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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
                           -------------------------

(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                          COMMISSION FILE # 000-28229

                           CALIPER TECHNOLOGIES CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                <C>
             DELAWARE                                       33-0675808
     (STATE OF INCORPORATION)                (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>

                              605 FAIRCHILD DRIVE
                          MOUNTAIN VIEW, CA 94043-2234
             (ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 623-0700

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

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                         COMMON STOCK, $0.001 PAR VALUE
                                (TITLE OF CLASS)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants 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. [X]

     Based on the closing sale price of common stock on the Nasdaq National
Market on February 15, 2000 the aggregate market value of the voting stock held
by non-affiliates of the registrant was $1,464,852,671. Excludes an aggregate of
7,869,435 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 21,021,872 at February 15, 2000.

                      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 2000
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 TECHNOLOGIES CORP.

                                   FORM 10-K

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
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<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    3
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 Equity and Related
          Stockholder Matters.........................................   21
Item 6.   Selected Financial Data.....................................   22
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of
          Operations..................................................   24
Item 7A   Quantitative and Qualitative Disclosures about Market
          Risk........................................................   35
Item 8.   Financial Statements and Supplementary Data.................   36
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   36

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........   37
Item 11.  Executive Compensation......................................   37
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   37
Item 13.  Certain Relationships and Related Transactions..............   37

                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   38
Signatures............................................................   40
Financial Statements..................................................  F-1
</TABLE>

     This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Act of 1934. These statements relate to future events or our future
financial performance. We have attempted to identify forward-looking statements
by terminology including "anticipates," "believes," "can," "continue," "could,"
"estimates," "expects," "intends," "may," "plans," "potential," "predicts,"
"should" or "will" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under
"Factors Affecting Operating Results," contained in Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operation," 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. We are not under any duty 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 is a registered trademark of Caliper. We have applied for
registration of the following trademarks: Caliper, the Caliper logo, the LabChip
logo, LibraryCard and Sipper. This Annual Report on Form 10-K also includes
trademarks of companies other than Caliper.

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                                     PART 1

ITEM 1. BUSINESS

OVERVIEW

     We are a leader in lab-on-a-chip technologies. We believe our LabChip
systems can assemble the power and reduce the size of entire laboratories full
of equipment and people. Our LabChip systems miniaturize, integrate and automate
many laboratory processes, and put them on a chip that can fit in the palm of a
child's hand. Each chip contains a network of microscopic channels through which
fluids and chemicals are moved, using electricity or pressure, in order to
perform experiments. The chips are the key components of our LabChip systems,
which also include reagents as well as instruments and software that together
control and read the chips. We believe our LabChip systems have the potential to
revolutionize experimentation in a wide range of industries by enabling
individuals and organizations to perform laboratory experiments at a speed, cost
and scale previously unattainable. Our initial commercialization focus is the
pharmaceutical industry, where there is an urgent need to improve the efficiency
and reduce the cost of drug discovery and development. Future target industries
potentially include agriculture, clinical diagnostics, chemicals and consumer
products. We believe that we are the first company to sell and deliver
lab-on-a-chip products to customers. During 1999 we introduced our first two
LabChip systems, a personal laboratory system and a high throughput system.

INDUSTRY BACKGROUND

  Laboratory Technology

     The pharmaceutical, agriculture, clinical diagnostics and chemical
industries rely on laboratory experimentation to obtain important information
that can be used to discover and develop new products. Despite the critical
value of laboratory results to these industries, improvements to the basic
processes and tools used in laboratory experiments have only been incremental
and have not kept pace with technological advances in other industries,
including electronics and computing. Laboratory work still relies on manual
steps and tools, such as test tubes and beakers, and large pieces of equipment
that utilize technology that is decades old. These tools and processes are
expensive, labor-intensive and often imprecise, presenting significant
productivity and efficiency challenges for these industries.

     New processes and tools are needed to enable individual researchers and
organizations to work more productively and efficiently. This need has been
recognized and some improvements have been made. In an attempt to increase speed
and reduce costs in many laboratory experiments, researchers have replaced test
tubes with plastic plates having 96 small reservoirs, or "wells," to facilitate
parallel experimentation. Further attempts to reduce costs have led researchers
to replace the 96-well plate with 384- and 1536-well plates in which reactions
can be performed in volumes that are 10 to 100-fold smaller. To enhance
efficiency, some suppliers have integrated multiple pieces of equipment into one
large piece of equipment. Organizations that perform high value, high volume
experimentation have attempted to automate processes by using liquid-handling
robotics to improve the quality and quantity of data achieved in centralized
testing. While these and other advances have helped researchers to work faster
and more efficiently, they still represent only incremental, not revolutionary,
improvements because they continue to rely on time-consuming, imprecise and
labor-intensive processes that can create bottlenecks throughout the entire
experimental process.

  A Need for Better Laboratory Technology in the Pharmaceutical Industry

     Pharmaceutical companies have realized that to stay competitive and meet
their goals for growth they will have to increase significantly the number of
new drugs they introduce each year. To achieve this, pharmaceutical companies
have found that they will have to engage in experimentation on a massive scale.
Pharmaceutical companies' investments in the comprehensive study of genetic
material, or "genomics," and novel methods of producing large numbers of new
chemical compounds, or "combinatorial chemistry," are examples of this decision.
These activities are generating a wealth of potential targets and new compounds
to be tested and offer the opportunity to discover many new drugs. However, they
also create a technological

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quandary: how to perform significantly more experiments, in less time, without
unacceptable increases in research and development spending. We believe that
recent incremental advances in laboratory technology are not enough to enable
pharmaceutical companies to achieve their growth targets. New technologies are
needed to improve the volume and quality of information generated in each stage
of the drug discovery process, while simultaneously reducing the cost of
experimentation.

                     THE STAGES OF PHARMACEUTICAL DISCOVERY
        Target identification involves acquiring knowledge about the role a
   particular molecule, usually a protein, plays in the body in order to
   determine whether it might be a good target for further investigation.
   Today, this activity is most often initiated with genomics studies, in
   particular by DNA sequencing, RNA analysis and genetic mapping.

        Target validation is the demonstration that affecting the function of
   a particular target has a positive effect on the course of a disease.
   Target validation employs a variety of methods including RNA analysis,
   protein analysis and cell biology.

        Primary screening involves the large-scale testing of collections of
   chemical compounds, or libraries, against validated targets. The goal is
   to find "hits," or individual members of the compound library that bind
   to, inhibit, or activate a particular target. These libraries are tested
   in high throughput experiments. The major pharmaceutical companies are
   moving towards screening up to 100 targets annually with libraries of up
   to one million compounds.

        Lead optimization is a term that describes the process of sorting
   through the compounds that emerge from the primary screen and conducting
   successive rounds of chemical alterations and biological tests to find
   compounds likely to have appropriate drug properties. Like target
   validation, lead optimization involves a variety of methods, including
   protein analysis, cell biology, chemical synthesis, as well as high
   throughput experiments. This stage also involves the testing of compounds
   for therapeutic activity in animal models of disease.

        Preclinical development involves testing of compounds to assure that
   they are safe, have appropriate distribution throughout the body and are
   appropriately metabolized. Formulation tests to ensure convenient delivery
   to patients are performed, as are tests to ensure that the compounds can
   be manufactured with consistent quality.

        Clinical development is the testing of pharmaceutical compounds in
   humans to demonstrate their safety and efficacy. Because clinical trials
   are the most expensive part of drug development, pharmaceutical companies
   are trying to improve the outcomes of clinical trials by using the methods
   of "pharmacogenetics," the scientific discipline focused on how genetic
   differences determine or predict responsiveness or adverse reactions to
   particular drugs. In order to use pharmacogenetics in a clinical trial,
   each patient in the trial will need his genetic make-up analyzed. This
   could entail analysis of approximately 100,000 different sites in a
   patient's DNA. For a 1,000 patient trial, this would require generating
   approximately 100 million data points.

     The drug discovery process can be summarized by the six stages described
above. In each of these stages, researchers face many productivity bottlenecks
due to the limitations of current laboratory technologies. Individual
researchers conducting even the simplest, most common experiments must often
perform labor-intensive, time-consuming, multi-step processes on multiple pieces
of equipment. For example, to analyze DNA, researchers must first extract the
DNA and treat it with reagents. Then they pour gels and mount them in equipment
to separate the DNA. After loading the samples into the gels, they activate the
gels for a precise period of time. The gels must then be processed to reveal the
location of the DNA and scanned to see the results. The whole process takes
approximately half a day and produces only a few dozen data points of genetic
information. Thousands of pharmaceutical company researchers perform this
experiment on a routine basis.

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     Even "automated" experiments, such as high throughput screening, are still
laborious and time-consuming. For example, to perform one high throughput
screen, researchers typically need to remove thousands of compounds from storage
and transfer small amounts of these compounds to hundreds of new plates. Then
they add fluid to dilute them and transfer a portion of the diluted compound to
another set of plates. After adding more reagents, they move the plates to an
incubation station and incubate the mixture for a precise period of time. They
then transfer the plates to a detection instrument and scan the plates to see
the results. Finally, they discard all the plates. The whole process can take a
team of researchers weeks or months to complete, and has to be repeated to test
the same compounds against the next pharmaceutical target.

     As currently performed, these processes are not well suited to the massive
scale-up we believe pharmaceutical companies are seeking. The number of people
and pieces of equipment required would be unmanageable. More importantly, data
quality has often suffered as companies have tried to implement higher
throughput versions of existing procedures, such as 384-well plates in place of
96-well plates. Pharmaceutical companies need a breakthrough in tools for
experimentation to free scientists from the limitations of current technology.

  A Broad Need Across Industries for New Laboratory Technology

     Other industries dependent upon biological and chemical information face
technology challenges similar to those facing the pharmaceutical industry. The
agricultural-biotechnology industry, for example, is adopting many of the same
research strategies used by the pharmaceutical industry, including genomics,
screening and combinatorial chemistry. In addition, the multi-billion dollar
clinical diagnostics industry continues to search for miniaturized and automated
equipment solutions that will facilitate patient point-of-care testing, as well
as high throughput, automated analysis platforms for use in centralized
reference laboratories. In these and other industries, technology for laboratory
experimentation is limiting the ability to access information about chemicals
and biochemicals, and therefore is limiting companies' ability to transform that
information into novel and commercially valuable products.

CALIPER SOLUTIONS

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

  Features of LabChip Systems

     - Miniaturization. Conventional laboratory equipment typically uses about a
       drop of fluid, or 50 to 100 microliters, to perform each experiment. In
       some LabChip applications, this volume is reduced to 1 nanoliter, or one
       billionth of a liter, an improvement of up to 100,000-fold over
       conventional systems.

     - Integration. Integration is the compression of multiple processes into a
       single process. 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.

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     - Automation. Today most laboratory experiments are performed using
       multiple instruments in combination with multiple manual steps. With our
       LabChip systems, entire experiments can be automated and performed inside
       a chip using one instrument. The same instrument is used with different
       chips to perform other automated experiments.

  Key Benefits of LabChip Systems

     - High Speed. We believe our LabChip systems accelerate experiments as much
       as 10-fold or more, depending on the application. For example, molecular
       separations such as electrophoresis normally take one hour 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
       usually incubated for 30 minutes or more before the results are
       determined. Often, these long incubation periods are necessary only to
       provide enough 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. We
       believe our customers can take advantage of this acceleration to increase
       throughput or to complete experiments faster, depending on their needs.

     - Reduced Reagent and Labor Cost. Our LabChip systems use only a small
       fraction of the normal amount of expensive reagents used in experiments
       performed in test tubes or 96-well plates, sometimes as little as
       1/100,000th, and also reduce labor involved in each experiment. We
       believe that saving on reagent cost and labor can enable pharmaceutical
       companies to expand the scale of experimentation in ways that would
       otherwise not be feasible.

     - 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 Data Accuracy. We believe our LabChip systems generally 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 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 is not strictly comparable.

     We believe that our LabChip systems have the potential to expand the
capabilities and improve the productivity of individual researchers and, on an
institutional level, to streamline and bring greater efficiency and speed to the
drug discovery and development process. Not all laboratory processes, however,
are ideally suited to be performed with our LabChip systems. For example,
detecting clinically important materials that appear in low concentrations in a
sample, such as the virus that causes AIDS or some hormones, is not always
practical with our LabChip systems. This is because there is a risk that these
materials will not be found in the very small volume employed by our chips. As a
result, without pre-processing the sample to increase the concentration our
LabChip system may fail to detect the material. Furthermore, if the analysis of
a sample must involve even one process that cannot currently be performed in the
LabChip system, then use of the 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.

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     The faster pharmaceutical companies can identify and validate targets,
screen massive numbers of compounds, optimize leads and identify promising
compounds to take into clinical development, the greater their chances of seeing
a return on investment for their research and development dollars. LabChip
technology has the potential to reduce the time it takes to discover and
commercialize new drugs. In the future, we believe we can bring similar benefits
to other industries.

STRATEGY

     Our objective is to be the leading lab-on-a-chip company. Key elements of
our strategy to achieve this objective include:

          Focus on the Pharmaceutical Industry First. We are focusing on
     developing our LabChip systems for the pharmaceutical industry, where the
     investment in research and development is large and growing and the need
     for new technologies to improve research and development efficiency is
     urgent. We are addressing the need for enhanced productivity for individual
     pharmaceutical researchers with our first LabChip personal laboratory
     system, featuring the Agilent 2100 Bioanalyzer, developed in collaboration
     with Agilent. We also have developed a high throughput system for use by
     pharmaceutical companies for drug screening. We are developing ultra high
     throughput systems and new chip applications to bring greater efficiency to
     the drug discovery process.

          Rapidly Build Our Installed Customer Base. We intend to take advantage
     of our first-to-market position to rapidly build our installed customer
     base. Our goal is to increase customer familiarity with lab-on-a-chip
     technology and to establish our LabChip systems as the platform of choice.
     Our strategy is to offer products for applications that are practiced
     widely and to bring LabChip technology to market through the combination of
     a major commercialization partnership and direct selling. Our first
     commercial collaborator, Agilent, is an established leader in analytical
     instrumentation and has initiated a multi-faceted sales and marketing
     campaign designed to achieve wide penetration. Our direct selling strategy
     is focused primarily on large pharmaceutical companies and is designed to
     encourage early adoption of our LabChip systems through our technology
     access program.

          Leverage Our Installed Customer Base by Expanding the Menu of Chip
     Applications. A significant portion of our internal research and
     development efforts is dedicated to new chip applications development. We
     intend to expand our menu of chip applications and sell them to customers
     that have already purchased LabChip instruments. For example, we are
     developing LabChip applications for genomics to bring significant advances
     in functionality to this technology-hungry area. We also intend to expand
     current markets by implementing a LabChip instrumentation "operating
     system" strategy that encourages other companies, such as reagent
     manufacturers, to develop compatible products that can operate with our
     chips.

