelivered elements is probable and
within the control of Caliper. Arrangement consideration is
allocated among the separate units of accounting based on their
relative fair values.



| |                
| | ---------------
| | Product Revenue

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. Customer product purchases 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. In accordance with
EITF 00-21, Caliper defers the fair value of any elements
that remain undelivered after product shipment and/or acceptance
(as applicable). Undelivered elements may generally consist of
annual maintenance agreements, installation and/or training.

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 technology 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 $1.8 million in minimum
datapoint fees from Amphora (see Note 15) for the
twelve-month period ending November 30, 2003. Amphora did
not achieve the minimum number of datapoints through
November 30, 2003 and is not obligated to make any further
datapoint payments to Caliper until this minimum number of
datapoints is achieved. Caliper also has contractually
negotiated datapoint fees with seven customers as of
December 31, 2003. Under minimum datapoint fee
arrangements, datapoint revenues are recorded over the period of
which

F-9



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the minimum applies, provided Caliper has no
ongoing performance obligations with respect to these minimum
fees.



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

Revenue from development and support activities
under the continuing terms of 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 Agilient is recognized upon shipment within
product revenue. Caliper has no continuing obligations at the
time these sales are made and Agilent has no return privileges.
Further, Calipers transfer of this title to the chips and
reagents are not contingent on Agilents resale of these
items to third parties. Calipers share of gross margin on
components of the LabChip system sold by Agilent is recognized
as product revenue upon shipment by Agilent to the end user. The
instruments, chips and reagents as sold, are useable by Agilent
and their customers without additional support from Caliper.



| |                                              
| | ---------------------------------------------
| | Service and Annual Maintenance
    Agreements

Service revenue is recognized as services are
performed or, as applicable, ratably over the contract service
term in the case of annual maintenance contracts. Customers may
purchase optional warranty coverage during the initial standard
warranty term and annual maintenance contracts beyond the
standard warranty expiration. These optional service offerings
are not included in the price Caliper charges customers for the
initial product purchase. Under Calipers standard
warranty, the customer is entitled to repair or replacement of
defective goods. No upgrades are included in the standard
warranty.



| |                 
| | ----------------
| | Contract Revenue

Revenue from contract research and development
services is recognized as earned based on the performance
requirements of the contract. Nonrefundable contract fees for
which no further performance obligations exist, and there is no
continuing involvement by Caliper, are recognized on the earlier
of when the payments are received or when collection is assured.
Contract fees received in advance of work performed are recorded
as deferred revenue. These upfront fee payments are recognized
as revenue as the work is performed. Contract fees received that
are related to substantive at-risk milestones are recognized
when Calipers performance of the milestone under the terms
of the contract is achieved and there are no further performance
obligations.



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



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

Caliper has developed software that is marketed
with its solutions as a component to operate and run its
instruments and systems. Caliper does not sell or otherwise
market the software. Calipers customers are purchasing the
instruments and systems 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.

F-10



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Caliper currently operates in one business
segment, the development and commercialization of life science
instruments and related consumables and services for use in drug
discovery and other life sciences research and development. The
acquisition of Zymark offers Caliper access to new product
technologies that are complementary to its existing microfluidic
technology and an expanded commercial base that will continue to
be 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 SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information.



| |         
| | --------
| | Goodwill

Caliper performs a test for the impairment of
goodwill annually following the related acquisition, or more
frequently if events or circumstances indicate that goodwill may
be impaired. Because Caliper has a single operating and
reportable business segment, Caliper performs this test by
comparing the fair value of the Company with its book value,
including goodwill. If the fair value exceeds the book value,
goodwill is not impaired. If the book value exceeds the fair
value, Caliper would calculate the potential impairment loss by
comparing the implied fair value of goodwill with the book
value. If the implied goodwill is less than the book value, an
impairment charge would be recorded.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The financial statements of Calipers
foreign subsidiaries are translated in accordance with
SFAS No. 52, Foreign Currency Translation. In
translating the accounts of the foreign subsidiaries into
U.S. dollars, stockholders equity is translated at
historical rates, while assets and liabilities are translated at
the rate of exchange in effect as of the end of the period.
Revenue and expense transactions are translated using the
weighted-average exchange rate in effect during the period in
which they arise. The resulting foreign currency translation
adjustments are reflected as a separate component of
stockholders equity.

Foreign currency transaction gains and losses
from the settlement of account balances denominated in another
currency are included in current period other income, net as
incurred. Cumulative translation adjustments included in
stockholders equity as of December 31, 2003 were $98,000.
There were no material cumulative translation adjustments as of
December 31, 2002.



| |                         
| | ------------------------
| | 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,
facility and other research related allocation expenses, and
other expenses related to the design, development, testing and
enhancement of Calipers products.



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

At the time revenue is recognized, Caliper
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
instrumentation products and a 90-day warranty on chips, which
is included in the sales price of many of its products.
Calipers standard limited warranty covers repair or
replacement of defective goods, a preventative maintenance visit
on certain products, and telephone based technical support. No
upgrades are included in the

F-11



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

standard warranty. In accordance with
SFAS No. 5, Accounting for Contingencies,
provision is made for estimated future warranty costs at the
time of sale. Factors that affect Calipers warranty
liability include the number of installed units, historical and
anticipated rates of warranty claims, and cost per claim.
Caliper periodically assesses the adequacy of its recorded
warranty liabilities and adjusts amounts as necessary.

Changes in Calipers warranty obligation
during the years ended December 31, 2002 and 2003, are as
follows (in thousands):

|                                                         |  |   |       | 
|-------------------------------------------------------- |  | - | ----- | 
|Balance, December 31, 2001                               |  | $ | 85    | 
|Warranties issued during the period                      |  |   | 854   | 
|Settlements made during the period                       |  |   | 674   | 
|                                                         |  |   |      
|Balance, December 31, 2002                               |  |   | 265   | 
|Zymark warranty obligations assumed on
    July 14, 2003 |  |   | 850   | 
|Warranties issued during the period                      |  |   | 1,002 | 
|Settlements and adjustments made during the period       |  |   | 1,009 | 
|                                                         |  |   |      
|Balance, December 31, 2003                               |  | $ | 1,108 | 
|                                                         |  |   |      



| |                       
| | ----------------------
| | Other Income (Expense)

Other income, net consists of the following:

|                                            |  |                          |       |   |      |   |       |      |  |   |   | 
|------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | - | 
|                                            |  |                         
|                                            |  | Years Ended December 31,
|                                            |  |                         
|                                            |  | 2003                     |       |   | 2002 |   |       | 2001
|                                            |  |                          |       |   |      |   |       |     
|                                            |  |                         
|                                            |  | (In thousands)          
|Realized gain on marketable securities, net |  | $                        | 924   |   |      | $ | 1,371 |      |  | $ |  | 
|Foreign exchange gain                       |  |                          | 783   |   |      |   |      |      |  |   |  | 
|Loss on sale of equipment                   |  |                          | (313  | ) |      |   | (51   | )    |  |   |  | 
|Other expense                               |  |                          | (115  | ) |      |   |      |      |  |   |  | 
|                                            |  |                          |       |   |      |   |       |      | 
|                                            |  | $                        | 1,279 |   |      | $ | 1,320 |      |  | $ |  | 
|                                            |  |                          |       |   |      |   |       |      | 



| |                                    
| | -----------------------------------
| | Guarantees and
    Indemnifications

Caliper recognizes liabilities for guarantees in
accordance with FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires
that upon issuance of a guarantee, the guarantor must recognize
a liability for the fair value of the obligations in assumes
under that guarantee.

Caliper, as permitted under Delaware law and in
accordance with its Bylaws, indemnifies its officers and
directors for certain events or occurrences, subject to certain
limits, while the officer or director is or was serving at
Calipers request in such capacity. The term of the
indemnification period is for the officers or
directors lifetime. Caliper may terminate the
indemnification agreements with its officers and directors upon
90 days written notice, but termination will not affect
claims for indemnification relating to events occurring prior to
the effective date of termination. The maximum amount of
potential future indemnification is unlimited; however, Caliper
has a director and officer insurance policy that limits its
exposure and may enable it to recover a portion of any future
amounts paid. Caliper believes the fair value of these
indemnification agreements is minimal. Accordingly, Caliper has
not recorded any liabilities for these agreements as of
December 31, 2003.

F-12



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                         
| | ----------------------------------------
| | 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 $870,000, $690,000 and $631,000
during 2003, 2002 and 2001, respectively.



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



| |                                                       
| | ------------------------------------------------------
| | Significant Concentrations, Credit and
    Other Risks

Financial instruments, which potentially subject
Caliper to concentrations of credit risk, consist principally of
cash and trade accounts receivable (see Note 4). 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, 2003 and 2002 was $252,000 and
$119,000, respectively. Caliper grants credit to customers based
on evaluations of their financial condition, generally without
requiring collateral. However, the credit risk is reduced
through Calipers efforts to monitor its exposure for
credit losses and maintain allowances, if necessary. One
customer, Agilent, accounted for approximately 17% of
Calipers total revenues in 2003. 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% of Calipers outstanding
accounts receivable balance at December 31, 2002. As of
December 31, 2003, no individual customer accounted for
greater than 10% of Calipers outstanding accounts
receivable balance. 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.

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

In accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities, Caliper

F-13



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recognizes derivative financial instruments in
its 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 of December 31, 2003, Caliper had no
derivative financial instruments.

As discussed in Note 17, Caliper entered
into a settlement agreement with Aclara Biosciences. The terms
of the agreement provided 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 then the 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
then the 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 have had no
obligation to provide any additional consideration to Caliper.
As discussed in Note 17, 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.

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.



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

Caliper accounts for comprehensive income (loss)
in accordance with SFAS No. 130, Reporting
Comprehensive Income. The components of comprehensive
income (loss) are unrealized gains and losses on
available-for-sale securities and foreign currency translation
adjustments. Comprehensive income (loss) has

F-14



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

been disclosed in the Statement of
Stockholders Equity. As of December 31, 2003,
accumulated other comprehensive income included $98,000 in
foreign currency translation gains and $340,000 in unrealized
gains on available-for-sale securities.



| |                         
| | ------------------------
| | 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 related interpretations, and has
elected to follow the disclosure only alternative
prescribed by Financial Accounting Standards Boards
SFAS No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense is
recognized in Calipers financial statements for stock
options granted to employees, which had an exercise price equal
to the fair value of the underlying common stock on date of
grant. Caliper accounts for stock options issued to
non-employees in accordance with the provisions of
SFAS No. 123 and EITF No. 96-18, Accounting
for Equity Instruments that are issued to other than Employees
for Acquiring, or in Conjunction with selling Goods or
Services. For the year ended December 31, 2003, 2002
and 2001, compensation expense related to stock options issued
to non-employees was $434,000, $452,000 and $80.000,
respectively.