          Generate Recurring Revenue From High-Value Chips. We expect to
     generate recurring revenue from the sale of single-use chips for the
     Agilent 2100 Bioanalyzer. In addition, we intend to value price the chips
     for our high throughput systems to reflect the cost savings and other
     benefits that our customers may achieve, possibly by charging customers for
     the amount of data they generate. While we are focused on generating
     revenues from the sale and use of our chips, we also will receive revenue
     from the sale of the Agilent 2100 Bioanalyzer, software and reagents. We
     also intend to generate recurring revenue from our technology access
     program through license fees and ongoing subscription fees as well as
     through the sale of instruments.

          Build a Substantial Intellectual Property Estate. We pursue an
     intellectual property strategy of licensing important patents and pursuing
     patent protection for our own inventions. As of March 1, 2000, we owned, or
     held licenses to, 47 issued U.S. patents and 130 pending U.S. patent
     applications. These patents and applications are directed to various
     technological areas that we believe are valuable to our business. We
     believe that maintaining a deep and broad intellectual property estate will
     be an important competitive advantage.

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          Maintain Leadership in Chip Technology and Manufacturing. We believe
     that our long-term success will derive from maintaining leadership in
     lab-on-a-chip technology and chip manufacturing. We focus on improving the
     power and capabilities of our chips to increase their value. We are also
     working to enhance manufacturing processes to reduce our production costs.

          Opportunistically Penetrate New Industries. We believe that LabChip
     technology has the potential to transform the way that laboratory
     experimentation is performed across multiple industries. We expect to
     selectively pursue these other industries, leveraging our pharmaceutical
     industry experience and products. We may pursue these opportunities alone
     or with collaborators.

PRODUCTS AND SERVICES

     We have developed two types of LabChip systems, personal laboratory systems
and high throughput systems, based on distinct chip formats. Our personal
laboratory systems use chips with reservoirs for the various chemical reagents,
which the user introduces manually. Our high throughput systems use our Sipper
chips that have a short glass tube, or capillary, that draws nanoliter volumes
of reagents into the chip.

  Personal Laboratory Systems

<TABLE>
<CAPTION>
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       PRODUCT                           DESCRIPTION                           STATUS
--------------------------------------------------------------------------------------------
<S>                       <C>                                           <C>
 Agilent 2100             Desktop LabChip instrument and software       Marketed by Agilent
 Bioanalyzer
--------------------------------------------------------------------------------------------
 DNA 7500 LabChip Kit     Chips and reagents for analyzing small DNA    Marketed by Agilent
                          fragments
--------------------------------------------------------------------------------------------
 DNA 12000 LabChip Kit    Chips and reagents for analyzing large DNA    Marketed by Agilent
                          fragments
--------------------------------------------------------------------------------------------
 RNA 6000 LabChip Kit     Chips and reagents for analyzing RNA          Marketed by Agilent
                          samples
--------------------------------------------------------------------------------------------
 New LabChip Kits         A series of kits containing chips and         In development
                          reagents for applications in molecular and
                          cell biology
--------------------------------------------------------------------------------------------
</TABLE>

     Agilent 2100 Bioanalyzer System. Our first personal laboratory system is
based on the Agilent 2100 Bioanalyzer, a desktop instrument designed to perform
a wide range of everyday scientific applications using a menu of different
LabChip kits. Each kit contains a chip and reagents designed specifically for
the application. This LabChip system brings the benefits of miniaturized,
integrated and automated experimentation to the researcher's desktop. Agilent
launched this product in September 1999, and has only recently begun its
marketing and selling efforts of this system.

     Agilent is selling the Agilent 2100 Bioanalyzer with an initial menu of
three LabChip kits for DNA and RNA sizing and concentration analysis. For these
initial applications, we believe the system's principal advantages are that it:

     - reduces analysis time from hours to minutes

     - integrates several experimentation steps into one

     - significantly reduces consumption of costly reagents

     - produces higher quality data than conventional methods

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

     We are developing new applications involving analysis of protein and cells,
as well as additional applications involving DNA and RNA analysis. We believe
that protein and cell applications on the Agilent

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2100 Bioanalyzer may be particularly attractive to researchers in those
disciplines because their existing tools are generally less advanced than those
available to genetic researchers.

  High Throughput Systems

<TABLE>
<CAPTION>
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           PRODUCT                         DESCRIPTION                      STATUS
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<S>                               <C>                              <C>
 Caliper 110 Sipper System        High throughput LabChip          Direct sales to customers
                                  instrument and software for
                                  single capillary Sipper chips
--------------------------------------------------------------------------------------------
 Fluorogenic Assay Sipper Chip    Sipper chip for screening        Direct sales to customers
                                  several types of enzyme and
                                  protein receptor targets
--------------------------------------------------------------------------------------------
 Mobility Shift Assay Sipper      Sipper chip for screening        Direct sales to customers
 Chip                             other types of enzyme and
                                  protein receptor targets
--------------------------------------------------------------------------------------------
 Assay Development Station        Instrument system and            Direct sales to customers
                                  software for developing
                                  LabChip experimental methods
--------------------------------------------------------------------------------------------
 Assay Development Chips          Chips for use with the assay     Direct sales to customers
                                  development station
--------------------------------------------------------------------------------------------
 Cell-based Assay Sipper Chip     Sipper chip for screening        In development
                                  cell receptor targets
--------------------------------------------------------------------------------------------
 Dilutor Sipper Chips             Sipper chips that do sample      In development
                                  preparation and screening on
                                  the same chip
--------------------------------------------------------------------------------------------
 Caliper 220 Sipper System        Ultra high throughput LabChip    In development
                                  instrument and software for
                                  multiple capillary Sipper
                                  chips
--------------------------------------------------------------------------------------------
 Multi-capillary Sipper Chips     Multiple capillary versions      In development
                                  of the Sipper chips described
                                  above
--------------------------------------------------------------------------------------------
</TABLE>

     Our high throughput systems are being designed to perform thousands or tens
of thousands of pharmaceutical experiments per day on each Sipper chip.

     Caliper 110 Sipper System. Our first high throughput system is based on the
Caliper 110, which uses a Sipper chip with a single capillary. Like the Agilent
2100 Bioanalyzer, the Caliper 110 is designed to perform a wide range of
experiments using a menu of different chips. We currently offer two Sipper chips
used for performing drug screening experiments for several classes of enzymes.
High throughput enzyme experiments are among the most common experiments used in
primary drug screening. Some of the reagents used in these experiments are
expensive and it can take months to produce them in the quantities required for
conventional screening systems. We believe the principal advantages of the
Caliper 110 are that it:

     - reduces costly reagent consumption up to 100,000-fold

     - integrates multiple experimental functions

     - reduces the need for user intervention

     - produces higher data quality than conventional methods

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     We expect to add several more Sipper chips enabling our technology access
program customers to use the Caliper 110 for a significant percentage of the
types of experiments they run. Another important advantage of the Caliper 110 is
that it can be used not only for primary screening but also for lead
optimization. Furthermore, the Caliper 110 is compact and could be placed in
locations outside the centralized screening group, allowing for more efficient
drug development efforts.

     Caliper 220 Ultra High Throughput System. We expect to increase throughput
by increasing the number of channels and capillaries on each chip. We intend to
introduce chips with four and then eight or more capillaries per chip and to
enable customers to effectively utilize multiple instruments by providing
integrated plate handling capabilities. We are currently testing a prototype of
our Caliper 220 ultra high throughput instrument and expect to offer this
product to technology access program customers in 2000. In this way, we expect
to offer systems that can perform more than 100,000 experiments per day.

     We are also working to integrate compound storage and sample preparation
into our screening systems. These activities represent major expenses for
pharmaceutical companies. We believe that our LabChip systems can offer dramatic
cost reductions in these areas. We intend to offer a Sipper chip which can
dilute compounds on the chip prior to performing the screening experiment, or
"assay." We expect that this will reduce the amount of expensive compounds used
by approximately 1,000-fold and eliminate the major expense of diluting
thousands of compounds in wells. The next integration step will be to enable
researchers to place entire compound libraries onto our proprietary LibraryCard
reagent array, and then dilute and access compounds using the capillary of our
Sipper chips. For a description of our LibraryCard reagent array program, see
"-- Research and Development."

     We sell our current high throughput systems to technology access program
customers and provide training and support. We also develop initial assays for
them and offer some level of customization in order to integrate our systems
most effectively into each customer's production processes.

     We sell assay development systems to our technology access program
customers so that they can modify experimental conditions used with our standard
assay chips to be suitable for each new pharmaceutical target. This process is
comparable to the assay development they already carry out with existing
screening systems, which typically takes several weeks to a few months. In fact,
we believe that the process likely will be accelerated and improved using
chip-based systems.

  Services

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
SERVICE                                 DESCRIPTION                        STATUS
--------------------------------------------------------------------------------------------
<S>                             <C>                             <C>
  Value Added Screening         Assay development, compound     Direct sales to customers
  Collaborations                leasing and screening
                                services for customers'
                                pharmaceutical targets
--------------------------------------------------------------------------------------------
</TABLE>

     We are using our high throughput systems internally to offer screening
services to pharmaceutical and biotechnology customers that prefer to outsource
this activity. Under our value added screening collaboration program, we develop
LabChip assays for targets selected by a customer. We then screen the targets
against the customer's compound library, our own library, or both, and provide
the data to the customer.

     We believe that our screening services also add substantial value to our
product businesses. We deploy our most advanced high throughput screening
systems in our internal screening services operation. By making intensive use of
those systems in this business, we can provide critical feedback to our product
development groups. This accelerates development and enables us to deliver
better systems to our technology access program customers. We also intend to use
our screening services capability to demonstrate to potential technology access
program customers how our LabChip systems can streamline screening operations
and enhance productivity.

                                       10
<PAGE>   11

COMMERCIALIZATION

     We currently are commercializing our first personal laboratory system, the
Agilent 2100 Bioanalyzer system, through our collaboration with Agilent. We are
also directly selling our high throughput systems through our technology access
program and are providing high throughput screening services through our value
added screening collaboration program.

  Strategic Alliance with Agilent

     We have established a broad relationship with Agilent to create a line of
commercial research products based on our LabChip technologies. This
relationship provides us with the scale and expertise of a leading analytical
instrumentation company to bring these novel products to market. When this
relationship was established in May 1998, Agilent and Caliper publicly stated
their intention to invest over $100 million collectively to create and
commercialize this line of products over the ensuing five years. In September
1999, Agilent introduced the Agilent 2100 Bioanalyzer with three different
LabChip kits, our first LabChip products under this agreement.

     In this collaboration, Caliper primarily focuses on developing core
technology and LabChip applications. We also manufacture the chips and supply
the chips and reagents to Agilent. If we elect, however, not to manufacture
chips for a LabChip application or we are unable to meet minimum supply
commitments to be mutually established in the future, Agilent would have the
right to manufacture those chips. Agilent primarily focuses on developing
instruments and software, manufacturing instruments, and marketing, selling and
supporting complete systems. Agilent has the contractual right to develop the
marketing plan under the collaboration, although to date we and Agilent have
made these decisions in a collaborative manner.

     Agilent funds our product development efforts under the collaboration,
reimburses our costs of supplying chips and reagents, and pays us a share of the
gross margin on all components of LabChip systems. The gross margin share varies
depending on the type of collaboration product, whether we or Agilent
manufacture the collaboration product, and whether the collaboration product is
sold during the collaboration or after the collaboration has terminated. These
financial arrangements allow us to offset a portion of the substantial risks
inherent in introducing novel technologies. At the same time, they enable us to
support a broad product development program and to retain a substantial
financial interest in the products we create.

     Our agreement with Agilent is mutually exclusive in the field of
lab-on-a-chip technologies for the research products market. It requires our
consent before Agilent may offer products exceeding established sample
throughput limits, and it requires Agilent's consent before we may offer these
products outside the collaboration in excess of established volume limitations.

     The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet annual funding requirements, in
which case either party may terminate the agreement. In any event either party
may terminate the agreement after five years. If the agreement terminates after
three years, we will continue to offer the collaboration's products through
Agilent but Agilent will have no rights to our technologies for the development
of new products. If either party terminates the agreement after five years, we
will grant Agilent a non-exclusive license to use the lab-on-a-chip technologies
that we have developed up to that time in order to develop new products in
substantially the same field that applied during the collaboration. We will also
transfer chip manufacturing know-how and receive royalties on Agilent's sales of
systems that employ our patented technologies. Regardless of whether the
collaboration terminates after three or five years, both Caliper and Agilent
will have the right to sell collaboration products, with reciprocal supply
arrangements.

  Technology Access Program

     Our technology access program is initially focused on high throughput
systems for drug screening. In this program, we work directly with
pharmaceutical company customers during the product development process to
create successive generations of products. We provide technology access program
customers with early access to new products, and offer technical training,
support and customization services. By working closely

                                       11
<PAGE>   12

with these customers, we focus our technology and product development efforts
where we believe they can have maximum impact for the pharmaceutical
marketplace.

     Our technology access program customers have non-exclusive access to all of
the high throughput screening products we offer during the term of the
agreement. These agreements generally provide for customers to pay an up-front
license fee and annual subscription fees, and to reimburse us for our costs of
providing development and support services. Instruments and chips are generally
sold separately on a product-by-product basis, although some agreements
establish prices for critical instruments or estimates of the price we will
charge them for Sipper chips based on the amount of data they generate. Our
technology access program customers can terminate their participation in the
program and still have the right to purchase those products that we offered to
them during their participation in the program.

     We currently have three technology access program customers for our high
throughput screening systems: Eli Lilly, Amgen, and Hoffmann-La Roche. Our
agreements with these customers generally contain the terms described above. Key
terms unique to each agreement are described below.

     Eli Lilly. We signed our most recent technology access agreement with Eli
Lilly in August 1999. The term is three years, although Eli Lilly may
temporarily suspend its technology access program participation and later
reinitiate participation, during which time our support and assistance
obligations will also be suspended. Under this agreement our obligations include
support for assay development for targets, training for Eli Lilly personnel, and
support for custom development projects. Eli Lilly may terminate the agreement
on any anniversary.

     Amgen. We entered into a technology access agreement with Amgen in December
1998. Under this agreement, Amgen may delay payment of its second annual
subscription fee until we have delivered an initial ultra high throughput
system. The term of this agreement is three years, although Amgen may terminate
the agreement on any anniversary or if we fail to deliver the ultra high
throughput screening system in a timely manner.

     Hoffmann-La Roche. We entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This
agreement may be extended by mutual consent and supersedes an earlier agreement
under which Roche funded early development of the high throughput screening
technology in exchange for exclusive rights to an ultra high throughput
screening system. Roche now has non-exclusive rights similar to other technology
access program customers. We did not receive an up-front license fee or annual
subscription fee from Hoffmann-La Roche.

  Value Added Screening Collaboration Program

     In our value added screening collaboration program we offer high throughput
screening services using our LabChip systems. This can enable smaller companies
that may not be able to afford to participate in our technology access program
to take advantage of our high throughput systems in the early phases of
commercialization. Our first value added screening collaboration agreement was
established with Neurocrine Biosciences in December 1998. We receive screening
fees based on the amount of data generated, preclinical milestones and royalties
on Neurocrine products emerging from the collaboration. This agreement has a
three-year term, but may be terminated by either party under limited
circumstances after the first year.

TECHNOLOGY

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

  Microfabrication

     We create lab-on-a-chip devices using the same manufacturing methods that
are used to make microchips in the computer industry called "microfabrication."
Microfabrication makes it possible to create intricate designs of interconnected
channels that are extremely small. Each pattern is designed to produce the
series of fluid manipulation steps that will execute an experiment. We use the
principles of fluid dynamics, chemical and electrical engineering and biophysics
to create initial designs using computer-aided design tools.
                                       12
<PAGE>   13

Because we have designed, manufactured and tested hundreds of different chips,
we have developed proprietary design rules that make each round of chip creation
more predictable and likely to succeed. We design our chips to be disposable and
relatively inexpensive to manufacture. We place the more expensive electronic
controls and sensing capability in a separate instrument.

     Once a design pattern is completed, we use microchip manufacturing methods
to recreate the design as channels in a sheet of quartz, glass or plastic. This
process creates highly precise channels with dimensions that can be varied by
width and depth. A typical channel is roughly 50 microns wide and 10 microns
deep, approximately the size of a strand of hair.

     In the next step, a second sheet of quartz, glass or plastic with a precise
pattern of holes is fused to the first sheet using a proprietary process. This
covers the channels and converts them to closed microfluidic conduits. The end
of each channel connects to an open reservoir through which fluids are
introduced. The sheets are then cut into individual chips, which can be less
than one inch to a few inches on a side. The individual chips are then packaged
into plastic holders that make them easier for the user to handle.

     We currently make two basic chip formats. In our planar chips, such as
those used in the Agilent 2100 Bioanalyzer, the user introduces all of the
chemical reagents into the reservoirs, including the various samples to be
tested, using pipets. In our Sipper chips, such as those used in the Caliper
110, a small glass tube, or capillary, inserted into the chip draws a few
nanoliters of each sample into the channel network. In this way, minute
quantities of a large number of samples can be tested in a single chip. The
samples are introduced into the capillary one after the other, spaced by buffer
solution. They proceed through the channel network in a continuous flow,
assembly-line fashion to perform a complete experiment. We have an issued U.S.
patent claiming this assay technique.

  Microfluidics

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

     Electrokinetic flow is generated when electrodes attached to
computer-driven power supplies are placed in the reservoirs at each end of a
channel and activated to generate electrical current through the channel. Under
these conditions, fluids of the appropriate type will move by a process known as
"electro-osmosis." Typical flow rates within the channel are about a millimeter
per second and the flow rate can be controlled with a high degree of precision.
Programs can then be written to generate highly specific and complex networks of
flow. One key to designing complex systems is controlling and directing the flow
at intersections. Fundamental techniques for accomplishing this were invented by
Dr. J. Michael Ramsey, one of our co-founders and a member of our Scientific
Advisory Board, and are covered by a series of issued and pending U.S. patent
applications. We hold an exclusive license to these patents for most
applications and a non-exclusive license for remaining applications.

     Another electrokinetic phenomenon known as "electrophoresis" occurs in the
channels. This is the movement of charged molecules or particles in an electric
field. Electrophoresis is often used in conventional laboratories for analyzing
molecules since they move differently according to their physical make-up.
Electrophoresis can be used to move molecules in solution, or to separate
molecules with very subtle differences. Electrophoresis and electro-osmosis
generally occur at the same time in channels. However, we have developed
proprietary techniques for minimizing either force while maintaining the other,
as appropriate, for a given application.

     Pressure can also be used to move fluid in the channels. On the
microfluidic scale, small amounts of pressure produce highly predictable and
reproducible fluid flow. We use both computer-controlled pressure and
electrokinetic forces to gain precise control over fluid flow in the
microfluidic channel network. It is possible to use electrokinetic forces alone,
pressure forces alone, or a combination of the two methods.

                                       13
<PAGE>   14

  Lab-on-a-Chip 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
experiment 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 at making experiments work in our chips.
Currently, all of our systems use fluorescent chemical reagents and optical
detection instruments to read experimental results. We often need to explore
chemical strategies for labeling relevant reagents that can reveal how different
molecular interactions take place. Another area of investigation addresses the
fact that in these small dimensions, the amount of channel surface material
relative to the amount of liquid is many times higher than in a test tube or
microwell plate. Because of this, the surface material can exert a chemical
influence on the biochemical reactions taking place. We have created strategies
to avoid the problems this can cause, or benefit from it if possible. We have
developed Sipper chips that perform and analyze 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. We have also found that, in many cases,
fluorescence polarization spectroscopy, an optical detection method that can
determine the proportion of a fluorescent molecule that is attached to a larger
molecule or is unbound in solution, can be used to read reaction results without
needing to electrophoretically separate the biochemicals. We have built this
optical detection capability into our high throughput systems. In general, our
experience is that microfabrication and microfluidics provide a rich tool set
with which to create innovative new applications.

RESEARCH AND DEVELOPMENT

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

  Technology Research

     Our technology research activities fall into several classes.

     Chemical Engineering. We are increasing our understanding of the design
rules guiding the development of new chips. Using the principles of chemical
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 high throughput experimentation, the
number of capillaries and channels determines the level of throughput.
Accordingly we are developing high yield fabrication methods to enable us to
cost-effectively manufacture chips with many capillaries to perform ultra high
throughput experimentation.

     Engineering and Software. We use the skills of electrical engineers,
optical engineers, mechanical engineers, product designers and software
engineers to create new instrumentation to run our chips. These instruments
control fluid movement inside the chip, present the reagents to the chip from
conventional fluid

                                       14
<PAGE>   15

sources, and detect the results of biochemical or cell-based experiments with
optical methods. Software engineers write computer programs that control the
sources of fluid motion, communicate between different instrument components and
interpret signals from the detection system. Currently we develop the software
for our high throughput systems. We collaborate with Agilent to develop software
for our personal laboratory systems.

  Product Development

     Our product development efforts are currently focused on new applications
and capabilities for our existing instruments, our LibraryCard system, and high
throughput genomic systems.

     Extensions of Existing Product Lines. For each of our first generation
instruments, we are expanding the menu of applications to address other stages
of the pharmaceutical development process. For the Agilent 2100 Bioanalyzer, we
intend to introduce new applications that address everyday productivity needs in
many areas of genomics, protein chemistry and cell biology. We are broadening
the application menu for high throughput systems as well to include assays that
measure many important activities of cells and proteins.

     LibraryCard System. We are developing a new format for storing and
accessing reagents, which we call the LibraryCard reagent array. We have learned
how to reconstitute very small quantities of dried reagents stored at high
density on a planar surface. We can conveniently access reagents stored in this
way using our Sipper chips. The LibraryCard reagent array could produce a
fundamental change in the way large libraries of reagents are used. Today, these
libraries are only accessible in centralized reference-style laboratories that
can conveniently work with automated warehouses of reagents. When libraries can
be reduced to the size of a postcard, high throughput experimentation involving
massive data acquisition can be decentralized. We believe that this will
increase the size of the market for applications that run on this type of
system. We believe this type of system could significantly impact several stages
of the pharmaceutical development process, particularly primary screening and
pharmacogenetic studies.

     Genomics. Genomics is the high throughput analysis of DNA and RNA. Genomics
applications include sequencing DNA and DNA genotyping. Genotyping is the
determination of the DNA sequence variation present at a particular site in an
individual's DNA. One type of these variations, called single nucleotide
polymorphisms or "SNPs," are believed to be important determinants of disease.
Like all experimentation processes, these applications are a combination of
various fluid manipulations, biochemical reactions, molecular separations and
detection. We believe they can be performed on the same basic high throughput
platform we have built for other applications. In early 1999, we began a
project, funded in part by the Advanced Technology Program of the National
Institute of Standards and Technology, to adapt the platform and develop chips
to run high throughput nucleic acids analyses. While the specific aim of the
program is to develop a diagnostics system, the first commercial products to
emerge from the technology could be genomics products, such as a system for high
throughput SNP genotyping. Our goal is to apply lab-on-a-chip technology to some
of the most important areas of biology today and emerging areas such as genetic
analysis for pharmacogenetics.

     Our research and development expenses for the years ended 1999, 1998 and
1997 were approximately $18.4 million, $9.6 million and $7.2 million,
respectively. We intend to increase our research and development budget and
staffing levels during the remainder of 2000. As of December 31, 1999, we had 75
employees engaged in research and development, including 45 with advanced
degrees.

MANUFACTURING

     We manufacture our chips in-house and are currently manufacturing high
throughput instruments in limited volumes. We rely upon Agilent to manufacture
the Agilent 2100 Bioanalyzer. Our high throughput instruments are generally
integrated with plate stacking and handling units offered commercially by other
companies. We contract with third parties to supply most reagents for the
research products business. We currently depend on suppliers to supply prepared
materials for use in the manufacture of chips. We intend to continue and may
extend the subcontracting of portions of our manufacturing processes to
subcontractors where we feel it best leverages the supplier's manufacturing
experience, costs, and/or improves our ability to
                                       15
<PAGE>   16

meet customer demands. For a discussion of the methods we use to manufacture our
chips see "-- Technology" and "-- Research and Development."

COMPETITION

     Although we believe that we are currently the only company selling and
delivering lab-on-a-chip products to customers, we expect to encounter intense
competition from a number of companies that offer products for laboratory
experimentation. We anticipate that our competitors will come primarily from the
following two sectors:

     - companies providing conventional products based on established
       technologies

     - companies developing their own microfluidics or lab-on-a-chip
       technologies

     In order to compete against vendors of conventional products, we will need
to demonstrate the advantages of our LabChip products over alternative
well-established technologies and products. We will also need to demonstrate the
potential economic value of our LabChip products relative to these conventional
technologies and products. Some of the companies that provide these products
include PE Corp., Agilent, Beckman-Coulter, Amersham Pharmacia Biotech, Bio-Rad
Laboratories, Molecular Devices, and LJL BioSystems.

     We will also need to compete effectively with companies developing their
own microfluidics or lab-on-a-chip technologies and products, such as Aclara
Biosciences and Orchid Biocomputer. Other companies known to have initiated
microfluidic programs include Motorola, 3M and PE Corp. 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 if they, or we, terminate our agreement after May 2003. Under the
terms of our agreement, upon termination we will grant to Agilent a
non-exclusive license to our LabChip technologies as then developed for use in
the research products field.

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

INTELLECTUAL PROPERTY

     We seek patent protection on our lab-on-a-chip technologies. As of March 1,
2000, we owned or held licenses to 47 issued U.S. patents and 130 pending U.S.
patent applications, some of which derive from a common parent application. The
issued U.S. patents expire between 2012 and 2017. 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 390 issued patents and
pending patent applications in the United States and foreign countries. Our
issued patents expire between 2012 and 2017. 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

                                       16
<PAGE>   17

     - analytical system architecture

     - chip-based assay chemistries and methods

     - chip compatible sample accession

     - software for control of microfluidic based systems and data analysis

     - 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 an exclusive license in the fields we are currently operating in from
Lockheed Martin Energy Research Corporation, relating to patents covering
inventions by Dr. J. Michael Ramsey. A failure to maintain some or all of the
rights to these technologies could seriously harm our business.

EMPLOYEES

     As of December 31, 1999, we had a total of 118 employees, including 75 in
research and development, 19 in manufacturing and 24 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

     Daniel L. Kisner, M.D., has served as our President and Chief Executive
Officer since February 1999 and 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, Inc. 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 an M.D. from
Georgetown University.

     Calvin Y. H. Chow, co-founded Caliper and has served as our Chief Operating
Officer since February 1998. Mr. Chow also served as our Vice President of
Development from September 1995 to February 1998. From October 1985 to September
1995, Mr. Chow served as Vice President of Engineering and Operations of
Molecular Devices Corporation, a bioanalytical instrumentation company, where he
was responsible for product development and company-wide manufacturing. Mr. Chow
holds a B.S. in Electrical Engineering from Illinois Institute of Technology and
an M.S. in Electrical Engineering from Stanford University.

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

                                       17
<PAGE>   18

     Michael R. Knapp, Ph.D., co-founded Caliper and has served as our Vice
President of Science and Technology since September 1995. From November 1994
through August 1995, Dr. Knapp was engaged in activities related to forming
Caliper, including securing our core technology license and procuring financing.
From October 1988 to October 1994, Dr. Knapp served as President and Scientific
Director at Molecular Tool, Inc., a genetics technology company he co-founded in
1988. Previously, Dr. Knapp was on the staff of the Center for Neurobiology and
Behavior at Columbia University and was a Scientific Director of Genetica SARL,
an affiliate of Rhone Poulenc SA in Paris, France. Dr. Knapp holds a B.S. in
Biology from Trinity College (Hartford) and a Ph.D. in Medical Microbiology from
Stanford University.

     J. Wallace Parce, Ph.D., co-founded Caliper and has served as our Vice
President of Research since October 1995. Prior to joining Caliper, Dr. Parce
spent 12 years with Molecular Devices Corporation as a founder, consultant,
Director of Research and Vice President of Research. From 1980 until 1984 he was
an Assistant Professor in the Department of Biochemistry at Wake Forest
University, from 1982 until 1987 an associate in the Department of Microbiology
and Immunology, and from 1984 until 1987, an Associate Professor of
Biochemistry. Dr. Parce received his B.A. in Chemistry from Western Maryland
College in 1972 and his Ph.D. in Biochemistry from Wake Forest University in
1976. From 1976 until 1980 Dr. Parce was a Post Doctoral Fellow in Chemistry at
Stanford University.

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

SCIENTIFIC ADVISORY BOARD

     We have assembled a group of scientific advisors who are leaders in fields
related to microfluidics technology and systems. These advisors assist us in
formulating our research, development and commercialization strategy and
include:

George Whitesides, Ph.D., Chair, Mallinckrodt Professor of Chemistry at Harvard
University and Member of the National Academy of Sciences. Dr. Whitesides is the
Chairman of our Scientific Advisory Board.

J. Michael Ramsey, Ph.D., a co-founder of Caliper and Corporate Research Fellow
and Head of the Laser Spectroscopy and Microinstrumentation Group in the
Chemical and Analytical Sciences Division at Oak Ridge National Laboratory.

Robert H. Austin, Ph.D., Professor of Physics at Princeton University.

Charles P. Cantor, Ph.D., Professor of Biomedical Engineering and Biophysics at
Boston University, and Member of the National Academy of Sciences.

George Church, Ph.D., Senior Investigator at the Howard Hughes Medical Institute
at Harvard Medical School.

Jed Harrison, Ph.D., Professor of Analytical Chemistry at the University of
Alberta.

Richard Haugland, Ph.D., President and Corporate Research Director of Molecular
Probes, Inc.

James W. Jorgenson, Ph.D., Francis P. Venable Professor of Chemistry at the
University of North Carolina.

Barry Karger, Ph.D., James L. Waters Chair in Analytical Chemistry and Director
of the Barnett Institute of Chemical Analysis and Materials Science at
Northeastern University, Boston, Massachusetts.

Butrus T. Khuri-Yakub, Ph.D., Professor of Electrical Engineering at the E.L.
Ginzton Laboratory of Stanford University.

                                       18
<PAGE>   19

Andreas Manz, Ph.D., SmithKline Beecham Chair of Analytical Chemistry at the
Imperial College of Science, London.