The following table illustrates the effect on net
income (loss) and net income (loss) per share if Caliper had
applied the fair value recognition provisions of
SFAS No. 123, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure  and amendment of FASB
Statement No. 123. 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 straight-line allocation method. Calipers pro
forma information is as follows:

|                             |                                                                                                                      |                                       |   |         |       |   |   |         |       |   |   |         |       |  
|---------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                             |                                                                                                                      |                                      
|                             |                                                                                                                      | Years Ended December 31,              |  
|                             |                                                                                                                      |                                       |  
|                             |                                                                                                                      | 2003                                  |   |         | 2002  |   |   | 2001    |      
|                             |                                                                                                                      |                                       |   |         |       |   |   |         |      
|                             |                                                                                                                      |                                      
|                             |                                                                                                                      | (In thousands, except per share data) |  
|Net income (loss):           |                                                                                                                      |                                       |   |         |       |   |   |         |       |   |   |        
|                             | As reported                                                                                                          |                                       | $ | (49,527 | )     |   | $ | (40,964 | )     |   | $ | 3,823   |      
|                             | Add: Stock-based employee compensation expense
    included in reported net income                                   |                                       |   | 1,401   |       |   |   | 378     |       |   |   | 2,540   |      
|                             | Deduct: Total stock-based employee compensation
    expense determined under fair value based methods for all awards |                                       |   | (16,401 | )     |   |   | (25,221 | )     |   |   | (16,324 | )    
|                             |                                                                                                                      |                                       |   |         |       |   |   |         |      
|                             | Pro forma net loss                                                                                                   |                                       | $ | (64,527 | )     |   | $ | (65,807 | )     |   | $ | (9,961  | )    
|                             |                                                                                                                      |                                       |   |         |       |   |   |         |      
|Net income (loss) per share: |                                                                                                                      |                                       |   |         |       |   |   |         |       |   |   |        
|                             | As reported:                                                                                                         |                                       |   |         |       |   |   |         |       |   |   |         |      
|                             |                                                                                                                      | Basic                                 |   | $       | (1.88 | ) |   | $       | (1.68 | ) |   | $       | 0.16  |  
|                             |                                                                                                                      | Diluted                               |   | $       | (1.88 | ) |   | $       | (1.68 | ) |   | $       | 0.15  |  
|                             | Pro forma:                                                                                                           |                                       |   |         |       |   |   |         |       |   |   |         |      
|                             |                                                                                                                      | Basic                                 |   | $       | (2.44 | ) |   | $       | (2.70 | ) |   | $       | (0.42 | )
|                             |                                                                                                                      | Diluted                               |   | $       | (2.44 | ) |   | $       | (2.70 | ) |   | $       | (0.39 | )

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

F-15



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock equivalents consisting of stock options and
warrants (calculated using the treasury stock method).
Potentially dilutive securities in 2003 and 2002 have been
excluded from the diluted earnings per share computations as
they have an antidilutive effect due to Calipers net loss.

A reconciliation of shares used in the
calculations is as follows (in thousands):

|                                                                                         |                                                                 |                          |        |   |      |  |        |      |  |  |        |       | 
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------ | ------ | - | ---- |  | ------ | ---- |  |  | ------ | ----- | 
|                                                                                         |                                                                 |                         
|                                                                                         |                                                                 | Years Ended December 31, |       
|                                                                                         |                                                                 |                          |       
|                                                                                         |                                                                 | 2003                     |        |   | 2002 |  |        | 2001 | 
|                                                                                         |                                                                 |                          |        |   |      |  |        |      | 
|Weighted-average shares of common stock
    outstanding                                  |                                                                 |                          | 26,396 |   |      |  | 24,405 |      |  |  | 24,009 |      
|Less: weighted-average shares subject to
    repurchase                                  |                                                                 |                          |       |   |      |  | (2     | )    |  |  | (12    | )    
|                                                                                         |                                                                 |                          |        |   |      |  |        |      | 
|Weighted-average shares used in basic
    computations of net income (loss) per share    |                                                                 |                          | 26,396 |   |      |  | 24,403 |      |  |  | 23,997 |      
|                                                                                         |                                                                 |                          |        |   |      |  |        |      | 
|Weighted-average shares used in basic
    computations of net income (loss) per share    |                                                                 |                          | 26,396 |   |      |  | 24,403 |      |  |  | 23,997 |      
|                                                                                         | 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 |                                                                 |                          | 26,396 |   |      |  | 24,403 |      |  |  | 25,634 |      
|                                                                                         |                                                                 |                          |        |   |      |  |        |      | 

The following outstanding options, restricted
stock 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,
|                                       |  |                         
|                                       |  | 2003                     |  | 2002  |  | 2001 
|                                       |  |                          |  |       |  |      
|Options, restricted stock and warrants |  | 9,049                    |  | 4,421 |  | 4,926



| |                  
| | -----------------
| | Reclassifications

Certain amounts in the 2002 and 2001 financial
statements have been reclassified to conform with the 2003
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 January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an interpretation of ARB 51.
The primary objectives of this interpretation are to provide
guidance on the identification of entities for which control is
achieved through means other than through voting rights
(variable interest entities) and how to determine
when and which business enterprise (the primary
beneficiary) should consolidate the variable interest
entity. This new model for consolidation applies to an entity in
which either (i) the equity investors (if any) do not have
a controlling financial interest; or (ii) the equity
investment at risk is insufficient to finance that entitys
activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises
with a significant variable interest in a variable interest
entity, make additional disclosures. Certain disclosure
requirements of FIN 46 were effective for financial
statements issued after January 31, 2003.

F-16



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2003, the FASB issued FIN No. 46
(revised December 2003), Consolidation of Variable
Interest Entities (FIN 46-R) to
address certain FIN 46 implementation issues. The effective
dates and impact of FIN 46 and FIN 46-R are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i.Special purpose entities
    (SPEs) created prior to February 1, 2003.
    We must apply either the provisions of FIN 46 or early
    adopt the provisions of FIN 46-R at the end of the first
    interim or annual reporting period ending after
    December 15, 2003.                                                                                          
|
| | ii.Non-SPEs created prior to
    February 1, 2003. We are required to adopt
    FIN 46-R at the end of the first interim or annual
    reporting period ending after March 15, 2004.                                                                                                                                                                                   
|
| | iii.All entities, regardless of whether
    a SPE, that were created subsequent to January 31,
    2003. The provisions of FIN 46 were applicable for
    variable interests in entities obtained after January 31,
    2003. The company is required to adopt FIN 46-R at the end
    of the first interim or annual reporting period ending after
    March 15, 2004.

The adoption of the provisions applicable to SPEs
and all other variable interests obtained after January 31,
2003 did not have a material impact on our financial statements.
We are currently evaluating the impact of adopting FIN 46-R
applicable to Non-SPEs created prior to February 1, 2003but do not expect a material impact.

In May 2003, the FASB issued
SFAS No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity Status.SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many
of those instruments were previously classified as equity.
SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003; otherwise it is
effective at the beginning of the first interim period beginning
after June 15, 2003. 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 SFAS 150.



|   |                                  
|-- | ---------------------------------
|3. | Acquisition of Zymark Corporation

On July 14, 2003, Caliper completed the
acquisition of 100% of ZYAC Holding Corporation (ZYAC is the
parent holding company of Zymark Corporation and has no
operating activities) from The Berwind Company LLC
(Berwind) for consideration of approximately
$72.8 million in the form of $55.7 million in cash,
3.15 million shares of Calipers common stock valued
at $14.6 million, and acquisition costs of
$2.5 million. The purchase terms also provide for Caliper
to issue Berwind an additional 1.575 million contingent
shares if certain financial targets are met in 2003 and 2004.
These targets were not achieved in 2003 causing 787,500
contingent shares to lapse. If the 2004 targets are achieved,
the fair value of the additional shares issued will be added to
the purchase price and allocated to goodwill.

Zymark is a global developer, manufacturer and
marketer of life science instruments and related consumables and
services for use in drug discovery and other life sciences
research and development. Caliper acquired Zymark in order to
obtain a worldwide commercial infrastructure to market its
current product offerings. The principal goals of the
acquisition included 1) gaining immediate access to a
global sales and marketing distribution platform to accelerate
adoption and penetration of our microfluidic technologies,
2) accelerating Calipers commercial transition by
building upon the capabilities of a more commercially
experienced management team, 3) increasing revenues, while
reducing expenses through combination synergies, and 4)
increasing operating cash flows. Zymarks operations,
assumed as of the date of the acquisition, are included in the
results of operations of Caliper beginning on July 14, 2003
and, as a result, are not reflected in the results of operations
for the years ended December 31, 2002 and 2001. The
acquisition was accounted for as a purchase in accordance with
SFAS No. 141, Accounting for Business
Combinations, and Caliper accordingly allocated the
estimated purchase price of Zymark based upon the fair value of
net assets

F-17



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

acquired and liabilities assumed. Caliper is in
the process of finalizing certain estimates including those for
intangible assets and certain liabilities and, as a result, the
allocation of the purchase price is subject to further
adjustments. The components and allocation of the estimated
purchase price, which is expected to be finalized within one
year of the acquisition date, consisted of the following (in
thousands):

|                               |  |   |         |  
|------------------------------ |  | - | ------- | -
|Cash and cash equivalents      |  | $ | 5,803   |  
|Other current assets           |  |   | 17,665  |  
|Other assets                   |  |   | 2,838   |  
|Liabilities assumed            |  |   | (19,903 | )
|Identifiable intangible assets |  |   | 19,165  |  
|Goodwill                       |  |   | 47,262  |  
|                               |  |   |        
|                               |  | $ | 72,830  |  
|                               |  |   |        

Acquired intangible assets consisted of the
following (in thousands):

|                     |  |             |           |  |            |   |        | 
|-------------------- |  | ----------- | --------- |  | ---------- | - | ------ | 
|                     |  | Useful Life |           |  | Fair Value |  
|                     |  |             |           |  |            |  
|Developed Technology |  |             | 5 years   |  |            | $ | 14,314 | 
|Customer List        |  |             | 5 years   |  |            |   | 3,640  | 
|Backlog              |  |             | 0.5 years |  |            |   | 1,211  | 
|                     |  |             |           |  |            |  
|                     |  |             |           |  |            | $ | 19,165 | 
|                     |  |             |           |  |            |  

The initial allocation of the purchase price
established a fair value of $3.4 million related to trade
names that were assigned a useful life of 5 years. In
December 2003, Caliper determined that it would no longer
utilize the Zymark name and it would operate under Caliper Life
Sciences, Inc. As a result of managements decision,
the allocation of the purchase price was revised such that no
value was ascribed to trade names.