Stephen D. Senturia, Ph.D., Barton L. Weller Professor of Electrical Engineering
at the Massachusetts Institute of Technology.

Christopher T. Walsh, Ph.D., Hamilton Kuhn Professor of Biological Chemistry and
Molecular Pharmacology at Harvard Medical School and Member of the National
Academy of Sciences.

ITEM 2. PROPERTIES

     Our principal research and development, manufacturing and administrative
facilities are currently located in approximately 53,000 square feet of leased
space in Mountain View, California. The lease for this space will expire in
December 2008. We believe that our current facilities are adequate for our needs
through the third quarter of 2000, and we are currently seeking additional
facilities to meet our future needs. If we are unable to locate additional
facilities, we will be required to delay our planned expansion. Any facilities
that we are able to locate and lease may be on terms that are expensive to us,
especially since we are located in the Silicon Valley in California where such
facilities are in short supply and lease rates are high.

ITEM 3. LEGAL PROCEEDINGS

     On March 22, 1999, we filed a lawsuit in California Superior Court for the
County of Santa Clara (Case No. CV 780743), against Aclara Biosciences Inc., a
patent attorney named Bertram Rowland and the law firm of Flehr, Hohbach, Test,
Albritton and Herbert LLP, alleging that all three defendants misappropriated
our trade secrets relating to our business plans, patents and intellectual
property strategy. The suit also alleges that Mr. Rowland and Flehr Hohbach
committed a breach of the duties they owed to us as our former attorneys. The
suit seeks damages and equitable remedies to prevent Aclara, Mr. Rowland and
Flehr Hohbach from benefiting from the alleged misappropriation and breach of
duties. On January 12, 2000, we filed a lawsuit in the United States District
Court for the Northern District of California against Aclara (Case No.
C-00-0145CRB(JCS)) alleging that Aclara is infringing four U.S. patents that
have been licensed to us by Lockheed Martin Energy Research Corporation, which
operates the Department of Energy's Oak Ridge National Laboratory where the
inventions were made. These patents cover technology for controlling the flow of
materials in microfluidic chips, as well as devices, systems and applications
that make use of this technology. We recently amended this complaint to allege
that Aclara is infringing another patent we have licensed covering technology
for controlling the flow of materials in microfluidic chips. While we believe
that our complaints against Aclara and these others are meritorious, we cannot
assure you that we will prevail in our actions against any or all of the
defendants, or that if we prevail, the damages or equitable remedies awarded, if
any, will be commercially valuable. Furthermore, we have incurred and are likely
to continue to incur substantial costs and expend substantial personnel time in
pursuing our claims against Aclara, Mr. Rowland and Flehr Hohbach.

     On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California (Case No. C-99-1968BZ)
alleging that we are making, using, selling or offering for sale microfluidic
devices that infringe United States Patent Number 5,750,015 in willful disregard
of Aclara's patent rights. This patent concerns methods and devices for moving
molecules by the application of electrical fields. The Aclara action seeks
damages for past and future reduced sales or lost profits based upon the making,
using, selling and offering for sale of our products and processes, and seeks to
enjoin our continued activities relating to these products. This action subjects
us to potential liability for damages, including treble damages, and could
require us to cease making, using or selling the affected products, or to obtain
a license in order to continue to manufacture, use or sell the affected
products. While we believe we have meritorious defenses to this action, we
cannot assure you that we will prevail in this action nor can we assure you that
any license required would be made available on commercially acceptable terms,
if at all. Furthermore, we have incurred and are likely to continue to incur
substantial costs and expend substantial personnel time in defending against the
claims filed by Aclara. Failure to successfully defend ourselves against the
Aclara action could have a material adverse effect on our business, financial
condition and operating results. For further

                                       19
<PAGE>   20

information on the risks associated with this litigation see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Operating Results -- We are involved in
intellectual property litigation with Aclara Biosciences that may hurt our
competitive position, may be costly to us and may prevent us from selling our
products."

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

     In November 1999 we submitted an information statement to our stockholders
in connection with our initial public offering asking them to approve certain
matters. By action taken by written consent effective as of November 18, 1999,
our stockholders approved each of these matters, as set forth below. As of the
record date for taking such actions, we had outstanding 24,672,319 shares of our
common stock, calculated on an as-if-converted to common stock basis, prior to
giving effect to our 1-for-1.56 reverse stock split of our common stock. We did
not receive written consents from each stockholder. Set forth below are each of
the matters voted upon and the results of the voting from the stockholders that
returned written consents to us:

        A.   Approval of the Certificate of Amendment to the Certificate of
             Incorporation to effect the 1-for-1.56 reverse stock split:

Approved:    20,811,441
Disapproved:  0

        B.   Approval of the Amendment and Restatement of our Certificate of
             Incorporation to be effective following our initial public
             offering:

Approved:    20,803,441
Disapproved:  8,000

        C.   Approval of the Amendment and Restatement of our Bylaws:

Approved:    20,803,441
Disapproved:  8,000

        D.  Approval of the form of Indemnity Agreement to be entered into with
            our Directors and Executive Officers:

Approved:    20,807,441
Disapproved:  4,000

        E.   Approval of Adoption of our 1999 Non-Employee Directors' Stock
             Option Plan:

Approved:    20,811,441
Disapproved:  0

        F.   Approval of Adoption of our 1999 Employee Stock Purchase Plan:

Approved:    20,811,441
Disapproved:  0

        G.  Approval of Adoption of our 1999 Equity Incentive Plan:

Approved:    20,811,441
Disapproved:  0

                                       20
<PAGE>   21

                                    PART II

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

MARKET FOR REGISTRANT'S COMMON EQUITY

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

<TABLE>
<CAPTION>
                                                      HIGH      LOW
                                                     ------    ------
<S>                                                  <C>       <C>
FISCAL 1999:
Fourth Quarter (December 15 to 31, 1999)...........  $73.00    $27.81
</TABLE>

     As of December 31, 1999, there were approximately 161 holders 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 and do not anticipate paying any cash dividends in the
foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     The number of shares and price per share presented below have been adjusted
to reflect a 1-for-1.56 reverse stock split. Since January 1, 1999, Caliper has
sold and issued the following unregistered securities:

          (1) From January 1, 1999 through December 31, 1999, we granted stock
     options to purchase 1,728,454 shares of our common stock, at exercise
     prices ranging from $.97 to $14.00 per share, to employees, consultants and
     directors pursuant to our 1999 Equity Incentive Plan.

          (2) From January 1, 1999 through December 31, 1999, we issued 389,638
     shares of our common stock, at prices ranging from $.06 to $.97 per share,
     to employees, consultants and directors pursuant to outstanding stock
     options to purchase shares of our common stock.

          (3) From January 1999 to February 1999, we issued 122,986 shares of
     common stock at $0.36 per share for an aggregate of $44,275 pursuant to the
     exercise of stock options previously granted outside of our stock option
     plans.

          (4) From May 1999 to August 1999, we issued 9,294 shares of common
     stock to 3 individuals for services rendered to Caliper, with an aggregate
     value of $83,180.

     The sales and issuances of securities described in paragraphs (1), (2) and
(4) above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 701 promulgated thereunder in that they were offered and sold
either pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.

     The sale and issuance of securities described in paragraph (3) above were
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) and/or Regulation D promulgated thereunder.

USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES

     Our initial public offering of Common Stock was effected through a
Registration Statement on Form S-1 (File No. 333-88827) that was declared
effective by the SEC on December 14, 1999 and pursuant to which we sold all
5,175,000 shares of our Common Stock registered. We expect to use the net
proceeds of $75.9 million in our research and development efforts, product
development activities, intellectual property protection and general corporate
activities. At December 31, 1999, we had applied none of these net offering
proceeds.

     Our initial public offering was completed after all of the shares of Common
Stock that were registered were sold. The managing underwriters in the offering
were Credit Suisse First Boston Corporation, CIBC

                                       21
<PAGE>   22

World Markets Corp. and Hambrecht & Quist LLC. The aggregate offering price of
the 5,175,000 shares registered and sold was $82.8 million. Of this amount, $5.8
million was paid in underwriting discounts and commissions, and an additional
$1.1 million of expenses was incurred through December 31, 1999. None of the
expenses were paid, directly or indirectly, to directors, officers or persons
owning 10 percent or more of our common stock, or to our affiliates.

ITEM 6. SELECTED FINANCIAL DATA

     The statements of operations data for each of the years ended December 31,
1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and
1999, have been derived from our audited financial statements included elsewhere
in this Annual Report on Form 10-K which have been audited by Ernst & Young LLP,
independent auditors. The statement of operations data for the year ended
December 31, 1996 and the balance sheet data as of December 31, 1996 and 1997
have been derived from our audited financial statements not included in this
Annual Report on Form 10-K. The statements of operations data for the period
from inception (July 26, 1995) through December 31, 1995 and the balance sheet
data at December 31, 1995 have been derived from our unaudited 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 have been derived from financial statements
that have been prepared in accordance with generally accepted accounting
principles and 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.

<TABLE>
<CAPTION>
                                                PERIOD FROM
                                                 INCEPTION
                                              (JULY 26, 1995)
                                                  THROUGH              YEAR ENDED DECEMBER 31,
                                               DECEMBER 31,     --------------------------------------
                                                   1995          1996      1997      1998       1999
                                              ---------------   -------   -------   -------   --------
                                                (UNAUDITED)     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>               <C>       <C>       <C>       <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.....................................      $   --        $   132   $ 2,266   $ 8,155   $ 12,087
Costs and expenses:
  Research and development..................         406          2,734     7,200     9,584     18,415
  General and administrative................         128          1,240     2,478     2,932      5,312
  Amortization of deferred stock
     compensation...........................          --             --        --        --      3,885
  Acquired in-process research and
     development............................          --            978        --        --         --
                                                  ------        -------   -------   -------   --------
Total costs and expenses....................         534          4,952     9,678    12,516     27,612
                                                  ------        -------   -------   -------   --------
Operating loss..............................        (534)        (4,820)   (7,412)   (4,361)   (15,525)
Interest income (expense), net..............          (2)           110     1,131     1,386      1,152
                                                  ------        -------   -------   -------   --------
Net loss....................................        (536)        (4,710)   (6,281)   (2,975)   (14,373)
Accretion on redeemable convertible
  preferred stock...........................          --           (262)   (1,470)   (2,174)    (2,328)
                                                  ------        -------   -------   -------   --------
Net loss attributable to common
  stockholders..............................      $ (536)       $(4,972)  $(7,751)  $(5,149)  $(16,701)
                                                  ======        =======   =======   =======   ========
Net loss per common share, basic and
  diluted...................................      $(1.71)       $ (3.90)  $ (4.38)  $ (2.39)  $  (4.56)
                                                  ======        =======   =======   =======   ========
Shares used in computing net loss per common
  share, basic and diluted..................         313          1,274     1,768     2,157      3,663
Pro forma net loss per share, basic and
  diluted...................................                                                  $  (0.92)
                                                                                              ========
Shares used in computing pro forma net loss
  per share, basic and diluted..............                                                    15,578
</TABLE>

                                       22
<PAGE>   23

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                  ------------------------------------------------------
                                                     1995        1996       1997       1998       1999
                                                  -----------   -------   --------   --------   --------
                                                  (UNAUDITED)         (IN THOUSANDS)
<S>                                               <C>           <C>       <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities....................................     $  40      $12,450   $ 26,549   $ 31,052   $100,216
Working capital.................................        74       11,783     24,679     21,604     68,310
Total assets....................................        83       13,112     29,107     35,730    108,847
Long-term obligations, less current portion.....        --          417      1,430      2,008      3,906
Redeemable convertible preferred stock..........        --       16,913     38,283     48,716         --
Total stockholders' equity (deficit)............      (536)      (4,986)   (12,665)   (17,654)    97,863
</TABLE>

     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.

     The financial data as of December 31, 1996 and for the year then ended
reflects the acquisition of ChemCore Corporation in February 1996. This
acquisition was accounted for as a purchase.

     See Note 1 of notes to our financial statements for an explanation of the
determination of the number of shares used in computing per share data.

                                       23
<PAGE>   24

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.

OVERVIEW

     We are a leader in lab-on-a-chip technologies that miniaturize, integrate
and automate many laboratory processes. We develop, manufacture and sell our
proprietary LabChip systems to pharmaceutical and other companies. We believe
our LabChip systems have the potential to assemble the power and reduce the
scale of entire laboratories full of equipment and people. From inception in
July 1995 through December 1999, our operating activities were primarily devoted
to research and development of technologies involving the manipulation of very
small amounts of fluid, which are referred to as "microfluidic technologies,"
and first-generation products such as the Agilent 2100 Bioanalyzer, LabChip kits
and our high throughput system, recruiting personnel, business development,
raising capital and acquiring assets. In 1999, we recognized revenue from our
first product sales when we sold initial versions of our high throughput system
for drug screening to our three technology access program customers. In
addition, in September 1999, Agilent, our commercial partner, introduced our
first LabChip system for use by individual researchers.

     Since our inception, we have incurred significant losses and, as of
December 31, 1999, we had an accumulated deficit of $35.1 million, which
includes $6.2 million of accretion on redeemable convertible preferred stock.
Our losses have resulted principally from costs incurred in research and
development, manufacturing scale-up, and from general and administrative costs
associated with our operations. We expect to continue to incur substantial
research and development, manufacturing scale-up, and general and administrative
costs. As a result, we will need to generate significantly higher revenue to
achieve profitability.

     Our quarterly operating results will depend upon many factors, including
market acceptance of our products, the success and timing of signing new
customers to our technology access program, the introduction of new products by
our competitors, the timing of commercial availability of new applications for
our LabChip technology, and the timing and extent of our research and
development efforts. For a more complete discussion of factors that could cause
our quarterly operating results to vary, see "-- Factors Affecting Our Operating
Results -- 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 revenue has been derived principally from contract revenue earned under
our collaboration agreement with Agilent and from our technology access program
customers. To a lesser extent, we have derived revenue from the sale of products
and government grants. Although we are developing and plan to introduce future
products, we cannot assure you that we will be successful in these efforts. To
date, we have generated a substantial portion of our revenue from a limited
number of sources. Two of our technology access program customers, Amgen and Eli
Lilly, and our commercial partner, Agilent, each accounted for in excess of 10%
of our revenue in the year ended December 31, 1999. Agilent alone accounted for
50% of our revenue in this period, and the two technology access program
customers collectively accounted for 38% of our revenue in this period.
Hoffmann-La Roche and Agilent each accounted for 40% of our revenue in the year
ended December 31, 1998, and Amgen accounted for 17% of our revenue in this
period. Hoffmann-La Roche alone accounted for 94% of our revenue in the year
ended December 31, 1997. Although we are seeking to expand our customer base, we
cannot assure you that these efforts will be successful.

     Under our agreement, Agilent funds our research and development
expenditures related to the collaboration, reimburses us for our costs of
supplying chips, and chemicals used in the experiment, which are
                                       24
<PAGE>   25

referred to as "reagents," to Agilent and pays us a share of the gross margin
earned on all components of LabChip systems they sell. We recognize revenue
related to research and development funding received from Agilent as we actually
conduct the related activities. We recognize revenue related to the
reimbursement of our costs of supplying chips and reagents to Agilent when we
ship these products. We expect to recognize revenue from our share of the gross
margin earned on all components of LabChip systems as Agilent ships these
products. Agilent has only recently begun marketing and sales efforts for the
Agilent 2100 Bioanalyzer. Sales of new and innovative instrumentation such as
the Agilent 2100 Bioanalyzer involve a long sales cycle, requiring customer
training and demonstration periods. As a result, to date Agilent has not sold a
significant number of Agilent 2100 Bioanalyzers, and it is too early for us to
predict market acceptance of this technology.

     Under our technology access program agreements, we recognize as revenue
non-refundable license fees upon the transfer of a license, subscription fees
over the term of the subscription, product sales upon the transfer of title to
the customer, and development and support fees in the period in which the costs
are incurred. Subscription fees and development and support fees may be received
annually or quarterly in advance depending upon the terms of the agreement.
Payments received in advance under all of these agreements are recorded as
deferred revenue until earned. As of December 31, 1999, a total of $2.2 million
of revenue was deferred. We expect to recognize this deferred revenue through
the third quarter of year 2000. We are currently evaluating the applicability of
SAB 101 to our existing technology access program agreements. If we conclude
that the approach described in SAB 101 is more appropriate, we will change our
method of accounting effective January 1, 2000 to recognize such fees over the
term of the related agreement. The cumulative effect of this change in
accounting principle, if made, would be approximately $2.3 million as of January
1, 2000 and would be recognized as a charge in the quarter ended March 31, 2000.
The cumulative effect would be recorded as deferred revenue and would be
recognized as revenue over the remaining contractual terms of the technology
access program agreements.

RESULTS OF OPERATIONS

  Years Ended December 31, 1999 and 1998

     Revenue. Revenue increased to $12.1 million in 1999 from $8.2 million in
1998. Of the $3.9 million increase, $2.8 million was derived from our
collaboration with Agilent, which began in May 1998, and $709,000 was derived
from our grant from the Advanced Technology Program of the National Institute of
Standards and Technology, which began in January 1999. This grant is for $2
million in aggregate and will continue until December 2001. The remaining
increase was derived from our technology access program customers.

     Research and Development Expenses. Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, legal expenses resulting from intellectual
property prosecution and litigation, and other expenses related to the design,
development, testing, and enhancement of our products. We expense our research
and development costs as they are incurred. Research and development expenses
increased to $18.4 million during 1999 from $9.6 million in 1998. The increase
of $8.8 million was attributable to continued growth of research and development
activities, including $3.7 million related to increased personnel and services
to support our technology access program and initial product launches, $1.9
million for costs related to intellectual property protection, $1.8 million
related to higher operating expenses as a result of our move to a larger
facility in January 1999, $1.0 million for supplies required to assemble, build
and test prototype LabChip systems and the remainder due to expansion in
operating activities. We expect research and development spending to increase
significantly over the next several years as we expand our research and product
development efforts.

     General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, finance and
other administrative personnel, recruiting expenses, professional fees, and
other corporate expenses including business development and general legal
activities. General and administrative expenses increased to $5.3 million during
1999 from $2.9 million in 1998. The increase of $2.4 million was due to $1.7
million related to compensation for general and administrative personnel,

                                       25
<PAGE>   26

$425,000 related to higher operating expenses as a result of our move to a
larger facility in January 1999, and $349,000 related to recruiting and
relocation of key personnel. We expect general and administrative expenses to
continue to increase over the next several years to support our growing business
activities, the commercialization of our products, and due to the costs
associated with operating a public company.

     Amortization of Deferred Stock Compensation. Deferred stock compensation
represents the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of options at the date of grant.
During 1998 and 1999, we recorded deferred stock compensation totaling $13.2
million. This amount is being amortized over the respective vesting periods of
the individual stock options using the graded vesting method. We recorded
amortization of deferred compensation of $3.9 million for 1999. We expect to
record amortization expense for deferred compensation as follows: $4.6 million
during 2000, $2.5 million during 2001, $1.4 million during 2002, $670,000 during
2003 and $122,000 during 2004. The amount of deferred compensation expense to be
recorded in future periods may decrease if unvested options for which deferred
compensation has been recorded are subsequently canceled.

     Interest Income (Expense), Net. Net interest income consists of income from
our cash and investments offset by expenses related to our financing
obligations. Net interest income decreased to $1.2 million in 1999 from net
interest income of $1.4 million in 1998. This decrease resulted from higher
financing obligation balances.

     Income Taxes. As of December 31, 1999, we had federal and California net
operating loss carryforwards of approximately $20.2 million and $1.4 million. We
also had federal and California research and other development tax credit
carryforwards of approximately $900,000 and $500,000. The net operating loss and
credit carryforwards will expire at various dates beginning on 2000 through
2019, if not utilized. Utilization of the net operating losses and credits may
be substantially limited due to the change in ownership provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

     As of December 31, 1999 and 1998, we had deferred tax assets of
approximately $10.5 million and $6.3 million. The net deferred tax asset has
been fully offset by a valuation allowance. The net valuation allowance
increased by $4.2 million during the year ended December 31, 1999. Deferred tax
assets relate primarily to net operating loss carryforwards, research credit
carryforwards, and capitalized research and development costs.

  Years Ended December 31, 1998 and 1997

     Revenue. Revenue increased to $8.2 million in 1998 from $2.3 million in
1997. Of the $5.9 million increase, $3.2 million was due to revenue received
through the collaboration agreement with Agilent entered into in May 1998, and
$2.6 million was due to revenue received through technology access program
agreements with Hoffmann-La Roche and Amgen, which we entered into at the end of
1998.

     Research and Development Expenses. Our research and development expenses
increased to $9.6 million in 1998 from $7.2 million in 1997. The increase of
$2.4 million was due to $1.4 million related to compensation for additional
scientific personnel, $503,000 due to supplies required to assemble, build and
test prototypes of LabChip systems, $357,000 for costs related to intellectual
property protection and the remaining balance due to expansion in our operating
activities.

     General and Administrative Expenses. General and administrative expenses
increased to $2.9 million in 1998 from $2.5 million in 1997. The increase was
due to hiring of additional personnel to support our growing business
activities.

     Interest Income (Expense), Net. Net interest income increased to $1.4
million in 1998 from $1.1 million in 1997. This increase was due to increases in
cash and investment balances as a result of our equity financing in May 1998.

                                       26
<PAGE>   27

LIQUIDITY AND CAPITAL RESOURCES

     We have financed our operations from inception primarily through equity
sales, contract and milestone payments to us under our collaboration and
technology access program agreements, and equipment financing arrangements. As
of December 31, 1999, we had received net proceeds of $119.7 million from
issuances of common and preferred stock which includes $75.9 million raised from
our initial public offering in December 1999. In addition, from inception
through December 31, 1999 we had received $23.8 million from collaborations,
technology access program customers and government grants and had financed
equipment purchases and leasehold improvements totaling approximately $7.2
million. We have used leases and loans to finance capital expenditures. As of
December 31, 1999, we had $5.1 million in capitalized lease obligations. These
obligations are secured by the equipment financed, bear interest at a
weighted-average fixed rate of approximately 10.6%, and are due in monthly
installments through June 2004. Under the terms of one equipment financing
agreement, the financed equipment may be purchased by us at a fair value at the
end of the financing term. Other equipment financing agreements require a
balloon payment at the end of each loan term.

     As of December 31, 1999, we had $100.2 million in cash, cash equivalents
and marketable securities, as compared to $31.1 million as of December 31, 1998.
We used $5.2 million for operations in 1999. This consisted of the net loss for
the period of $14.4 million offset in part by non-cash charges of $5.9 million
related to amortization of deferred stock compensation, stock options issued to
non-employees and depreciation and amortization expense, and $3.3 million of
working capital changes. Net cash used in investing activities was $33.6 million
for 1999, consisting primarily of purchases of available for sale investments
offset by proceeds from sales and maturities of available for sale investments,
as well as capital expenditures. We received $78.4 million from financing
activities for 1999, which consisted principally of $75.9 million net proceeds
from our initial public offering and $3.4 million from equipment financing,
offset in part by repayments of equipment financing arrangements of $1.2
million. See Note 6 of notes to our financial statements.

     In January 1999 we entered into a $2.5 million financing arrangement for
the purchase of property and equipment. As of December 31, 1999, we had drawn
down approximately $1.6 million and had $855,000 remaining available under this
arrangement. As of December 31, 1999, we had $5.1 million in capitalized lease
obligations outstanding compared to $2.9 million at December 31, 1998. See Note
6 of notes to our financial statements.

     Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, 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. We believe that our current cash balances, together with the revenue
to be derived from our collaboration with Agilent and our technology access
program agreements will be sufficient to fund our operations at least through
the year 2001. During or after this period, if cash generated by operations is
insufficient to satisfy our liquidity requirements, we may need to sell
additional equity or debt securities or obtain additional credit arrangements.
Additional financing may not be available on terms acceptable to us or at all.
The sale of additional equity or convertible debt securities may result in
additional dilution to our stockholders.

IMPACT OF INFLATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 -- Revenue Recognition in Financial Statements ("SAB
101") which, among other things, describes the SEC Staff's position on the
recognition of certain nonrefundable upfront fees received in connection with
research collaborations. We are currently evaluating the applicability of SAB
101 to our existing technology
                                       27
<PAGE>   28

access program agreements. If we conclude that the approach described in SAB 101
is more appropriate, we will change our method of accounting effective January
1, 2000 to recognize such fees over the term of the related agreement. The
cumulative effect of this change in accounting principle, if made, would be
approximately $2.3 million as of January 1, 2000 and would be recognized as a
charge in the quarter ended March 31, 2000. The cumulative effect would be
recorded as deferred revenue and would be recognized as revenue over the
remaining contractual terms of the technology access program agreements.

     In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities. We
are required to adopt FAS No. 133 effective January 1, 2001. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, we do not currently believe that the adoption of FAS No. 133, as
amended, will have a significant impact on our financial position, results of
operations or cash flows.

YEAR 2000

     We have not experienced any problems with our computer systems relating to
such systems being unable to recognize appropriate dates related to the year
2000. We are also not aware of any material problems with our clients or
vendors. Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any year 2000
issues.

FACTORS AFFECTING OPERATING RESULTS

OUR LABCHIP SYSTEMS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD CAUSE OUR
REVENUE TO DECLINE.

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

     - our ability to demonstrate the advantages and potential economic value of
       our LabChip systems over alternative well-established technologies and
       products

     - the extent of Agilent's efforts to market the Agilent 2100 Bioanalyzer

     - our ability to market our high throughput systems through our technology
       access program

     Because the products comprising our LabChip systems have been in operation
for a limited period of time, their accuracy, reliability, ease of use and
commercial value have not been fully established. If the initial Agilent 2100
Bioanalyzer customers or our initial technology access program customers do not
approve of our initial LabChip 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 LabChip systems
would suffer and we may not be able to generate further sales. We cannot assure
you that these customers' efforts to put our LabChip systems into use will
continue or will be expeditious or effective. Potential customers for our high
throughput systems may also wait for indications from our three initial
technology access program customers that our high throughput systems work
effectively and generate substantial benefits. Further, non-acceptance by the
market of our initial LabChip systems could undermine not only those systems but
subsequent LabChip systems as well.

WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY.

     We have experienced significant operating losses each year since our
inception and expect to incur substantial additional operating losses for at
least the next two years, primarily as a result of expected increases

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<PAGE>   29

in expenses for manufacturing capabilities, research and product development
costs and general and administrative costs. We may never achieve profitability.
For example, we experienced net losses of approximately $6.3 million in 1997,
$3.0 million in 1998 and $14.4 million in 1999. As of December 31, 1999, we had
an accumulated deficit of approximately $35.1 million, which includes $6.2
million of accretion on redeemable convertible preferred stock. Our losses have
resulted principally from costs incurred in research and development and from
general and administrative costs associated with our operations. These costs
have exceeded our revenue and interest income which, to date, have been
generated principally from collaborative research and development agreements,
technology access fees, cash and investment balances and, to a lesser extent,
product sales and government grants.

OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE.

     Our quarterly operating results have fluctuated significantly in the past
and we expect they will fluctuate in the future as a result of many factors,
some of which are outside of our control. For example, our revenues have varied
dramatically as a result of the timing of fees obtained under our technology
access program, as these fees are comparatively large and are recognized
unevenly over time. It is possible that in some future quarter or quarters, our
operating results will be below the expectations of securities analysts or
investors. In this event, the market price of our common stock may fall abruptly
and significantly. Because our revenue and operating results are difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.

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

WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION WITH ACLARA BIOSCIENCES THAT
MAY HURT OUR COMPETITIVE POSITION, MAY BE COSTLY TO US AND MAY PREVENT US FROM
SELLING OUR PRODUCTS.

     Our suits against Aclara are costly to litigate and if we are not
successful then we will not recover these costs. We have filed a suit against
Aclara Biosciences, Inc. and our former patent counsel alleging that they
misappropriated our trade secrets, and that our former patent counsel breached
their duties to us as our attorneys. We also filed suit against Aclara in
January 2000 alleging Aclara is infringing certain patent rights licensed to us.
We may not be successful in our lawsuits against them, in which case we will
have incurred substantial litigation costs that we will not recover.

     If we lose Aclara's suit against us it will hurt our competitive position,
may be costly to us and may prevent us from selling our products. In addition,
subsequent to the filing of our first suit, Aclara sued us claiming we are
infringing one of its patents with our LabChip systems that use electrical
charges to move fluids and chemicals through the channels of the chip. If we
lose this case, we will need to obtain from Aclara a license to this technology
in order to continue to market our products that have been found to infringe
Aclara's patent, which may include all products currently marketed by Agilent.
This license could be expensive, or could require us to license to Aclara some
of our technology which would result in a partial loss of our competitive
advantage in the marketplace, each of which could seriously harm our ability to
conduct our business, and hurt our financial condition and results of
operations. We believe that we have meritorious defenses in this action.
However, litigation is unpredictable and we may not prevail with any of these
defenses. If Aclara is successful in its suit against us and is unwilling to
grant us a license, we will be required to stop selling our products that are
found to infringe Aclara's patent unless we can redesign them so they do not
infringe Aclara's patent, which we may be unable to do. In addition, if we lose
the patent suit, we could be required to pay Aclara damages, including treble
damages, which could be substantial and seriously harm our financial position.

     This litigation will be expensive to us, may be protracted and our
confidential information may be compromised. Whether or not we are successful in
these lawsuits, we expect this litigation to consume substantial amounts of our
financial and managerial resources. At any time Aclara may file additional
claims

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<PAGE>   30

against Caliper, or we may file additional claims against Aclara, which could
increase the risk, expense and duration of the litigation. Further, because of
the substantial amount of discovery required in connection with this type of
litigation, there is a risk that some of our confidential information could be
compromised by disclosure. For more information on our litigation with Aclara,
see "Item 3. Legal Proceedings."

PUBLIC ANNOUNCEMENTS OF LITIGATION EVENTS WITH ACLARA BIOSCIENCES MAY HURT OUR
STOCK PRICE.