Fair value was determined by an independent
appraisal and was based upon expected future discounted cash
flows taking into account risks related to the characteristics
and application of the technology, existing and future markets
and assessments of life cycle stage of the technology.
Amortization expense was $2.8 million during the year ended
December 31, 2003. The amortization expense related to the
intangible assets in future periods are as follows (in
thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2004 |  | $ | 3,692  | 
|2005 |  |   | 3,591  | 
|2006 |  |   | 3,591  | 
|2007 |  |   | 3,591  | 
|2008 |  |   | 1,944  | 
|     |  |   |       
|     |  | $ | 16,409 | 
|     |  |   |       

F-18



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Unaudited pro forma operating results for Caliper
for the years ended December 31, 2003 and 2002, assuming
the acquisition was completed as of January 1, 2002, would
be as follows (in thousands, except per share amounts):

|                                 |  |              |         |   |      |   |         |  
|-------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                 |  |             
|                                 |  | Year Ended   |        
|                                 |  | December 31, |        
|                                 |  |              |        
|                                 |  | 2003         |         |   | 2002 |  
|                                 |  |              |         |   |      |  
|Revenue                          |  | $            | 76,974  |   |      | $ | 91,199  |  
|Operating loss                   |  |              | (56,508 | ) |      |   | (44,585 | )
|Net loss                         |  |              | (54,322 | ) |      |   | (41,514 | )
|Basic and diluted loss per share |  |              | (2.06   | ) |      |   | (1.70   | )

The unaudited pro forma financial information is
presented for informational purposes only, and is not
necessarily indicative of Calipers operating results had
the acquisition been completed on the date for which the pro
forma results give effect. The pro forma financial results
reflect certain adjustments to exclude non-recurring effects
associated with the acquisition of Zymark. Deferred revenues of
Zymark included in the purchase price above were recorded at
fair value in accordance with the provisions of
SFAS No. 141 and EITF No. 01-03. This adjustment
resulted in a $3.7 million decrease to the deferred revenue
value reflected on Zymarks stand-alone books in accordance
with generally accepted accounting principles (GAAP). Of this
amount, revenues of $3.6 million which would have been
reported in 2003 by Zymark on a continuing GAAP basis of
accounting have been added back to arrive at pro forma 2003
revenues shown above. In addition, cost of product revenue
charges of $494,000 related to the valuation of inventories at
fair value as of the date of acquisition have been excluded from
the pro forma operating results shown above.



|   |                                                     
|-- | ----------------------------------------------------
|4. | 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.
Marketable securities are freely tradable at any time,
irrespective of their maturity dates. 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, 2003:

|                                              |                           |                |        |        |            |   |       |            |   |   |            |     |  |   |        |        | 
|--------------------------------------------- | ------------------------- | -------------- | ------ | ------ | ---------- | - | ----- | ---------- | - | - | ---------- | --- |  | - | ------ | ------ | 
|                                              |                           |                |        | Gross  |            |   | Gross |            |   |  
|                                              |                           | Amortized      |        |        | Unrealized |   |       | Unrealized |   |   | Estimated  |    
|                                              |                           | Cost           |        |        | Losses     |   |       | Gains      |   |   | Fair Value |    
|                                              |                           |                |        |        |            |   |       |            |   |   |            |    
|                                              |                           |               
|                                              |                           | (In thousands) |       
|Cash and money market funds                   |                           | $              | 8,889  |        |            | $ |      |            |   | $ |           |     |  | $ | 8,889  |       
|Bonds of the U.S. Government and its agencies |                           |                | 20,140 |        |            |   | (2    | )          |   |   | 119        |     |  |   | 20,257 |       
|Commercial paper                              |                           |                | 37,348 |        |            |   | (2    | )          |   |   | 225        |     |  |   | 37,571 |       
|                                              |                           |                |        |        |            |   |       |            |   |   |            |    
|                                              |                           | $              | 66,377 |        |            | $ | (4    | )          |   | $ | 344        |     |  | $ | 66,717 |       
|                                              |                           |                |        |        |            |   |       |            |   |   |            |    
|Reported as:                                  |                           |                |        |        |            |   |       |            |   |   |            |     |  |   |        |       
|                                              | Cash and cash equivalents |                | $      | 8,889  |            |   | $     |           |   |   | $          |    |  |   | $      | 8,889  | 
|                                              | Marketable securities     |                |        | 57,488 |            |   |       | (4         | ) |   |            | 344 |  |   |        | 57,828 | 
|                                              |                           |                |        |        |            |   |       |            |   |   |            |    
|                                              |                           | $              | 66,377 |        |            | $ | (4    | )          |   | $ | 344        |     |  | $ | 66,717 |       
|                                              |                           |                |        |        |            |   |       |            |   |   |            |    

F-19



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


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, 2003, by contractual maturity:

|                                          |       |                |        |        |            |   |        |        | 
|----------------------------------------- | ----- | -------------- | ------ | ------ | ---------- | - | ------ | ------ | 
|                                          |       | Amortized      |        |        | Estimated  |  
|                                          |       | Cost           |        |        | Fair Value |  
|                                          |       |                |        |        |            |  
|                                          |       |               
|                                          |       | (In thousands) |       
|Mature in one year or less                |       | $              | 24,529 |        |            | $ | 24,590 |       
|Mature after one year through three years |       |                | 41,848 |        |            |   | 42,127 |       
|                                          |       |                |        |        |            |  
|                                          | Total |                | $      | 66,377 |            |   | $      | 66,717 | 
|                                          |       |                |        |        |            |  

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 |        
|                                              |                           |                |         |         |            |   |       |            |   |   |            |      

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 | 
|                                          |       |                |        |         |            |  

Gross realized gains and losses on sales of
available for sale securities were $932,000 and $8,000,
respectively, in 2003, and $1,653,000 and $282,000,
respectively, in 2002, and have been included within other
income in Calipers statement of operations. Gross realized
gains and losses on sales of available for sale securities were
immaterial in 2001. Caliper utilizes the specific identification
basis to reclassify amounts out of accumulated other
comprehensive income into earnings.



|   |                 
|-- | ----------------
|5. | Notes Receivable

As of December 31, 2003, Caliper held a note
receivable of $178,000 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 $178,000 note receivable approximates fair value
as of December 31, 2003.

F-20



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2002, Michael R. Knapp, Calipers Chief
Executive Officer at that time, 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 6.61% and was not subject to forgiveness by Caliper
of any principal or interest amounts.



|   |            
|-- | -----------
|6. | 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,   |      
|                |             |                |      
|                |             | 2003           |       |        | 2002 |  
|                |             |                |       |        |      |  
|                |             |               
|                |             | (In thousands) |      
|Raw material    |             | $              | 5,929 |        |      | $ | 3,614 |      
|Work-in-process |             |                | 1,087 |        |      |   | 1,590 |      
|Finished goods  |             |                | 4,564 |        |      |   | 760   |      
|                |             |                |       |        |      |  
|                | Inventories |                | $     | 11,580 |      |   | $     | 5,964 | 
|                |             |                |       |        |      |  

Caliper reserves or 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. During 2003 and 2002,
respectively, Caliper recorded charges of $2.4 million and
$0.7 million to cost of product revenues for excess and
obsolete inventories. There were no charges to cost of revenues
for excess and obsolete inventories in 2001. Of the amount
charged to cost of product revenue in 2003, $1.2 million
was related to the discontinuance of the Caliper 250 drug
discovery instrument.



|   |                       
|-- | ----------------------
|7. | Property and Equipment

Property and equipment consists of the following:

|                                          |  |                |  |              |         |   |      |   |         |  
|----------------------------------------- |  | -------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                          |  |                |  |             
|                                          |  |                |  | December 31, |        
|                                          |  | Estimated      |  |              |        
|Asset Classification                      |  | Useful Life    |  | 2003         |         |   | 2002 |  
|                                          |  |                |  |              |         |   |      |  
|                                          |  |               
|                                          |  | (In thousands) | 
|Machinery and equipment                   |  | 2-5 years      |  | $            | 14,439  |   |      | $ | 17,696  |  
|Computers and information systems         |  | 3-5 years      |  |              | 3,501   |   |      |   | 2,627   |  
|Office equipment, furniture and fixtures  |  | 5 years        |  |              | 1,858   |   |      |   | 800     |  
|Leasehold improvements                    |  | Life of lease  |  |              | 5,001   |   |      |   | 5,235   |  
|                                          |  |                |  |              |         |   |      |  
|                                          |  |                |  |              | 24,799  |   |      |   | 26,358  |  
|Accumulated depreciation and amortization |  |                |  |              | (15,693 | ) |      |   | (13,813 | )
|                                          |  |                |  |              |         |   |      |  
|Property and equipment, net               |  |                |  | $            | 9,106   |   |      | $ | 12,545  |  
|                                          |  |                |  |              |         |   |      |  

F-21



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Depreciation expense was $7.4 million,
$5.8 million and $3.7 million for the years ended
December 31, 2003, 2002, and 2001, respectively. As of
December 31, 2003 and 2002, property and equipment includes
assets acquired under capital leases which consists of the
following:

|                                          |  |                |        |   |      |   |        |  
|----------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                          |  |               
|                                          |  | December 31,   |       
|                                          |  |                |       
|Asset Classification                      |  | 2003           |        |   | 2002 |  
|                                          |  |                |        |   |      |  
|                                          |  |               
|                                          |  | (In thousands) |       
|Machinery and equipment                   |  | $              | 3,441  |   |      | $ | 6,333  |  
|Computers and information systems         |  |                | 1,179  |   |      |   | 1,912  |  
|Office equipment, furniture and fixtures  |  |                | 202    |   |      |   | 397    |  
|Leasehold improvements                    |  |                | 1,132  |   |      |   | 1,219  |  
|                                          |  |                |        |   |      |  
|                                          |  |                | 5,954  |   |      |   | 9,861  |  
|Accumulated depreciation and amortization |  |                | (4,835 | ) |      |   | (6,350 | )
|                                          |  |                |        |   |      |  
|Leased property and equipment, net        |  | $              | 1,119  |   |      | $ | 3,511  |  
|                                          |  |                |        |   |      |  



|   |                         
|-- | ------------------------
|8. | Goodwill and Intangibles



| |         
| | --------
| | Goodwill

In accordance with SFAS No. 141, and
SFAS No. 142, Goodwill and Other Intangible
Assets goodwill and certain other intangibles, are not
amortized but are instead subject to periodic impairment
assessments. As of December 31, 2003, Calipers
goodwill relates to the acquisition of Zymark (see Note 3),
which occurred on July 14, 2003.



| |            
| | -----------
| | Intangibles

As of December 31, 2003, intangible assets
consists of the following:

|                     |  |                |        |             |              |   |        |     |  |   |        | 
|-------------------- |  | -------------- | ------ | ----------- | ------------ | - | ------ | --- |  | - | ------ | 
|                     |  |                |        | Accumulated |              |   |       
|Asset Classification |  | Cost           |        |             | Amortization |   |        | Net | 
|                     |  |                |        |             |              |   |        |     | 
|                     |  |               
|                     |  | (In thousands) |       
|Developed technology |  | $              | 14,314 |             |              | $ | (1,312 | )   |  | $ | 13,002 | 
|Customer list        |  |                | 3,640  |             |              |   | (334   | )   |  |   | 3,306  | 
|Backlog              |  |                | 1,211  |             |              |   | (1,110 | )   |  |   | 101    | 
|                     |  |                |        |             |              |   |        |     | 
|                     |  | $              | 19,165 |             |              | $ | (2,756 | )   |  | $ | 16,409 | 
|                     |  |                |        |             |              |   |        |     | 

F-22



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |            
|-- | -----------
|9. | Commitments



| |                
| | ---------------
| | Debt and Leases

As of December 31, 2003, future minimum
lease payments under operating and capital leases and other
long-term obligations, reduced by minimum sublease income in the
case of operating leases, and principal payments on equipment
loans are as follows:

|                                  |            |                                            |   |                   |                |                 |                   |             |       |   |     |     |     | 
|--------------------------------- | ---------- | ------------------------------------------ | - | ----------------- | -------------- | --------------- | ----------------- | ----------- | ----- | - | --- | --- | --- | 
|                                  |            |                                            |   |                   |                | Other Long-term |                  
|                                  |            |                                            |   |                   |                | Obligations     |                  
|                                  |            |                                            |   | Obligations Under |                |                 | included in Other |            
|                                  |            | Operating                                  |   |                   | Sale-Leaseback |                 |                   | Non-current |      
|                                  |            | Leases                                     |   |                   | Arrangements   |                 |                   | Liabilities |      
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|                                  |            |                                           
|                                  |            | (In thousands)                             |  
|Years ending December 31:         |            |                                            |   |                   |                |                 |                   |             |       |   |     |    
|                                  | 2004       |                                            | $ | 7,625             |                |                 | $                 | 1,646       |       |   | $   | 377 |    
|                                  | 2005       |                                            |   | 7,422             |                |                 |                   | 342         |       |   |     | 377 |    
|                                  | 2006       |                                            |   | 6,370             |                |                 |                   |            |       |   |     |    |    
|                                  | 2007       |                                            |   | 6,071             |                |                 |                   |            |       |   |     |    |    
|                                  | 2008       |                                            |   | 4,057             |                |                 |                   |            |       |   |     |    |    
|                                  | Thereafter |                                            |   | 454               |                |                 |                   |            |       |   |     |    |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|                                  |            | Total minimum lease and principal payments |   | $                 | 31,999         |                 |                   |             | 1,988 |   |     |     | 754 | 
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Amount representing interest      |            |                                            |   |                   |                |                 | 136               |             |       |   | 62  |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Present value of future payments  |            |                                            |   |                   |                |                 | 1,852             |             |       |   | 692 |    
|Current portion of obligations    |            |                                            |   |                   |                |                 | 1,521             |             |       |   | 377 |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      
|Noncurrent portion of obligations |            |                                            |   |                   |                | $               | 331               |             |       | $ | 315 |    
|                                  |            |                                            |   |                   |                |                 |                   |             |      

Rent expense relating to operating leases was
approximately $6.4 million in 2003, $5.2 million in
2002, and $3.9 million in 2001.



| |                
| | ---------------
| | Facility Leases

Caliper has three facility leases in Mountain
View, CA. In connection with these three facility leases,
Caliper has a $2.5 million standby letter-of-credit
arrangement with a bank expiring in year 2008. Caliper has
pledged a certificate of deposit of $2.5 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. A summary of the terms
of these leases are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in December 1998, Caliper entered into a 10-year
    facility operating lease agreement, which is subject to an
    annual increase of 4%.                                                                                                                                                                                                                                                     
|
| |  | in June 2000, Caliper entered into an 8-year
    facility operating lease agreement, which is subject to an
    annual increase of 3%, 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 November 2003, Caliper
    closed this facility and recognized a restructuring charge (see
    Note 11).

In June 2001, Caliper entered into an 7-year
facility operating lease agreement, which is subject to an
annual increase of 3%, 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.

F-23



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Effective July 14, 2003, in connection with
the acquisition of Zymark, Caliper assumed operating leases for
certain equipment and leased facilities under agreements that
expire through December 2012. The leases for Calipers
headquarters in Hopkinton, Massachusetts expire in 2005, unless
the Company exercises options to renew the leases.



| |                                                   
| | --------------------------------------------------
| | Capital Leases and Sale-Leaseback
    Arrangements

As of December 31, 2003, Caliper had
$6.0 million of property and equipment financed through
capital lease obligations. Calipers Equipment
sale-leaseback credit line had expired as of December 31,
2002, and Caliper did not enter into any new financing
agreements for the purchase of property and equipment during
2003. 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 July 2005.
Calipers currently outstanding equipment sale-leaseback
agreements require a balloon payment at the end of each loan
term. As of December 31, 2002, Caliper drew down
approximately $2.0 million in total under a
$3.0 million equipment sale-leaseback credit line at a
weighted average interest rate of 11.7% and allowed
approximately $1.0 million to expire as unused under this
arrangement.



| |                           
| | --------------------------
| | Other Long-Term Obligation

In connection with the acquisition of Labotec by
Zymark in August 2002, Caliper is obligated to make
noninterest-bearing deferred purchase price payments of 900,000
Euros to the former owner. As of July 14, 2003 the acquired
obligation was $979,000. The guaranteed deferred payments are
due in three annual installments, and the first payment was made
on August 13, 2003.



| |                  
| | -----------------
| | Letters-of-Credit

In addition to the outstanding letters-of-credit
related to the Mountain View operating lease agreements
described above, Caliper issued a $663,000 letter-of-credit to
secure certain customer deposits in Germany.



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

As of December 31, 2003, Caliper had a
non-cancelable purchase commitment in the amount of
approximately $307,000 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. Royalties
obligations to UT-Batelle, which exceeded certain minimums set
forth in the amendment, were $581,000 and $81,000 in 2003 and
2002, respectively. 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 obligations under these licenses
rise over time, but never exceed $213,000 per year.

F-24



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                              
|--- | ---------------------------------------------
|10. | Other Current and Non-current
    Liabilities

Other current and non-current liabilities at
December 31, 2003 and December 31, 2002 consist of the
following;

|                                 |                                         |                |       |       |      |   |       |       | 
|-------------------------------- | --------------------------------------- | -------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                                 |                                         |               
|                                 |                                         | December 31,   |      
|                                 |                                         |                |      
|                                 |                                         | 2003           |       |       | 2002 |  
|                                 |                                         |                |       |       |      |  
|                                 |                                         |               
|                                 |                                         | (In thousands) |      
|Accrued restructuring            |                                         | $              | 3,930 |       |      | $ |      |      
|Accrued warranty                 |                                         |                | 1,108 |       |      |   | 265   |      
|Accrued VAT and other taxes      |                                         |                | 1,306 |       |      |   |      |      
|Accrued other                    |                                         |                | 2,345 |       |      |   | 845   |      
|                                 |                                         |                |       |       |      |  
|                                 | Total other current accrued liabilities |                | $     | 8,689 |      |   | $     | 1,110 | 
|                                 |                                         |                |       |       |      |  
|Accrued restructuring            |                                         | $              | 5,972 |       |      | $ |      |      
|Deferred rent                    |                                         |                | 1,088 |       |      |   | 1,552 |      
|Deferred compensation obligation |                                         |                | 497   |       |      |   | 334   |      
|Other long-terms obligations     |                                         |                | 315   |       |      |   |      |      
|Other                            |                                         |                |      |       |      |   | 100   |      
|                                 |                                         |                |       |       |      |  
|                                 | Total other noncurrent liabilities      |                | $     | 7,872 |      |   | $     | 1,986 | 
|                                 |                                         |                |       |       |      |  



|    |                         
|--- | ------------------------
|11. | 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. 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.

On May 6, 2003, due to the continuing broad
economic slowdown and reduced research and development spending
by biopharmaceutical companies, Caliper conducted a reduction in
force that resulted in a further downsizing of its employee work
force by 26 people, or approximately 10%. Caliper believed this
planned action, was necessary to better align Calipers
organizational structure with these depressed market conditions
and customer demand. The May downsizing primarily affected
Calipers research and development staff where it continues
to change the focus of its product development and technology
research to align more with the changing needs of its customers.
Caliper incurred a charge of $322,000 in the second quarter of
2003 for severance payments and related benefits, with all
employee separations completed and payments distributed by the
end of June 2003.

As a result of the acquisition of Zymark, on
August 5, 2003, Caliper conducted a reduction in force that
downsized its workforce by 37 positions, or 7% of the total
headcount of Caliper and the newly acquired Zymark. The
reduction was the first of two phases of reductions designed to
eliminate redundancies and increase organizational efficiencies
within the newly combined company and primarily affected
manufacturing, sales and administration. Of the 37 positions,
33% occurred in August 2003 with the remainder to take place

F-25



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

by the end of June 2004. Caliper incurred a
charge of $774,000 in the third quarter of 2003 for severance
payments and related benefits. All separations and related
payments are expected to be completed by April, 2004. Of the
amount included in accrued restructuring expenses at
December 31, 2003, $1.5 million is related to the
August downsizing.

On December 3, 2003, in connection with
consolidating the previously separate operations of Caliper and
Zymark, Caliper conducted a second reduction in force that
downsized its workforce by 37 positions, or 8% of total
headcount. This second phase primarily affected research and
development staff as a result of certain strategy and priority
decisions finalized during the fourth quarter of 2003. Caliper
incurred a charge of $2.7 million in the fourth quarter of
2003 for severance payments and related benefits. All
separations and related payments are expected to be completed by
the end of April, 2004. Of the amount included in accrued
restructuring expenses at December 31, 2003, $569,000 is
related to the December downsizing.