     During the course of our lawsuits with Aclara 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
these results to be negative, it could have a substantial negative effect on the
trading price of our stock.

IF AGILENT DETERMINES THAT WE MAY BE VIOLATING A THIRD-PARTY PATENT, IT MAY
TERMINATE SALES OF THE AGILENT 2100 BIOANALYZER, WHICH WILL DECREASE OUR
REVENUE.

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

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR
PRODUCTS.

     Third parties may assert infringement or other intellectual property claims
against us, such as in the Aclara litigation described above and under "Item 3.
Legal Proceedings." 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 third parties have 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.

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

     We rely on patents to protect a large part of our intellectual property and
our competitive position. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as our patent
infringement suit against Aclara described above and under "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 to decline.

                                       30
<PAGE>   31

THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.

     In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Nevertheless, these measures may not be adequate to safeguard the technology
underlying our products. If they do not protect our rights, third parties could
use our technology, and our ability to compete in the market would be reduced.
In addition, employees, consultants and others who participate in the
development of our products may breach their agreements with us regarding our
intellectual property, and we may not have adequate remedies for the breach. We
also may not be able to effectively protect our intellectual property rights in
some foreign countries. For a variety of reasons, we may decide not to file for
patent, copyright or trademark protection outside of the United States. We also
realize that our trade secrets may become known through other means not
currently foreseen by us. Notwithstanding our efforts to protect our
intellectual property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior to our
technology and products without infringing on any of our intellectual property
rights or design around our proprietary technologies. For further information on
our intellectual property and the difficulties in protecting it, see "Item 1.
Business -- Intellectual Property."

IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS AND EXPAND THE RANGE OF
APPLICATIONS FOR OUR LABCHIP SYSTEMS, WE MAY EXPERIENCE A DECLINE IN REVENUE OR
SLOW REVENUE GROWTH AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

     We intend to develop LabChip systems with increasingly high throughput
capabilities and develop a broad range of applications for our LabChip
technology. If we are unable to do so, our LabChip systems may not become widely
used and we may experience a decline in revenue or slow revenue growth and may
not achieve or maintain profitability.

     In order for our high throughput systems to achieve the levels of
throughput necessary to meet customers' demands, we need to develop and
manufacture Sipper chips with more than one capillary, which we may not be able
to do. Our current high throughput systems operate with Sipper chips with only
one capillary, a small glass tube used to draw compounds into the chip. In order
to achieve the levels of throughput that our customers desire, we will need to
develop a LabChip system accommodating multiple capillaries, which we may not be
able to do. If we cannot cost-effectively deliver chips with multiple
capillaries, we may not be able to attract new customers to purchase our high
throughput systems, which would seriously harm our future prospects. Further,
our existing technology access program customers may decide not to renew their
annual access subscriptions, which would seriously reduce our revenue.

     We must develop new applications for existing LabChip instruments, which we
may not be able to do. The Agilent 2100 Bioanalyzer uses LabChip kits that we
specifically design for each application. We currently have LabChip kits
commercially available for only three applications relating to DNA and RNA
sizing and quantification. DNA and RNA are commonly used acronyms for chemicals
that contain, or transmit, genetic information in living things. We currently
are developing LabChip kits for other applications. If we are unable to develop
LabChip kits for specific applications required by potential customers, those
customers will not purchase the Agilent 2100 Bioanalyzer.

     We must also continue to develop applications for our high throughput
systems. If we are not able to complete the development of these applications,
or if we experience difficulties or delays, we may lose our current technology
access program customers and may not be able to obtain new customers.

                                       31
<PAGE>   32

WE RELY HEAVILY ON AGILENT TO MANUFACTURE, MARKET AND DISTRIBUTE THE AGILENT
2100 BIOANALYZER. IF AGILENT FAILS TO PERFORM UNDER OUR AGREEMENT OR
SUCCESSFULLY COMMERCIALIZE OUR COLLABORATIVE PRODUCTS, OUR REVENUE FROM THE
AGILENT 2100 BIOANALYZER MAY NOT BE MATERIAL AND WE MAY LOSE THE DEVELOPMENT
FUNDING WE CURRENTLY RECEIVE FROM AGILENT.

     Agilent manufactures, markets and distributes the Agilent 2100 Bioanalyzer
under an agreement we entered into in May 1998. We also rely on Agilent for
significant financial and technical contributions in the development of products
covered by the agreement. Our ability to develop, manufacture and market these
products successfully depends significantly on Agilent's performance under this
agreement. Agilent has only recently begun its marketing and sales efforts for
the Agilent 2100 Bioanalyzer. Sales of new and innovative instrumentation such
as the Agilent 2100 Bioanalyzer involve a long sales cycle, requiring customer
training and demonstration periods. As a result, to date Agilent has not sold a
significant number of Agilent 2100 Bioanalyzers, and it is too early for us to
predict market acceptance of this technology. If Agilent experiences
manufacturing or distribution difficulties, does not actively market the Agilent
2100 Bioanalyzer, or does not otherwise perform under this agreement, our
revenue from the Agilent 2100 Bioanalyzer may not be material. In addition,
Agilent may terminate the agreement at their discretion at any time after May
2001. If Agilent terminates this agreement, we would need to obtain development
funding from other sources, and we may be required to find one or more other
collaborators for the development and commercialization of our products. Our
inability to enter into agreements with commercialization partners or develop
our own marketing, sales, and distribution capabilities would increase costs and
impede the commercialization of our products.

AGILENT MAY COMPETE WITH US IF OUR COLLABORATION TERMINATES AFTER MAY 2003,
WHICH COULD REDUCE THE POTENTIAL REVENUE FROM OUR INDEPENDENT PRODUCT SALES.

     Under the terms of our agreement with Agilent, if they, or we, terminate
our agreement after May 2003, we will grant to Agilent a non-exclusive license
to our LabChip technologies as then developed for use in the research products
field. Consequently, there is the possibility that we may experience competition
from Agilent after May 2003, which would reduce our ability to sell products
independently or through other commercial partners. See "Item 1.
Business -- Commercialization -- Strategic Alliance with Agilent" for a further
description of the terms of our collaboration with Agilent.

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 high throughput systems. We currently have limited
manufacturing capacity for our LabChip systems and products and experience
variability in manufacturing yields for chips, particularly Sipper chips. If we
fail to deliver chips and high throughput screening products in a timely manner,
our relationships with our customers could be seriously harmed, and revenue
would decline. We currently have one manufacturing facility located in Mountain
View, California. The actual number of chips we are able to sell or use depends
in part upon the manufacturing yields for these chips. We have only recently
begun to manufacture significant numbers of Sipper chips and are continuing to
develop our quality control procedures for these chips. In order to offer Sipper
chips with multiple capillaries for ultra high throughput applications, we will
need to achieve consistently high yields in the process of inserting
capillaries. We cannot assure you that manufacturing or quality control problems
will not arise as we attempt to scale-up our production of chips or that we can
scale-up manufacture and quality control 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
high throughput instruments in-house, in limited volumes and with largely manual
assembly. If demand for our high throughput instruments increases, we will
either need to expand our in-house manufacturing capabilities or outsource to
Agilent or other manufacturers.

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<PAGE>   33

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

BECAUSE A SMALL NUMBER OF CUSTOMERS AND AGILENT HAVE ACCOUNTED FOR, AND ARE
LIKELY TO CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUE, OUR
REVENUE COULD DECLINE DUE TO THE LOSS OF ONE OF THESE CUSTOMERS OR THE
TERMINATION OF OUR AGREEMENT WITH AGILENT.

     Historically we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue and, if we were
to lose any one of these, our revenue would decrease substantially. Agilent and
two customers accounted for 88% of total revenue in 1999, and two customers and
Agilent accounted for 97% of total revenue in 1998. We and Agilent introduced
the Agilent 2100 Bioanalyzer system in September 1999 and have not yet derived
significant revenue from the sale of this product on a commercial scale.
Although we anticipate that the introduction of the Agilent 2100 Bioanalyzer
system will expand our revenue base, we expect that we will continue to rely on
our large customers and on Agilent for the majority of our revenue.

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 through at least the year 2001. 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 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 other
than an equipment lease line with $855,000 unused and available as of December
31, 1999. 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.

WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.

     We are highly dependent on Daniel L. Kisner, M.D., our President and Chief
Executive Officer, and our three founding executive officers, Calvin Y. H. Chow,
Michael R. Knapp, Ph.D. and J. Wallace Parce, Ph.D., as well as the other
principal members of our management and scientific staff. The loss of services
of any of these persons could seriously harm our product development and
commercialization efforts. In addition, research, product development and
commercialization will require additional skilled personnel in areas such as
chemistry and biology, software engineering and electronic engineering. Our
business is located in Silicon Valley, California, where demand for personnel
with these skills is extremely high and is likely to remain high. 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

                                       33
<PAGE>   34

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.

POTENTIAL ACQUISITIONS MAY HAVE UNEXPECTED CONSEQUENCES OR IMPOSE ADDITIONAL
COSTS ON US.

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

     - difficulties in integration of the operations, technologies, and products
       of the acquired companies

     - the risk of diverting management's attention from normal daily operations
       of the business

     - accounting consequences, including charges for in-process research and
       development expenses, resulting in variability in our quarterly earnings

     - potential difficulties in completing projects associated with purchased
       in-process research and development

     - risks of entering markets in which we have no or limited direct prior
       experience and where competitors in such markets have stronger market
       positions

     - the potential loss of key employees of the acquired company

     - the assumption of unforeseen liabilities of the acquired company

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

RISKS RELATED TO OWNING OUR COMMON STOCK

OUR STOCK PRICE IS EXTREMELY VOLATILE, AND YOU COULD LOSE A SUBSTANTIAL PORTION
OF YOUR INVESTMENT.

     Our stock has been trading on the Nasdaq National Market only since
mid-December 1999. We initially offered our common stock to the public at $16.00
per share. Since then our stock price has been extremely volatile and has
ranged, through March 13, 2000, from a low of approximately $27.81 per share to
a high of $202.00 per share. 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 of events regarding our litigation with Aclara

     - announcements of our financial results, particularly if they differ from
       investors' expectations

     - general market volatility for technology stocks

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

     Our directors, entities affiliated with our directors, and our executive
officers beneficially own, in the aggregate approximately 29.08% of our
outstanding common stock. These stockholders as a group are able to
substantially influence the management and affairs of Caliper and, if acting
together, would be able to influence most matters requiring the approval by our
stockholders, including the election of directors, any merger, consolidation or
sale of all or substantially all of our assets and any other significant
corporate

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<PAGE>   35

transaction. The concentration of ownership may also delay or prevent a change
of control of Caliper at a premium price if these stockholders oppose it.

PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.

     Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination including us. These provisions
could limit the price that investors might be willing to pay in the future for
our common stock.

THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET, WHICH MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

     Sales of a substantial number of shares of our common stock in the public
market could cause the market price of our common stock to decline. If there are
more shares of our common stock offered for sale than buyers are willing to
purchase, then the market price of our common stock may decline to a market
price at which buyers are willing to purchase the offered shares of common stock
and sellers remain willing to sell the shares. The number of shares of common
stock available for sale in the public market is limited by restrictions under
federal securities law and under lock-up agreements that our stockholders have
entered into with the underwriters and with us in connection with our initial
public offering. Those lock-up agreements restrict our stockholders from
selling, pledging our otherwise disposing of their shares prior to June 12, 2000
without the prior written consent of Credit Suisse First Boston Corporation.
However, Credit Suisse First Boston Corporation may, in its sole discretion,
release all or any portion of the common stock from the restrictions of the
lock-up agreements. The following table indicates approximately when the
15,827,095 shares of our common stock outstanding as of December 31, 1999 which
are subject to transfer restrictions will be eligible for sale into the public
market:

<TABLE>
<CAPTION>
       DAY RESTRICTIONS          SHARES ELIGIBLE
          WILL LAPSE                FOR SALE                      COMMENT
       ----------------          ---------------                  -------
<S>                              <C>               <C>
June 12, 2000..................    15,458,126      Lock-up released: shares saleable
                                                   under Rules 144 and 701
</TABLE>

     368,969 shares were not subject to lock-up and were saleable under Rules
144 and 701.

     Additionally, approximately 260,529 shares will be issuable upon the
exercise of vested stock options outstanding on December 31, 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. Declines of interest rates over
time will reduce our interest income from our investments. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities.

                                       35
<PAGE>   36

     The table below presents our investment portfolio by expected maturity and
related weighted average interest rates at December 31, 1999:

<TABLE>
<CAPTION>
                                                                        FAIR
                                     2000       2001       TOTAL       VALUE
                                    -------    -------    --------    --------
<S>                                 <C>        <C>        <C>         <C>
Money market fund.................  $44,772         --    $ 44,772    $ 44,772
Average interest rate.............      6.7%        --         6.7%

Available for sale marketable
  securities......................  $28,512    $27,065    $ 55,577    $ 55,444
Average interest rate.............      6.5%       6.8%        6.7%

Total securities..................  $73,284    $27,065    $100,349    $100,216
Average interest rate.............      6.6%       6.8%        6.7%
</TABLE>

     Our equipment financings, amounting to $5.1 million as of December 31,
1999, are all at fixed rates and therefore, have minimal exposure to changes in
interest rates.

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Report of Independent Auditors, Financial Statements and Notes to
Financial Statements begin on page F-1 immediately following the signature page
and are incorporated here by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not Applicable.

                                       36
<PAGE>   37

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information concerning our directors is incorporated by reference to the
section entitled "Proposal 1 -- Election of Directors" contained in our
definitive Proxy Statement with respect to our Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission not later than April 29,
2000 (the "Proxy Statement"). Information concerning our Executive Officers is
set forth under "Executive Officers of the Registrant" in Part I of this Annual
Report on Form 10-K and is incorporated here by reference. Information
concerning compliance with Section 16(a) of the Exchange Act of 1934 is
incorporated by reference to the section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" contained in our Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     Information concerning executive compensation is incorporated by reference
to the sections entitled "Executive Compensation" contained in our Proxy
Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information concerning the security ownership of certain beneficial owners
and management is incorporated by reference to the section entitled "Security
Ownership of Certain Beneficial Owners and Management" contained in our Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships is incorporated by reference
to the section entitled "Certain Transactions" contained in our Proxy Statement.