In November 2003, Caliper closed one of its three
facilities in Mountain View, CA that was used primarily for
instrument manufacturing and research and development
activities, and recognized a $7.7 million charge for costs
to be incurred over the remainder of the lease for which there
is no expected ongoing economic benefit. In accordance with
Statement of Financial Accounting Standard No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, Caliper recorded a liability equal to the fair
value of the remaining lease payments as of the cease-use date.
Fair value was determined based upon the discounted present
value of remaining lease rentals (5% discount rate used) for the
28,800 square feet previously occupied, reduced by the
discounted present value of future estimated sublease rentals,
starting from January 2005 through the end of the lease, that
could be obtained for the property, even if Caliper does not
enter into a sublease.

The following table summarizes the restructuring
activity during 2003:

|                                            |  |                |        |   |          |   |       |            |  |   |       |   |  |   |        |  
|------------------------------------------- |  | -------------- | ------ | - | -------- | - | ----- | ---------- |  | - | ----- | - |  | - | ------ | -
|                                            |  | Severance      |        |   |          |   |       |            | 
|                                            |  | and            |        |   |          |   |       |            | 
|                                            |  | Related        |        |   | Facility |   |       | Leaseholds |  |   | Total |  
|                                            |  |                |        |   |          |   |       |            |  |   |       |  
|                                            |  |               
|                                            |  | (In thousands) |       
|Balance, December 31, 2002                  |  | $              |       |   |          | $ |      |            |  | $ |      |   |  | $ |       |  
|Restructuring charges                       |  |                | 3,822  |   |          |   | 7,394 |            |  |   | 319   |   |  |   | 11,535 |  
|Non-cash restructuring charges              |  |                | (401   | ) |          |   |      |            |  |   | (319  | ) |  |   | (720   | )
|Reclassification of deferred rent liability |  |                |       |   |          |   | 425   |            |  |   |      |   |  |   | 425    |  
|Payment                                     |  |                | (1,338 | ) |          |   |      |            |  |   |      |   |  |   | (1,338 | )
|                                            |  |                |        |   |          |   |       |            |  |   |       |  
|Balance, December 31, 2003                  |  | $              | 2,083  |   |          | $ | 7,819 |            |  | $ |      |   |  | $ | 9,902  |  
|                                            |  |                |        |   |          |   |       |            |  |   |       |  



|    |                                                                    
|--- | -------------------------------------------------------------------
|12. | Redeemable Convertible Preferred Stock and
    Stockholders Equity



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

F-26



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



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

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. In July 2000, one of the
warrants was fully exercised under a net exercise provision and
18,729 shares of common stock were issued. As of
December 31, 2003, the other warrant was outstanding. In
January 2004, this warrant was fully exercised and
19,230 shares of common stock were issued.

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. The
fair value of the warrants was capitalized in 1999 and is being
amortized over 5 years. In July 2000, one of these warrants
was exercised under a net exercise provision and
18,729 shares of common stock were issued. As of
December 31, 2003, the other warrant was outstanding. In
January 2004, this warrant was fully exercised and
19,230 shares of common stock were issued.



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

In 2003, Caliper granted restricted stock under
its current stock plans to certain employees. This restricted
stock is not outstanding as of December 31, 2003, but is
subject to vesting as discussed in Grant of Restricted
Stock below.



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

In June 2003, Calipers board of directors
and stockholders adopted the Acquisition Equity Plan
(Acquisition Plan) which provides for the grant of
options and restricted shares. A total of 900,000 shares of
common stock have been reserved for issuance under this plan. In
July 2003, Caliper granted 600,000 options and 275,000
restricted shares of common stock under the Acquisition Plan. As
of December 31, 2003 there were 25,000 shares
available for future issuances.

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. In
2003, 124,988 shares were issued under the 2001
Non-Statutory Plan at a weighted average price of $5.46, and
111,881 shares expired and were canceled, resulting in
37,612 shares being available for issuance as of
December 31, 2003. Options under the

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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 annual 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. Shares issuable under the
1999 Equity Plan are as follows:

|                                   |  |              |            | 
|---------------------------------- |  | ------------ | ---------- | 
|                                   |  | Shares       |           
|                                   |  | Reserved for |           
|                                   |  | Issuance     |           
|                                   |  |              |           
|Shares reserved (1999 amendment)   |  |              | 2,463,049  | 
|2000 increase                      |  |              | 1,439,198  | 
|2001 increase                      |  |              | 1,350,058  | 
|2002 increase                      |  |              | 2,456,997  | 
|2003 increase                      |  |              | 3,564,902  | 
|                                   |  |              |           
|Total Shares Reserved              |  |              | 11,274,204 | 
|Less option issued and outstanding |  |              | 7,474,430  | 
|                                   |  |              |           
|Balance, December 31, 2003         |  |              | 3,799,774  | 
|                                   |  |              |           

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 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.
Shares issuable under the 1999 Directors Plan are as
follows:

|                                   |  |              |         | 
|---------------------------------- |  | ------------ | ------- | 
|                                   |  | Shares       |        
|                                   |  | Reserved for |        
|                                   |  | Issuance     |        
|                                   |  |              |        
|Shares reserved (1999 amendment)   |  |              | 200,000 | 
|2000 increase                      |  |              | 69,496  | 
|2001 increase                      |  |              | 77,017  | 
|2002 increase                      |  |              | 36,000  | 
|2003 increase                      |  |              | 78,373  | 
|                                   |  |              |        
|Total Shares Reserved              |  |              | 460,886 | 
|Less option issued and outstanding |  |              | 122,000 | 
|                                   |  |              |        
|Balance, December 31, 2003         |  |              | 338,886 | 
|                                   |  |              |        

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

F-28



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                                 |            |           |           |             |        |           |           |                |          |               |               |   |       |       | 
|-------------------------------- | ---------- | --------- | --------- | ----------- | ------ | --------- | --------- | -------------- | -------- | ------------- | ------------- | - | ----- | ----- | 
|                                 |            |           |           |             |        |          
|                                 |            |           |           | Outstanding |        | Weighted- |          
|                                 |            |           |           |             |        | Average   |          
|                                 |            |           |           | Number of   |        |           |           |                | Exercise |              
|                                 |            | Available |           |             | Shares |           |           | Exercise Price |          | Price         |              
|                                 |            |           |           |             |        |           |           |                |          |               |              
|Balance at December 31, 2000     |            |           | 1,880,818 |             |        |           | 3,042,902 |                |          | $0.06$162.00 |               | $ | 19.63 |      
|                                 | Authorized |           |           | 1,927,075   |        |           |           |               |          |               |              |   |       |      | 
|                                 | 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   |        |           |           |               |          |               |              |   |       |      | 
|                                 | 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 |      
|                                 |            |           |           |             |        |           |           |                |          |               |              
|                                 | Authorized |           |           | 4,543,275   |        |           |           |               |          |               |              |   |       |      | 
|                                 | Granted    |           |           | (5,670,660  | )      |           |           | 5,670,660      |          |               | $0.00$  6.45 |   | $     | 4.12  | 
|                                 | Exercised  |           |           |            |        |           |           | (177,666       | )        |               | $0.06$  3.63 |   | $     | 1.89  | 
|                                 | Vested     |           |           |            |        |           |           | (15,152        | )        |               | $  0.00       |   | $     | 0.00  | 
|                                 | Canceled   |           |           | 923,799     |        |           |           | (923,799       | )        |               | $0.97$ 77.00 |   | $     | 9.89  | 
|                                 |            |           |           |             |        |           |           |                |          |               |              
|Balance at December 31, 2003     |            |           | 4,201,272 |             |        |           | 8,936,350 |                |          | $0.06$162.00 |               | $ | 6.54  |      
|                                 |            |           |           |             |        |           |           |                |          |               |              
|Exercisable at December 31, 2003 |            |           |           |             |        |           | 3,695,624 |                |          |               |               |   |       |      
|                                 |            |           |           |             |        |           |           |                |          |               |              
|Exercisable at December 31, 2002 |            |           |           |             |        |           | 1,546,056 |                |          |               |               |   |       |      
|                                 |            |           |           |             |        |           |           |                |          |               |              
|Exercisable at December 31, 2001 |            |           |           |             |        |           | 686,718   |                |          |               |               |   |       |      
|                                 |            |           |           |             |        |           |           |                |          |               |              

Included in the grant activity above are
nonqualified options of 3,368,761, 1,757,729, and 1,402,344, for
the years ended December 31, 2003, 2002, and 2001,
respectively.

The weighted-average fair value of options
granted during 2003, 2002, and 2001 was $2.82, $7.16, and $15.72
respectively.

F-29



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information with
respect to stock options and restricted common stock outstanding
at December 31, 2003:

|                        |  |             |           |          |                  |  |          |                |  |   |           |          |  |                  |           |  |  |   |        | 
|----------------------- |  | ----------- | --------- | -------- | ---------------- |  | -------- | -------------- |  | - | --------- | -------- |  | ---------------- | --------- |  |  | - | ------ | 
|                        |  |             |           |          |                  | 
|                        |  | Outstanding |           |          |                 
|                        |  |             |           |          | Exercisable      | 
|                        |  |             |           | Weighted |                  |  |          |                |  |  
|                        |  |             |           | Average  |                  |  | Weighted |                |  |   |           | Weighted | 
|                        |  | Number of   |           |          | Remaining        |  |          | Average        |  |   | Number of |          |  | Average Exercise |          
|Range of Exercise Price |  | Shares      |           |          | Contractual Life |  |          | Exercise Price |  |   | Shares    |          |  | Price            |          
|                        |  |             |           |          |                  |  |          |                |  |   |           |          |  |                  |          
|$  0.00                 |  |             | 411,246   |          |                  |  | 3.4      |                |  | $ | 0.00      |          |  |                  |          |  |  |   |       | 
|$  0.06                 |  |             | 2,532     |          |                  |  | 2.3      |                |  | $ | 0.06      |          |  |                  | 2,532     |  |  | $ | 0.06   | 
|$  0.47$  0.62         |  |             | 89,841    |          |                  |  | 3.5      |                |  | $ | 0.57      |          |  |                  | 89,841    |  |  | $ | 0.57   | 
|$  0.97                 |  |             | 717,316   |          |                  |  | 5.1      |                |  | $ | 0.97      |          |  |                  | 687,024   |  |  | $ | 0.97   | 
|$  3.12$  4.44         |  |             | 3,323,869 |          |                  |  | 8.6      |                |  | $ | 3.64      |          |  |                  | 1,492,280 |  |  | $ | 3.53   | 
|$  4.71$  6.75         |  |             | 3,029,300 |          |                  |  | 9.3      |                |  | $ | 5.57      |          |  |                  | 509,625   |  |  | $ | 6.01   | 
|$  7.55$  9.96         |  |             | 272,000   |          |                  |  | 8.1      |                |  | $ | 8.56      |          |  |                  | 159,329   |  |  | $ | 8.96   | 
|$ 11.80$ 17.34         |  |             | 767,257   |          |                  |  | 7.3      |                |  | $ | 14.19     |          |  |                  | 471,829   |  |  | $ | 14.42  | 
|$ 19.80$ 22.40         |  |             | 8,409     |          |                  |  | 6.3      |                |  | $ | 20.97     |          |  |                  | 5,277     |  |  | $ | 20.87  | 
|$ 31.13$ 44.44         |  |             | 210,900   |          |                  |  | 6.8      |                |  | $ | 33.15     |          |  |                  | 179,112   |  |  | $ | 33.10  | 
|$ 56.38$ 77.00         |  |             | 89,730    |          |                  |  | 6.3      |                |  | $ | 68.18     |          |  |                  | 85,407    |  |  | $ | 68.02  | 
|$130.00$162.00         |  |             | 13,950    |          |                  |  | 6.1      |                |  | $ | 154.77    |          |  |                  | 13,368    |  |  | $ | 154.78 | 
|                        |  |             |           |          |                  |  |          |                |  |   |           |          |  |                  |          
|$  0.00$162.00         |  |             | 8,936,350 |          |                  |  | 8.1      |                |  | $ | 6.54      |          |  |                  | 3,695,624 |  |  | $ | 8.44   | 
|                        |  |             |           |          |                  |  |          |                |  |   |           |          |  |                  |          