                                       37
<PAGE>   38

                                    PART IV

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

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

        (1) FINANCIAL STATEMENTS:

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
            <S>                                                           <C>
            Report of Independent Auditors..............................  F-2
            Balance Sheets at December 31, 1999 and 1998................  F-3
            Statements of Operations -- Fiscal Years Ended December 31,
              1999, 1998 and 1997.......................................  F-4
            Statements of Redeemable Convertible Stock and Stockholders'
              Equity (deficit) -- Fiscal Years Ended December 31, 1999,
              1998, and 1997............................................  F-5
            Statements of Cash flows -- Fiscal Years Ended December 31,
              1999, 1998, and 1997......................................  F-6
            Notes to Financial Statements...............................  F-7
</TABLE>

        (2) FINANCIAL STATEMENT SCHEDULES:

           All schedules are omitted because they are not applicable or the
           required information is shown in the financial statements or notes
           thereto

        (3) EXHIBITS:

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                         DESCRIPTION OF DOCUMENT
        -----------                      -----------------------
        <S>            <C>
         3.1(1)        Amended and Restated Certificate of Incorporation of
                       Caliper.
         3.2(2)        Bylaws of Caliper.
         4.1           Reference is made to Exhibits 3.1 and 3.2.
         4.2(3)        Specimen Stock Certificate.
        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)     1999 Equity Incentive Plan.
        10.4(3)(4)     1999 Employee Stock Purchase Plan.
        10.5(3)(4)     1999 Non-Employee Directors' Stock Option Plan.
        10.6(3)(4)     Employment Agreement, dated January 18, 1999, between
                       Caliper and Daniel L. Kisner, M.D.
        10.7(3)(4)     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.
        10.11(3)(5)    Termination, Transition and Technology Access Program
                       Agreement, dated November 24, 1998, between Caliper and
                       Hoffmann-La Roche Inc.
        10.12(3)(5)    Technology Access Agreement, dated December 21, 1998,
                       between Caliper and Amgen, Inc.
        10.13(3)(5)    Technology Access Agreement, dated August 12, 1999, between
                       Caliper and Eli Lilly and Company.
</TABLE>

                                       38
<PAGE>   39

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                         DESCRIPTION OF DOCUMENT
        -----------                      -----------------------
        <S>            <C>
        10.14(3)(5)    Screening Collaboration Agreement, dated December 16, 1998,
                       between Caliper and Neurocrine Biosciences, Inc.
        10.15(3)(5)    Sole Commercial Patent License Agreement, effective
                       September 1, 1995, between Lockheed Martin Energy Research
                       Corporation and Caliper, as amended (domestic).
        10.16(3)(5)    Sole Commercial Patent License Agreement, effective
                       September 1, 1995, between Lockheed Martin Energy Research
                       Corporation and Caliper, as amended (international).
        10.17(3)(4)    Consulting Agreement, dated April 30, 1997, between Caliper
                       and Dr. David V. Milligan.
        10.18(3)(4)    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)    Promissory Note, dated March 25, 1997, between Caliper and
                       Michael R. Knapp, Ph.D.
        10.21(3)(4)    Option Agreement, dated August 9, 1995, between Caliper and
                       Michael R. Knapp, Ph.D.
        10.22(3)(4)    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          Warrant for the purchase of shares of Common Stock issued to
                       Michael R. Knapp, dated October 11, 1996.
        10.25          Warrant for the purchase of shares of Common Stock issued to
                       Michael R. Knapp, dated February 2, 2000.
        23.1           Consent of Ernst & Young LLP, independent auditors.
        24.1           Power of Attorney (reference is made to the signature page
                       of this report).
        27.1           Financial Data Schedule.
</TABLE>

---------------
(1) Previously filed as Exhibit 3.3 to our Registration Statement on Form S-1,
    Registration No. 333-88827.

(2) Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1,
    Registration No. 333-88827.

(3) Previously filed as the like-numbered Exhibit to our Registration Statement
    on Form S-1, Registration No. 333-88827.

(4) Management contract or compensatory plan or arrangement.

(5) Confidential treatment has been granted for a portion of this exhibit.

     (b) Reports on Form 8-K

        We did not file a Current Report on Form 8-K during the quarter ended
December 31, 1999.

                                       39
<PAGE>   40

                                   SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 24, 2000.

                                          CALIPER TECHNOLOGIES CORP.

                                          By:  /s/ DANIEL L. KISNER, M.D.
                                            ------------------------------------
                                                   Daniel L. Kisner, M.D.
                                               President and Chief Executive
                                                           Officer

                               POWER OF ATTORNEY

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

     Pursuant to the requirements of the Securities 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.

<TABLE>
<CAPTION>
                     SIGNATURES                                     TITLE                    DATE
                     ----------                                     -----                    ----
<C>                                                    <C>                              <S>
             /s/ DANIEL L. KISNER, M.D.                  President, Chief Executive     March 24, 2000
-----------------------------------------------------  Officer and Director (principal
               Daniel L. Kisner, M.D.                        executive officer)

                /s/ JAMES L. KNIGHTON                      Chief Financial Officer      March 24, 2000
-----------------------------------------------------     (principal financial and
                  James L. Knighton                          accounting officer)

            /s/ DAVID V. MILLIGAN, PH.D.                  Chairman of the Board of      March 24, 2000
-----------------------------------------------------             Directors
              David V. Milligan, Ph.D.

             /s/ ANTHONY B. EVNIN, PH.D.                          Director              March 24, 2000
-----------------------------------------------------
               Anthony B. Evnin, Ph.D.

               /s/ CHARLES M. HARTMAN                             Director              March 24, 2000
-----------------------------------------------------
                 Charles M. Hartman

                /s/ REGIS P. MCKENNA                              Director              March 24, 2000
-----------------------------------------------------
                  Regis P. McKenna

                /s/ ROBERT T. NELSEN                              Director              March 24, 2000
-----------------------------------------------------
                  Robert T. Nelsen

            /s/ MICHAEL STEINMETZ, PH.D.                          Director              March 24, 2000
-----------------------------------------------------
              Michael Steinmetz, Ph.D.
</TABLE>

                                       40
<PAGE>   41

                           CALIPER TECHNOLOGIES CORP.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-2

Balance Sheets..............................................  F-3
Statements of Operations....................................  F-4
Statement of Redeemable Convertible Preferred Stock and
  Stockholders' Equity (Deficit)............................  F-5
Statements of Cash Flows....................................  F-6
Notes to Financial Statements...............................  F-7
</TABLE>

                                       F-1
<PAGE>   42

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Caliper Technologies Corp.

     We have audited the accompanying balance sheets of Caliper Technologies
Corp. as of December 31, 1998 and 1999, and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements 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 financial position of Caliper Technologies Corp.
at December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Palo Alto, California
January 25, 2000

                                       F-2
<PAGE>   43

                           CALIPER TECHNOLOGIES CORP.

                                 BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $  5,158    $ 44,772
  Marketable securities.....................................    17,424      28,520
  Accounts receivable.......................................     1,082       1,055
  Inventories...............................................        --         287
  Prepaid expenses and other current assets.................       600         754
                                                              --------    --------
          Total current assets..............................    24,264      75,388
Marketable securities.......................................     8,470      26,924
Property and equipment, net.................................     2,796       5,346
Notes receivable from officers..............................       200         625
Other assets, net...........................................        --         564
                                                              --------    --------
          Total assets......................................  $ 35,730    $108,847
                                                              ========    ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $    228    $  1,321
  Accrued compensation......................................       432       1,082
  Other accrued liabilities.................................       493       1,011
  Deferred revenue..........................................       626       2,210
  Current portion of equipment financing....................       881       1,454
                                                              --------    --------
          Total current liabilities.........................     2,660       7,078
Noncurrent portion of equipment financing...................     2,008       3,671
Deferred rent...............................................        --         235
Commitments
Redeemable convertible preferred stock, $0.001 par value,
  issuable in series; 19,579,039 and no shares authorized in
  1998 and 1999, respectively; 11,703,692 and no shares
  issued and outstanding in 1998 and 1999, respectively;
  aggregate liquidation preference of $44,810 and $0 at
  December 31, 1998 and 1999, respectively..................    48,716          --
Stockholders' equity (deficit):
  Convertible preferred stock, $0.001 par value; 1,420,961
     and no shares authorized in 1998 and 1999,
     respectively; 829,142 and no shares issued and
     outstanding in 1998 and 1999, respectively; aggregate
     liquidation preference of $1,009 and $0 at December 31,
     1998 and 1999, respectively............................         1          --
  Preferred stock, $0.001 par value; 5,000,000 shares
     authorized in 1999; no shares issued and outstanding in
     1999...................................................        --          --
  Common stock, $0.001 par value; 32,000,000 and 70,000,000
     shares authorized in 1998 and 1999 respectively;
     2,772,343 and 21,002,095 shares issued and outstanding
     in 1998 and 1999, respectively.........................         3          21
  Additional paid-in capital................................     1,250     142,401
  Deferred stock compensation...............................      (500)     (9,317)
  Accumulated deficit.......................................   (18,408)    (35,109)
  Accumulated other comprehensive loss......................        --        (133)
                                                              --------    --------
          Total stockholders' equity (deficit)..............   (17,654)     97,863
                                                              --------    --------
                                                              $ 35,730    $108,847
                                                              ========    ========
</TABLE>

                            See accompanying notes.
                                       F-3
<PAGE>   44

                           CALIPER TECHNOLOGIES CORP.

                            STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                               1997       1998        1999
                                                              -------    -------    --------
<S>                                                           <C>        <C>        <C>
Revenue.....................................................  $ 2,266    $ 8,155    $ 12,087
Costs and expenses:
  Research and development..................................    7,200      9,584      18,415
  General and administrative................................    2,478      2,932       5,312
  Amortization of deferred stock compensation...............       --         --       3,885
                                                              -------    -------    --------
Total costs and expenses....................................    9,678     12,516      27,612
                                                              -------    -------    --------
Operating loss..............................................   (7,412)    (4,361)    (15,525)
Interest income.............................................    1,191      1,581       1,564
Interest expense............................................      (60)      (195)       (412)
                                                              -------    -------    --------
Net loss....................................................   (6,281)    (2,975)    (14,373)
Accretion on redeemable convertible preferred stock.........   (1,470)    (2,174)     (2,328)
                                                              -------    -------    --------
Net loss attributable to common stockholders................  $(7,751)   $(5,149)   $(16,701)
                                                              =======    =======    ========
Net loss per common share, basic and diluted................  $ (4.38)   $ (2.39)   $  (4.56)
                                                              =======    =======    ========
Shares used in computing net loss per common share, basic
  and diluted...............................................    1,768      2,157       3,663
Pro forma net loss per share, basic and diluted.............  $ (0.47)   $ (0.21)   $  (0.92)
                                                              =======    =======    ========
Shares used in computing pro forma net loss per share, basic
  and diluted...............................................   13,370     14,347      15,578
</TABLE>

                            See accompanying notes.
                                       F-4
<PAGE>   45

                           CALIPER TECHNOLOGIES CORP.

              STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)
                         (IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
                                                                                STOCKHOLDERS EQUITY (DEFICIT)
                                          REDEEMABLE         -------------------------------------------------------------------
                                         CONVERTIBLE            CONVERTIBLE
                                       PREFERRED STOCK        PREFERRED STOCK       COMMON STOCK       ADDITIONAL     DEFERRED
                                    ----------------------   -----------------   -------------------    PAID-IN        STOCK
                                      SHARES       AMOUNT     SHARES    AMOUNT     SHARES     AMOUNT    CAPITAL     COMPENSATION
                                    -----------   --------   --------   ------   ----------   ------   ----------   ------------
<S>                                 <C>           <C>        <C>        <C>      <C>          <C>      <C>          <C>
Balances at December 31, 1996.....    7,585,206   $ 16,913    829,142    $ 1      2,303,683    $ 3      $    518      $     --
Issuance of Series D redeemable
  convertible preferred stock for
  cash............................    3,089,744     19,280         --     --             --     --            --            --
Issuance of Series D redeemable
  convertible preferred stock for
  services........................       99,359        620         --     --             --     --            --            --
Issuance of common stock upon
  exercise of stock options.......           --         --         --     --        155,798     --            60            --
Issuance of common stock for
  cash............................           --         --         --     --         19,230     --            12            --
Accretion on redeemable
  convertible preferred stock.....           --      1,470         --     --             --     --            --            --
Net loss and comprehensive loss...           --         --         --     --             --     --            --            --
                                    -----------   --------   --------    ---     ----------    ---      --------      --------
Balances at December 31, 1997.....   10,774,309     38,283    829,142      1      2,478,711      3           590            --
Issuance of Series D redeemable
  convertible preferred stock for
  services........................      141,026        880         --     --             --     --            --            --
Issuance of Series E redeemable
  convertible preferred stock for
  cash............................      788,357      7,379         --     --             --     --            --            --
Issuance of common stock upon
  exercise of stock options.......           --         --         --     --        191,831     --            84            --
Issuance of common stock for
  services........................           --         --         --     --        101,801     --            76            --
Accretion on redeemable
  convertible preferred stock.....           --      2,174         --     --             --     --            --            --
Deferred stock compensation.......           --         --         --     --             --     --           500          (500)
Net loss and comprehensive loss...           --         --         --     --             --     --            --            --
                                    -----------   --------   --------    ---     ----------    ---      --------      --------
Balances at December 31, 1998.....   11,703,692     48,716    829,142      1      2,772,343      3         1,250          (500)
Net loss..........................           --         --         --     --             --     --            --            --
Accretion on redeemable
  convertible preferred stock.....           --      2,328         --     --             --     --            --            --
Change in unrealized loss on
  available-for-sale securities...           --         --         --     --             --     --            --            --
Comprehensive loss................           --         --         --     --             --     --            --            --
Issuance of shares of common stock
  in the initial public offering,
  net of offering costs of
  $6,896..........................           --         --         --     --      5,175,000      5        75,899            --
Conversion of redeemable
  convertible preferred stock into
  common stock, in connection with
  the initial public offering.....  (11,703,692)   (51,044)        --     --     11,703,692     12        51,032            --
Conversion of convertible
  preferred stock into common
  stock, in connection with the
  initial public offering.........           --         --   (829,142)    (1)       829,142      1            --            --
Issuance of common stock upon
  exercise of stock options.......           --         --         --     --        512,624     --           274            --
Issuance of common stock for
  services........................           --         --         --     --          9,294     --            83            --
Deferred stock compensation.......           --         --         --     --             --     --        12,702       (12,702)
Amortization of deferred stock
  compensation....................           --         --         --     --             --     --            --         3,885
Warrants issuable in connection
  with milestone achievement......           --         --         --     --             --     --           568            --
Stock options issued to
  non-employees...................           --         --         --     --             --     --           593            --
                                    -----------   --------   --------    ---     ----------    ---      --------      --------
Balances at December 31, 1999.....           --   $     --         --    $--     21,002,095    $21      $142,401      $ (9,317)
                                    ===========   ========   ========    ===     ==========    ===      ========      ========