| |                                     
| | ------------------------------------
| | Grant of Restricted Common
    Stock

During 2003, Caliper granted 426,398 shares
of restricted common stock, at a weighted average grant-date
fair value of $5.20, under the Acquisition Plan and 1999 Equity
Plan, to certain key employees, including key employees of
Zymark that were retained by Caliper following the acquisition
in July 2003. The restricted shares vest 100% either 12, 48 or
60 months from the date of grant. Vesting may be
accelerated in the case of certain restricted stock grants based
upon the achievement of specified performance milestones. During
2003, Caliper recorded deferred compensation of
$2.2 million and recognized compensation expense of
$475,000 related to restricted stock awards. As of
December 31, 2003, deferred compensation of
$1.8 million is included as a reduction of total
stockholders equity, of which $1.7 million relates to
the grant of restricted stock. Caliper recognizes compensation
cost on a straight-line basis over the vesting period. Provided
no acceleration of vesting occurs, amounts to be recognized as
compensation expense in future periods are as follows (in
thousands):

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 709   | 
|2005 |  |   | 322   | 
|2006 |  |   | 322   | 
|2007 |  |   | 260   | 
|2008 |  |   | 100   | 
|     |  |   |      
|     |  | $ | 1,713 | 
|     |  |   |      



| |                        
| | -----------------------
| | Option Exchange Program

On October 16, 2002, Caliper announced that
its Board of Directors approved a voluntary stock option
exchange program for employees. Under the exchange program,
employees were offered the opportunity to exchange outstanding
stock options with exercise prices of $100 per share or
lower for new stock options to be

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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

granted at an exercise price determined on the
date the new stock options were granted. Participating employees
received new stock options in exchange for outstanding stock
options at an exchange ratio of one-for-one. In accordance with
the exchange program, on November 19, 2002, Caliper
cancelled approximately 2.18 million of its outstanding
stock options. Caliper granted new options to purchase
approximately 1.96 million shares of its common stock on
May 20, 2003, the first business day that was six months
and one day after the cancellation of the exchanged options. The
exercise price per share of the new options is $3.63, the fair
market value of Calipers common stock at the close of
regular trading on May 19, 2003. Employees received the
same vesting as with their previous options, except that any
future vesting of the replacement options was delayed during the
exchange period. In addition, participating employees were
prohibited from exercising the replacement options for six
months after the date of exchange.



| |                             
| | ----------------------------
| | 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 359,926 shares under the
1999 Purchase Plan in the year 2003 at a weighted average price
of $3.01. Caliper issued 112,881 and 337,424 shares under
the 1999 Purchase Plan in the year 2001 and 2002 at a weighted
average price of $12.51 and $4.33, respectively. In June 2003,
2002 and 2001, an additional 384,983, 201,642, and
128,361 shares, respectively, of common stock became
issuable under the 1999 Purchase Plan. As of December 31,
2003, 251,381 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 that Statement (as
disclosed in Note 1 to our condensed 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:

|                           |  |      |      |  |      |  |      |      |  |  |      | 
|-------------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                           |  | 2003 |      |  | 2002 |  |      | 2001 | 
|                           |  |      |      |  |      |  |      |      | 
|Volatility(%)              |  |      | 81   |  |      |  | 112  |      |  |  | 112  | 
|Risk-free interest rate(%) |  |      | 2.26 |  |      |  | 3.70 |      |  |  | 4.33 | 
|Expected life (years)      |  |      | 4.0  |  |      |  | 4.0  |      |  |  | 4.0  | 
|Expected dividend yield(%) |  |      | 0    |  |      |  | 0    |      |  |  | 0    | 

Caliper 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 $1.0 million, $378,000,
and $2.5 million, for the years ended December 31,
2003,

F-31



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002 and 2001, respectively. The amortization
expense recorded in 2003 was net of a $17,000 reversal of stock
compensation expense recognized through the third quarter of
2003. The amortization expense recorded in 2002 was net of a
$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 $95,000 during 2004 in addition to the deferred
compensation associated with the 2003 grants of restricted
common stock.



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

As of December 31, 2003, Caliper had
reserved shares of common stock for future issuance as follows:

|                                     |  |  |            | 
|------------------------------------ |  |  | ---------- | 
|Warrants                             |  |  | 38,460     | 
|1999 Equity Incentive Plan           |  |  | 11,274,204 | 
|1999 Directors Plan                 |  |  | 460,886    | 
|2001 Non-Statutory Stock Option Plan |  |  | 500,000    | 
|Acquisition Plan                     |  |  | 900,000    | 
|1996 Stock Plan                      |  |  | 2,532      | 
|1999 Employee Stock Purchase Plan    |  |  | 251,381    | 
|                                     |  |  |           
|                                     |  |  | 13,427,463 | 
|                                     |  |  |           



|    |             
|--- | ------------
|13. | Income Taxes

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

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 follows:

|                                           |                                       |                         |         |     |      |   |         |      |  |   |        |     | 
|------------------------------------------ | ------------------------------------- | ----------------------- | ------- | --- | ---- | - | ------- | ---- |  | - | ------ | --- | 
|                                           |                                       |                        
|                                           |                                       | Year Ended December 31, |        
|                                           |                                       |                         |        
|                                           |                                       | 2003                    |         |     | 2002 |   |         | 2001 | 
|                                           |                                       |                         |         |     |      |   |         |      | 
|                                           |                                       |                        
|                                           |                                       | (In thousands)          |        
|U.S. federal taxes (benefit):              |                                       |                         |         |     |      |   |         |      |  |   |        |    
|At statutory rate                          |                                       | $                       | (16,775 | )   |      | $ | (14,197 | )    |  | $ | 1,300  |    
|State                                      |                                       |                         |        |     |      |   |        |      |  |   |       |    
|Foreign                                    |                                       |                         | 190     |     |      |   |        |      |  |   |       |    
|Permanent differences;                     |                                       |                         |         |     |      |   |         |      |  |   |        |    
|                                           | Amortization of Deferred Compensation |                         |         | 340 |      |   |         | 542  |  |   |        | 864 | 
|                                           | Other                                 |                         |         | 151 |      |   |         | 169  |  |   |        | 106 | 
|Unutilized (utilized) net operating losses |                                       |                         | 16,284  |     |      |   | 13,486  |      |  |   | (2,270 | )  
|                                           |                                       |                         |         |     |      |   |         |      | 
|Total                                      |                                       | $                       | 190     |     |      | $ |        |      |  | $ |       |    
|                                           |                                       |                         |         |     |      |   |         |      | 

F-32



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##### Table of Contents



CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, |        
|                                     |       |              |        
|                                     |       | 2003         |         |            | 2002 |   |         | 2001 | 
|                                     |       |              |         |            |      |   |         |      | 
|                                     |       |              |         | (In        |      |   |        
|                                     |       |              |         | thousands) |      |   |        
|Net operating loss carryforwards     |       | $            | 36,099  |            |      | $ | 22,400  |      |  | $ | 9,500   |  
|Research credit carryforwards        |       |              | 6,230   |            |      |   | 4,350   |      |  |   | 3,040   |  
|Capitalized research and development |       |              | 3,026   |            |      |   | 3,420   |      |  |   | 1,477   |  
|Restructuring accrual                |       |              | 3,917   |            |      |   |        |      |  |   |        |  
|Intangible assets                    |       |              | (6,564  | )          |      |   |        |      |  |   |        |  
|Other, net                           |       |              | 4,349   |            |      |   | 3,050   |      |  |   | 1,810   |  
|                                     |       |              |         |            |      |   |         |      | 
|Net deferred tax assets              |       |              | 47,057  |            |      |   | 33,220  |      |  |   | 15,827  |  
|Valuation allowance                  |       |              | (47,057 | )          |      |   | (33,220 | )    |  |   | (15,827 | )
|                                     |       |              |         |            |      |   |         |      | 
|                                     | Total |              | $       |           |      |   | $       |     |  |   | $       |  | 
|                                     |       |              |         |            |      |   |         |      | 

As of December 31, 2003, Caliper had federal
and state net operating loss carryforwards of approximately
$101.5 million and $26.7 million. Caliper also had
federal and state research and development tax credit
carryforwards of approximately $3.1 million and
$3.1 million, respectively. The federal net operating loss
and credit carryforwards will expire at various dates beginning
in the year 2009 through 2023 if not utilized. The state 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 $13.8 million , $17.4 million and
($871,000) 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.



|    |                     
|--- | --------------------
|14. | Contracts and Grants



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

From May 1998 through May 2003, Caliper and
Agilent (successor to Hewlett-Packard), have collaborated to
create a line of commercial research products based on 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 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 collaboration agreement provided for Agilent
to fund our research and development expenditures related to the
collaboration, reimburse us for our costs of supplying chips and
reagents to Agilent and pay us a share of the gross margin
earned on all components of LabChip systems they sell. The gross
margin share varies depending on the type of collaboration
product, and on whether Agilent or Caliper manufactures the
collaboration product, and whether such collaboration product is
sold during the collaboration or after the collaboration has
terminated. We record revenue from development and support
activities under our

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, Caliper notified Agilent of its
election to terminate the agreement between the companies,
effective as of May 2003. Effective November 2003, Caliper has
the right to market and sell collaboration products, with
reciprocal supply arrangements with Agilent. Under the
continuing provisions of the collaboration agreement 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 sales of the Agilent 2100 Bioanalyzer
will also decrease in the same time periods, although at
somewhat different rates. In addition, Agilent received a
non-exclusive license in the field of the collaboration, to
Calipers then existing LabChip technology as of the date
of termination, 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. Under the
collaboration agreement termination provisions, 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. As a result of
the termination of the collaboration agreement, we are presently
only receiving minimal development funding from Agilent.
However, it is possible that the parties may decide to
collaborate on the development of new commercial research
products in the future.



| |                          
| | -------------------------
| | 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 recognized revenues upon
shipment and transfer of title to products sold to Eli Lilly or
when the assay development service has been provided by Caliper.

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Millennium.Caliper
signed a broad technology access and application development
collaboration with Millennium in March 2000. The term was 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 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 recognized 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 recognized 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.



|    |                          
|--- | -------------------------
|15. | Relationship with Amphora

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%. These
venture capitalist include ARCH Venture Partners and Venrock
Associates. One of Calipers former 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 was historically 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 previously had two representatives on
Amphoras six-member board of directors, neither of whom is
currently on Amphoras board. Michael R. Knapp,
Calipers former Chief Executive Officer, and James L.
Knighton, Calipers 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.

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.
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. 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 had the right to appoint only one
member to Amphoras board. Dr. Kisner continued to be
a member of Amphoras board of directors until he resigned
his board seat in October 2003.

In December 2003, Amphora completed a third
private placement with third party investors further reducing
Calipers ownership from approximately 13% to less than 1%.

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. 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. 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.

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

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. In connection with Amphoras
financing in December 2003 and the resulting substantially
reduced ownership, Caliper no longer employs the equity method
of accounting for its investment in Amphora, and fully
recognized $267,000 of previously deferred revenues on sales to
Amphora as of December 2003. We also wrote-off our $37,000
investment in Amphora in December 2003.

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. 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.



|    |            
|--- | -----------
|16. | 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.



|    |           
|--- | ----------
|17. | 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

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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 the first
$2.5 million minimum annual royalty payment for 2002, and
on December 30, 2003, Caliper received the second
$2.5 million minimum annual royalty payment for 2003. The
royalty payments in 2002 and 2003 were recorded within license
fees and contract revenues in the accompanying statement of
operations.

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 was 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
$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

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. In May 2003, a Memorandum of Understanding was executed
by counsel for plaintiffs, issuers and their insurers setting
forth the terms of a settlement that would result in the
termination of all claims brought by plaintiffs against the
issuers and individual defendants named in the IPO Lawsuits. On
July 7, 2003, a Special Litigation Committee of the Caliper
Board of Directors approved the settlement terms described in
that Memorandum of Understanding. Draft documentation to effect
this settlement is in the process of being finalized by
executive committees for the plaintiffs, the issuers and the
issuers insurers. The settlement will be subject to
numerous conditions, including approval by Judge Scheindlin.

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
asserted that Molecular Devices Corp.s IMAP and Reagent
Assay Kits willfully infringe one or more claims of United
States Patent No. 6,287,774, which Caliper owns.
Calipers complaint sought both injunctive relief
precluding further infringement of the patent and damages. The
answer to the Complaint was filed on May 8, 2002 and
asserted a counterclaim seeking a declaratory judgment that the
patent is not infringed and is invalid. Caliper believes the
counterclaim was 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 asserted a
counterclaim seeking a declaratory judgment that both Caliper
patents are invalid, unenforceable and not infringed. Caliper
believes the Amended Counterclaim was without merit. On
January 28, 2003, Caliper filed a motion for preliminary
injunction, which was scheduled to be heard in May 2003, but
deferred by the court pending a patent claim construction
hearing. The claim construction hearing occurred at the end of
June 2003. During the first week of November 2003, Caliper
entered into a settlement of this lawsuit, and Calipers
claims against Molecular Devices and Molecular Devices
counterclaims against Caliper were dismissed with prejudice. In
connection with this settlement, Caliper and Molecular Devices
entered into a nonexclusive license agreement pursuant to which
Molecular Devices has agreed to pay to Caliper a one-time
licensing fee as well as royalties based on future sales of IMAP
products.

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                
|--- | ---------------
|18. | Geographic Data

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

|                             |               |                |         |         |      |   |         |         |   |   |         |         | 
|---------------------------- | ------------- | -------------- | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | 
|                             |               | 2003           |         |         | 2002 |   |         | 2001    |  
|                             |               |                |         |         |      |   |         |         |  
|                             |               |               
|                             |               | (In thousands) |        
|Revenue:                     |               |                |         |         |      |   |         |         |   |   |         |        
|                             | United States |                | $       | 35,134  |      |   | $       | 23,838  |   |   | $       | 28,824  | 
|                             | Europe        |                |         | 10,291  |      |   |         | 307     |   |   |         | 581     | 
|                             | Asia          |                |         | 3,986   |      |   |         | 1,688   |   |   |         | 183     | 
|                             |               |                |         |         |      |   |         |         |  
|                             |               | $              | 49,411  |         |      | $ | 25,833  |         |   | $ | 29,588  |        
|                             |               |                |         |         |      |   |         |         |  
|Net income (loss):           |               |                |         |         |      |   |         |         |   |   |         |        
|                             | United States |                | $       | (49,143 | )    |   | $       | (41,226 | ) |   | $       | 3,151   | 
|                             | Europe        |                |         | (516    | )    |   |         | (133    | ) |   |         | 489     | 
|                             | Asia          |                |         | 132     |      |   |         | 395     |   |   |         | 183     | 
|                             |               |                |         |         |      |   |         |         |  
|                             |               | $              | (49,527 | )       |      | $ | (40,964 | )       |   | $ | 3,823   |        
|                             |               |                |         |         |      |   |         |         |  
|Property and equipment, net: |               |                |         |         |      |   |         |         |   |   |         |        
|                             | United States |                | $       | 8,843   |      |   | $       | 12,522  |   |   | $       | 12,581  | 
|                             | Europe        |                |         | 244     |      |   |         | 23      |   |   |         |        | 
|                             | Asia          |                |         | 19      |      |   |         |        |   |   |         |        | 
|                             |               |                |         |         |      |   |         |         |  
|                             |               | $              | 9,106   |         |      | $ | 12,545  |         |   | $ | 12,581  |        
|                             |               |                |         |         |      |   |         |         |  
|Net Assets:                  |               |                |         |         |      |   |         |         |   |   |         |        
|                             | United States |                | $       | 136,277 |      |   | $       | 167,928 |   |   | $       | 206,564 | 
|                             | Europe        |                |         | (1,221  | )    |   |         | (370    | ) |   |         |        | 
|                             | Asia          |                |         | (259    | )    |   |         |        |   |   |         |        | 
|                             |               |                |         |         |      |   |         |         |  
|                             |               | $              | 134,797 |         |      | $ | 167,558 |         |   | $ | 206,564 |        
|                             |               |                |         |         |      |   |         |         |  

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CALIPER LIFE SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                     
|--- | ------------------------------------
|19. | Quarterly Financial Data (Unaudited)

The following quarterly financial data include
the results of Zymark effective from the date of acquisition,
July 14, 2003.

|                                 |  |                                       |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                 |  | First                                 |         |   | Second  |   |         | Third   |  |   | Fourth  |  
|                                 |  | Quarter                               |         |   | Quarter |   |         | Quarter |  |   | Quarter |  
|                                 |  |                                       |         |   |         |   |         |         |  |   |         |  
|                                 |  |                                      
|                                 |  | (In thousands, except per share data) |        
|Year ended December 31, 2003     |  |                                       |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|Total revenue                    |  | $                                     | 5,612   |   |         | $ | 5,878   |         |  | $ | 16,523  |   |  | $ | 21,398  |  
|Gross profit(1)                  |  |                                       | 3,314   |   |         |   | 3,416   |         |  |   | 7,868   |   |  |   | 8,833   |  
|Operating loss                   |  |                                       | (10,854 | ) |         |   | (10,620 | )       |  |   | (10,961 | ) |  |   | (20,408 | )
|Net loss                         |  |                                       | (9,968  | ) |         |   | (9,542  | )       |  |   | (10,148 | ) |  |   | (19,869 | )
|Basic and diluted loss per share |  | $                                     | (0.40   | ) |         | $ | (0.39   | )       |  | $ | (0.37   | ) |  | $ | (0.70   | )
|Year ended December 31, 2002     |  |                                       |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|Total revenue                    |  | $                                     | 7,041   |   |         | $ | 7,236   |         |  | $ | 6,623   |   |  | $ | 4,933   |  
|Gross profit(1)                  |  |                                       | 4,504   |   |         |   | 3,910   |         |  |   | 3,846   |   |  |   | 2,646   |  
|Operating loss                   |  |                                       | (11,651 | ) |         |   | (12,756 | )       |  |   | (10,757 | ) |  |   | (11,473 | )
|Net loss                         |  |                                       | (9,686  | ) |         |   | (11,368 | )       |  |   | (9,375  | ) |  |   | (10,535 | )
|Basic loss per share             |  | $                                     | (0.40   | ) |         | $ | (0.47   | )       |  | $ | (0.38   | ) |  | $ | (0.43   | )



---

|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross profit accounts for total revenues less
    cost of product, service and related party revenues. Costs
    related to contract revenues are included within research and
    development expenses in the accompanying statements of
    operations.

F-41



---



##### Table of Contents



Caliper Life Sciences, Inc.

Schedule II  VALUATION AND
QUALIFYING ACCOUNTS

|                                            |  |                |        |  |            |   |        |            |  |            |        |     |  |   |        | 
|------------------------------------------- |  | -------------- | ------ |  | ---------- | - | ------ | ---------- |  | ---------- | ------ | --- |  | - | ------ | 
|                                            |  | Balance        |        |  | Additions  |   |        |            |  |           
|                                            |  | at             |        |  | Charged to |   |        |            |  | Balance at |       
|                                            |  | Beginning      |        |  | Costs and  |   |        |            |  | End of     |       
|                                            |  | Period         |        |  | Expenses   |   |        | Deductions |  |            | Period |    
|                                            |  |                |        |  |            |   |        |            |  |            |        |    
|                                            |  |               
|                                            |  | (In thousands) |       
|Year ended December 31, 2003:               |  |                |        |  |            |   |        |            |  |            |        |     |  |   |        | 
|Allowance for doubtful accounts             |  | $              | 119    |  |            | $ | 263    |            |  | $          | 130    |     |  | $ | 252    | 
|Valuation allowance for deferred tax assets |  |                | 33,220 |  |            |   | 13,837 | (2)        |  |            |       |     |  |   | 47,057 | 
|                                            |  |                |        |  |            |   |        |            |  |            |        |    
|                                            |  | $              | 119    |  |            | $ | 263    |            |  | $          | 130    |     |  | $ | 252    | 
|                                            |  |                |        |  |            |   |        |            |  |            |        |    
|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 | 
|                                            |  |                |        |  |            |   |        |            |  |            |        |    



---



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



---



##### Table of Contents



EXHIBIT INDEX

|        |                 |  |                         |                                                                                                                                                                  
|------- | --------------- |  | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |                 |  |                        
|Number  |                 |  | Description of Document
|        |                 |  |                        
|        | 2.1(21)         |  |                         | Stock Purchase Agreement, by and among Caliper,
    Berwind Corporation and The Berwind Company LLC, dated
    June 9, 2003.                                     
|        | 2.2(21)         |  |                         | Amendment No. 1 to the Stock Purchase
    Agreement, by and among Caliper, Berwind Corporation and The
    Berwind Company LLC, dated July 10, 2003.             
|        | 3.1(1)          |  |                         | Amended and Restated Certificate of Incorporation
    of Caliper.                                                                                                
|        | 3.2(11)         |  |                         | Certificate of Designation Of Series A
    Junior Participating Preferred Stock.                                                                                 
|        | 3.3(2)          |  |                         | Restated Bylaws of Caliper.                                                                                                                                      
|        | 3.4(22)         |  |                         | 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(11)         |  |                         | 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)(16)  |  |                         | 1999 Equity Incentive Plan.                                                                                                                                      
|        | 10.4(3)(4)(16)  |  |                         | 1999 Employee Stock Purchase Plan.                                                                                                                               
|        | 10.5(3)(4)      |  |                         | 1999 Non-Employee Directors Stock Option
    Plan.                                                                                                              
|        | 10.6(3)(4)(16)  |  |                         | Employment Agreement, dated January 18,
    1999, between Caliper and Daniel L. Kisner, M.D.                                                                     
|        | 10.7(3)(4)(16)  |  |                         | 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).                                                       
|        | 10.17(3)(4)     |  |                         | Consulting Agreement, dated April 30, 1997,
    between Caliper and Dr. David V. Milligan.                                                                       
|        | 10.18(3)(4)(16) |  |                         | 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)(16) |  |                         | Promissory Note, dated March 25, 1997,
    between Caliper and Michael R. Knapp, Ph.D.                                                                           
|        | 10.21(3)(4)(16) |  |                         | Option Agreement, dated August 9, 1995,
    between Caliper and Michael R. Knapp, Ph.D.                                                                          
|        | 10.22(3)(4)(16) |  |                         | 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)(16)    |  |                         | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated October 11, 1996.                                                       
|        | 10.25(6)(16)    |  |                         | Warrant for the purchase of shares of Common
    Stock issued to Michael R. Knapp, dated February 2, 2000.                                                       
|        | 10.27(7)        |  |                         | Lease Agreement, dated June 23, 2000 and
    effective July 5, 2000, between Caliper and Martin CBP
    Associates, L.P.                                         



---



##### Table of Contents



|        |                 |  |                         |                                                                                                                                                                                                                        
|------- | --------------- |  | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |                 |  |                        
|Number  |                 |  | Description of Document
|        |                 |  |                        
|        | 10.28(7)(6)     |  |                         | Promissory Note, dated July 17, 2000,
    between Caliper and Daniel L. Kisner, M.D.                                                                                                                                   
|        | 10.29(4)(8)(16) |  |                         | Change of Control Sr. Mgmt Severance/ Equity
    Acceleration Plan.                                                                                                                                                    
|        | 10.30(5)(9)     |  |                         | Cross-License Agreement, dated March 12,
    2001 by and among Aclara Biosciences, Inc. and Caliper.                                                                                                                   
|        | 10.31(9)        |  |                         | Common Stock Issuance Agreement, dated
    March 22, 2001.                                                                                                                                                             
|        | 10.32(5)(9)     |  |                         | Settlement Agreement and Mutual General Release,
    dated March 12, 2001 by and among Aclara
    Biosciences, Inc. and Caliper.                                                                                       
|        | 10.33(5)(10)    |  |                         | LabChip Solutions Agreement, dated as of
    September 21, 2001, by and between Amphora Discovery Corp.
    and Caliper.                                                                                               
|        | 10.34(4)(10)    |  |                         | 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)(10)    |  |                         | Restricted Stock Purchase Agreement, entered into
    as of October 8, 2001, by and between Amphora Discovery
    Corp. and Michael R. Knapp.                                                                          
|        | 10.36(4)(10)    |  |                         | 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)(10)    |  |                         | Restricted Stock Purchase Agreement, entered into
    as of October 14, 2001, by and between Amphora Discovery
    Corp. and James L. Knighton.                                                                        
|        | 10.38(5)(10)    |  |                         | 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(12)(16)   |  |                         | 2001 Non-Statutory Stock Option Plan.                                                                                                                                                                                  
|        | 10.46(14)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Michael R. Knapp                                                                                                                                   
|        | 10.47(14)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and James L. Knighton                                                                                                                                  
|        | 10.48(15)(16)   |  |                         | Key Employee Agreement, dated July 1, 2002,
    between Caliper and Dr. Daniel Kisner                                                                                                                                  
|        | 10.49(15)(16)   |  |                         | Separation Agreement, dated July 29, 2002,
    between Caliper and J. Wallace Parce                                                                                                                                    
|        | 10.52(17)       |  |                         | 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(17)       |  |                         | Modification of LabChip Solutions Agreement,
    dated as of December 12, 2002, by and between Amphora
    Discovery Corp. and Caliper.                                                                                
|        | 10.54(18)       |  |                         | Retention Agreement, dated February 26,
    2003, between Caliper and Michael Merion                                                                                                                                   
|        | 10.55(18)       |  |                         | Collaboration Agreement, dated June 4, 2003,
    between Caliper and Bio-Rad Laboratories, Inc.                                                                                                                        
|        | 10.56(19)       |  |                         | Key Employee Agreement, dated July 14, 2003,
    between Caliper and E. Kevin Hrusovsky                                                                                                                                
|        | 10.57(19)       |  |                         | Key Employee Agreement, dated July 8, 2003,
    between Caliper and Michael R. Knapp.                                                                                                                                  
|        | 10.58(19)       |  |                         | Key Employee Agreement, dated July 2, 2003,
    between Caliper and James L. Knighton.                                                                                                                                 
|        | 10.59(19)       |  |                         | Key Employee Agreement, dated July 10, 2003,
    between Caliper and Anthony T. Hendrickson.                                                                                                                           
|        | 10.60(19)       |  |                         | Key Employee Agreement, dated September 17,
    2003, between Caliper and William M. Wright III.                                                                                                                       
|        | 10.61(19)       |  |                         | Letter Agreement, dated September 17, 2003,
    between Caliper and Berwind Company LLC regarding the
    Appointment of a Berwind Nominee to the Caliper Board of
    Directors.                                      



---



##### Table of Contents



|        |           |  |                         |                                                                                                                                
|------- | --------- |  | ----------------------- | -------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |  |                        
|Number  |           |  | Description of Document
|        |           |  |                        
|        | 10.62(20) |  |                         | Acquisition Equity Incentive Plan                                                                                              
|        | 10.63(4)  |  |                         | Key Employee Agreement Amendment, dated
    December 24, 2003, between Caliper and Dr. Daniel
    Kisner.                      
|        | 10.64(4)  |  |                         | Consulting Agreement, dated January 1, 2004,
    between Caliper and Dr. David V. Milligan.                                    
|        | 10.65(4)  |  |                         | Letter Amendment, dated February 20, 2004,
    between Caliper and Michael R. Knapp.                                           
|        | 10.66(17) |  |                         | Collaboration and Supply Agreement, dated
    January 9, 2004, among Caliper, Zymark Corporation and
    Affymetrix, Inc.      
|        | 10.67(4)  |  |                         | Amended and Restated Key Employee Agreement,
    dated January 22, 2004, between Caliper and James L.
    Knighton.            
|        | 10.68(4)  |  |                         | Amended and Restated Key Employee Agreement,
    dated January 22, 2004, between Caliper and Anthony T.
    Hendrickson.       
|        | 10.69(17) |  |                         | Letter amendment to Modification Agreement, dated
    December 22, 2003 between Caliper and Amphora Discovery
    Corp.        
|        | 11.1      |  |                         | Subsidiaries of the Registrant.                                                                                                
|        | 23.1      |  |                         | Consent of Ernst & Young LLP,
    independent auditors.                                                                        
|        | 24.1      |  |                         | Power of Attorney (reference is made to the
    signature page of this report).                                                
|        | 31.1      |  |                         | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                        
|        | 31.2      |  |                         | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                        
|        | 32.1      |  |                         | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.
|        | 32.2      |  |                         | 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 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.
|
| | (8) | Previously filed as the like-numbered Exhibit to
    Form 10-K/ A for the year ended December 31, 2000 and
    incorporated by reference herein.                                                       
|
| | (9) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended March 31,
    2001 and incorporated by reference herein.                                                 



|     |                                                                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2001 and incorporated by reference herein.
|    
|(11) | Previously filed as Exhibit 99.1 to Current
    Report on Form 8-K filed December 19, 2001 and
    incorporated by reference herein.                      



---



##### Table of Contents





|     |                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | 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.
|    
|(13) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2001 and
    incorporated by reference herein.                           
|    
|(14) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2002
    and incorporated by reference herein.                   
|    
|(15) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2002 and incorporated by reference herein.              
|    
|(16) | 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.     
|    
|(17) | Confidential treatment has been requested for a
    portion of this exhibit.                                                                                            
|    
|(18) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended June 30, 2003
    and incorporated by reference herein.                   
|    
|(19) | Previously filed as the like-numbered Exhibit to
    Form 10-Q for the quarterly period ended September 30,
    2003 and incorporated by reference herein.              
|    
|(20) | Previously filed as Exhibit 99.1 to our
    Registration Statement on Form S-8, File
    No. 333-106946, filed June 10, 2003 and incorporated
    by reference herein.  
|    
|(21) | Previously filed as the like-numbered Exhibit to
    Form 8-K filed July 25, 2003 and incorporated by
    reference herein.                                             
|    
|(22) | Previously filed as the like-numbered Exhibit to
    Form 10-K for the year ended December 31, 2002 and
    incorporated by reference herein.