<CAPTION>
                                           STOCKHOLDERS EQUITY (DEFICIT)
                                    -------------------------------------------
                                                   ACCUMULATED        TOTAL
                                                      OTHER       STOCKHOLDERS'
                                    ACCUMULATED   COMPREHENSIVE      EQUITY
                                      DEFICIT         LOSS          (DEFICIT)
                                    -----------   -------------   -------------
<S>                                 <C>           <C>             <C>
Balances at December 31, 1996.....   $ (5,508)        $  --         $ (4,986)
Issuance of Series D redeemable
  convertible preferred stock for
  cash............................         --            --               --
Issuance of Series D redeemable
  convertible preferred stock for
  services........................         --            --               --
Issuance of common stock upon
  exercise of stock options.......         --            --               60
Issuance of common stock for
  cash............................         --            --               12
Accretion on redeemable
  convertible preferred stock.....     (1,470)           --           (1,470)
Net loss and comprehensive loss...     (6,281)           --           (6,281)
                                     --------         -----         --------
Balances at December 31, 1997.....    (13,259)           --          (12,665)
Issuance of Series D redeemable
  convertible preferred stock for
  services........................         --            --               --
Issuance of Series E redeemable
  convertible preferred stock for
  cash............................         --            --               --
Issuance of common stock upon
  exercise of stock options.......         --            --               84
Issuance of common stock for
  services........................         --            --               76
Accretion on redeemable
  convertible preferred stock.....     (2,174)           --           (2,174)
Deferred stock compensation.......         --            --               --
Net loss and comprehensive loss...     (2,975)           --           (2,975)
                                     --------         -----         --------
Balances at December 31, 1998.....    (18,408)           --          (17,654)
Net loss..........................    (14,373)           --          (14,373)
Accretion on redeemable
  convertible preferred stock.....     (2,328)           --           (2,328)
Change in unrealized loss on
  available-for-sale securities...         --          (133)            (133)
                                                                    --------
Comprehensive loss................         --            --          (16,834)
Issuance of shares of common stock
  in the initial public offering,
  net of offering costs of
  $6,896..........................         --            --           75,904
Conversion of redeemable
  convertible preferred stock into
  common stock, in connection with
  the initial public offering.....         --            --           51,044
Conversion of convertible
  preferred stock into common
  stock, in connection with the
  initial public offering.........         --            --               --
Issuance of common stock upon
  exercise of stock options.......         --            --              274
Issuance of common stock for
  services........................         --            --               83
Deferred stock compensation.......         --            --               --
Amortization of deferred stock
  compensation....................         --            --            3,885
Warrants issuable in connection
  with milestone achievement......         --            --              568
Stock options issued to
  non-employees...................         --            --              593
                                     --------         -----         --------
Balances at December 31, 1999.....   $(35,109)        $(133)        $ 97,863
                                     ========         =====         ========
</TABLE>

                            See accompanying notes.
                                       F-5
<PAGE>   46

                           CALIPER TECHNOLOGIES CORP.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1997        1998        1999
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES
Net loss...................................................  $ (6,281)   $ (2,975)   $(14,373)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization............................       356         921       1,325
  Amortization of deferred stock compensation..............        --          --       3,885
  Issuance of common and preferred stock for services......       620         956          83
  Stock options issued to non-employees....................        --          --         593
  Changes in operating assets and liabilities:
     Accounts receivable...................................        --      (1,082)         27
     Notes receivable from officers........................      (200)         --        (425)
     Inventories...........................................        --          --        (287)
     Prepaid expenses and other assets.....................       (88)       (411)       (154)
     Deposits and other assets.............................      (119)        119          --
     Accounts payable and other accrued liabilities........     1,022        (569)      1,611
     Accrued compensation..................................       208         149         650
     Deferred revenue......................................      (275)        626       1,584
     Deferred rent.........................................        --          --         235
                                                             --------    --------    --------
Net cash used in operating activities......................    (4,757)     (2,266)     (5,246)
                                                             --------    --------    --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities.................   (51,448)    (39,996)    (52,380)
Proceeds from sales of available-for-sale securities.......        --       6,233       9,199
Proceeds from maturities of available-for-sale
  securities...............................................    30,114      34,106      13,498
Capital expenditures.......................................    (1,845)     (1,667)     (3,871)
                                                             --------    --------    --------
Net cash used in investing activities......................   (23,179)     (1,324)    (33,554)
                                                             --------    --------    --------
FINANCING ACTIVITIES
Proceeds from equipment financing..........................     1,574       1,586       3,419
Payments of obligations under equipment financing..........      (225)       (613)     (1,183)
Proceeds from issuance of common and preferred stock.......    19,352       7,463      76,178
                                                             --------    --------    --------
Net cash provided by financing activities..................    20,701       8,436      78,414
                                                             --------    --------    --------
Net increase (decrease) in cash and cash equivalents.......    (7,235)      4,846      39,614
Cash and cash equivalents at beginning of period...........     7,547         312       5,158
                                                             --------    --------    --------
Cash and cash equivalents at end of period.................  $    312    $  5,158    $ 44,772
                                                             ========    ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid..............................................  $     60    $    195    $    412
                                                             ========    ========    ========
SCHEDULE OF NONCASH TRANSACTIONS
Warrants issuable in connection with milestone
  achievement..............................................  $     --    $     --    $    568
                                                             ========    ========    ========
Deferred stock compensation................................  $     --    $    500    $ 12,702
                                                             ========    ========    ========
</TABLE>

                            See accompanying notes.
                                       F-6
<PAGE>   47

                           CALIPER TECHNOLOGIES CORP.

                         NOTES TO FINANCIAL STATEMENTS

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

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

INITIAL PUBLIC OFFERING

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

STOCK SPLIT

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

USE OF ESTIMATES

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

RECLASSIFICATIONS

     Certain 1998 amounts have been reclassified to conform to the 1999
presentation.

CASH EQUIVALENTS AND MARKETABLE SECURITIES

     Caliper considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified Caliper's cash equivalents and
marketable securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in a separate component of
stockholders' equity. Realized gains and losses are included in interest income.
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 which should maintain
safety and liquidity.

INVENTORIES

     Inventories are stated at the lower of standard cost (which approximates
actual cost) or market. At December 31, 1999, inventories consisted mainly of
raw materials.

                                       F-7
<PAGE>   48
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Furniture and equipment acquired under equipment financing is
amortized over the shorter of the useful lives or the financing period.
Leasehold improvements are amortized over the shorter of the estimated useful
life of the assets or lease term.

REVENUE RECOGNITION

     Revenues are earned from services performed pursuant to collaboration
agreements, technology access program agreements and government grants.
Non-refundable license fees under technology access programs are recognized as
revenues upon the transfer of the license to third parties and when no further
performance obligations exist. Subscription fees received under the technology
access programs are recognized ratably over the subscription period. Payments
received in advance under these arrangements are recorded as deferred revenue
until earned.

     Revenue from grants and development and support activities under
collaboration agreements and technology access programs are recorded in the
period in which the costs are incurred. Direct costs associated with these
contracts and grants are reported as research and development expense. Milestone
fees are recognized upon completion of specified milestones according to
contract terms. Revenue related to the reimbursement of costs for the supply of
chips and reagents to collaboration partners is recognized upon shipment.
Caliper's share of gross margin on components of the LabChip system sold by the
collaboration partners is recognized as revenue upon shipment by the
collaboration partner.

     Product revenue is recognized upon the transfer of title to customers and
is recorded net of discounts, rebates and allowances.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 -- Revenue Recognition in Financial Statements (SAB
101) which, among other things, describes the SEC Staff's position on the
recognition of certain nonrefundable upfront fees received in connection with
research collaborations. Caliper is currently evaluating the applicability of
SAB 101 to its existing technology access program agreements. Should Caliper
conclude that the approach described in SAB 101 is more appropriate, it will
change its method of accounting effective January 1, 2000 to recognize such fees
over the term of this related agreement. The cumulative effect of this change in
accounting principle, if made, would be approximately $2.3 million as of January
1, 2000 and would be recognized as a charge in the quarter ended March 31, 2000.
The cumulative effect would be recorded as deferred revenue and would be
recognized as revenue over the remaining contractual terms of the technology
access program agreements.

RESEARCH AND DEVELOPMENT

     Caliper expenses research and development costs as incurred.

STOCK-BASED COMPENSATION

     Caliper accounts for its stock options and equity awards in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and has elected to follow the "disclosure only"
alternative prescribed by Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Caliper accounts for stock options issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force 96-18.

                                       F-8
<PAGE>   49
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING

     Effective in January 1998, Caliper adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Caliper has determined that it operates in only one segment. Accordingly, the
adoption of SFAS 131 had no impact on Caliper's financial statements.

NET LOSS PER SHARE

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

     Proforma net loss per share has been computed to give effect to the
automatic conversion of preferred stock into common stock which occurred at the
completion of Caliper's initial public offering in December 1999 (using the
as-if converted method) from the original date of issuance.

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

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                               ------------------------------
                                                1997       1998        1999
                                               -------    -------    --------
<S>                                            <C>        <C>        <C>
Basic and diluted:
  Net loss...................................  $(6,281)   $(2,975)   $(14,373)
  Accretion on redeemable convertible
     preferred stock.........................   (1,470)    (2,174)     (2,328)
                                               -------    -------    --------
Net loss attributable to common
  stockholders...............................  $(7,751)   $(5,149)   $(16,701)
                                               =======    =======    ========
Weighted-average shares of common stock
  outstanding................................    2,365      2,596       3,909
Less: weighted-average shares subject to
  repurchase.................................     (597)      (439)       (246)
                                               -------    -------    --------
Weighted-average shares used in basic and
  diluted net loss per share.................    1,768      2,157       3,663
                                               =======    =======    ========
Pro forma basic and diluted:
  Net loss...................................  $(6,281)   $(2,975)   $(14,373)
                                               =======    =======    ========
Shares used above............................    1,768      2,157       3,663
Adjustment to reflect weighted-average effect
  of assumed conversion of preferred stock...   11,602     12,190      11,915
                                               -------    -------    --------
Weighted-average shares used in pro forma
  basic and diluted net loss per share.......   13,370     14,347      15,578
                                               =======    =======    ========
</TABLE>

                                       F-9
<PAGE>   50
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     The following outstanding options and warrants (prior to the application of
the treasury stock method), and convertible preferred stock (on an as-converted
basis) were excluded from the computation of diluted net loss per share as they
had an antidilutive effect (in thousands):

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                        --------------------------
                                                         1997      1998      1999
                                                        -------   -------   ------
<S>                                                     <C>       <C>       <C>
Options and warrants..................................   1,359     1,263    2,497
Convertible preferred stock...........................  11,603    12,533       --
</TABLE>

SIGNIFICANT CONCENTRATIONS

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

     In 1997, Hoffmann-La Roche represented 94% of total revenues. In 1998,
Hoffmann-La Roche, Agilent Technologies and Amgen represented 40%, 40%, and 17%
of total revenues, respectively. In 1999, Agilent Technologies represented 50%
of total revenues and two of Caliper's technology access program customers
accounted for 21% and 17% of total revenues.

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

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Caliper is required to adopt FAS No. 133 effective January 1, 2001. Because
Caliper does not currently hold any derivative instruments and does not engage
in hedging activities, Caliper does not currently believe that the adoption of
FAS No. 133, as amended, will have a significant impact on its financial
position, results of operations or cash flows.

 2. CONTRACTS AND GRANTS

STRATEGIC ALLIANCE WITH AGILENT

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

     Agilent funds Caliper's product development efforts under the
collaboration, reimburses Caliper's costs of supplying chips and reagents, and
pays Caliper a share of the gross margin on all components of LabChip systems.
The gross margin share varies depending on the type of collaboration product,
whether Caliper or Agilent manufacture the collaboration product, and whether
such collaboration product is sold during the collaboration or after the
collaboration has terminated. Under this agreement, Hewlett-Packard purchased

                                      F-10
<PAGE>   51
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 2. CONTRACTS AND GRANTS (CONTINUED)
534,188 shares of Caliper's redeemable convertible preferred stock Series E with
an aggregate cost of $5.0 million. At December 31, 1999 this represented 2.5% of
Caliper's outstanding common stock.

     The term of the Agilent agreement is eight years, beginning in May 1998.
After three years, Agilent may elect not to meet certain annual funding
requirements, in which case either party may terminate the agreement. In any
event either party may terminate the agreement after five years.

TECHNOLOGY ACCESS PROGRAM

     Caliper maintains a technology access program which provides customers with
early access to new products, and offers technical training, support and
customization services. Technology access program customers have non-exclusive
access to all of the high throughput screening products Caliper offers during
the term of the agreement. These agreements generally provide 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 are 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.

     Caliper currently has three technology access program customers for its
high throughput screening systems: Eli Lilly and Company ("Eli Lilly"), 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 is three years, although Eli Lilly may temporarily suspend
its technology access program participation and later reinitiate participation,
during which time Caliper's support and assistance obligations will also be
suspended. Eli Lilly may terminate the agreement on any anniversary.

     Amgen. Caliper entered into a technology access agreement with Amgen in
December 1998. Under this agreement, Amgen may delay payment of its second
annual subscription fee until Caliper has delivered an initial ultra high
throughput system. The term of this agreement is three years, although Amgen may
terminate the agreement on any anniversary or if Caliper fails to deliver the
ultra high throughput screening system in a timely manner.

     Hoffmann-La Roche. Caliper entered into a technology access agreement with
Hoffmann-La Roche in November 1998, which is due to expire in July 2000. This
agreement supersedes 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. At
December 31, 1999, this represented 4.1% of Caliper's outstanding common stock.
Roche now has non-exclusive rights similar to other technology access program
customers. Caliper did not receive an up-front license fee or annual
subscription fee from Hoffmann-La Roche.

VALUE ADDED SCREENING COLLABORATION PROGRAM

     Caliper's value added screening collaboration program offers high
throughput screening services using Caliper's LabChip systems. Caliper's first
value added screening collaboration agreement was established with Neurocrine
Biosciences in December 1998. Caliper receives screening fees on a per data
point basis, preclinical milestones and royalties on Neurocrine products
emerging from the collaboration. This agreement has a three-year term, but may
be terminated by either party under certain circumstances after the first year.

     Caliper recognized approximately $2.1 million, $7.9 million and $11.2
million under the above agreements in 1997, 1998 and 1999, respectively. Revenue
earned from reimbursement of development and support activities approximated
actual costs incurred.
                                      F-11
<PAGE>   52
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 2. CONTRACTS AND GRANTS (CONTINUED)
     In September 1998, Caliper received a grant from the Advanced Technology
Program of the National Institute of Standards and Technology ("NIST") to
develop a Reference Laboratory DNA Diagnostics System based on Caliper's
"lab-on-a-chip" technology of approximately $2 million over three years. The
grant period began in January 1999.

 3. CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The following is a summary of available-for-sale securities as of December
31, 1999:

<TABLE>
<CAPTION>
                                                 GROSS         GROSS
                                  AMORTIZED    UNREALIZED    UNREALIZED    ESTIMATED
                                    COST         LOSSES        GAINS       FAIR VALUE
                                  ---------    ----------    ----------    ----------
                                                    (IN THOUSANDS)
<S>                               <C>          <C>           <C>           <C>
Money market fund...............  $ 44,772       $  --          $--         $ 44,772
Bonds of the U.S. Government and
  its agencies..................     6,255         (17)          --            6,238
Commercial paper................    49,322        (161)          45           49,206
                                  --------       -----          ---         --------
                                  $100,349       $(178)         $45         $100,216
                                  ========       =====          ===         ========
Reported as:
Cash equivalents................  $ 44,772       $  --          $--         $ 44,772
Short term marketable
  securities....................    28,512         (36)          45           28,521
Long term marketable
  securities....................    27,065        (142)          --           26,923
                                  --------       -----          ---         --------
                                  $100,349       $(178)         $45         $100,216
                                  ========       =====          ===         ========
</TABLE>

     At December 31, 1999, net unrealized loss on marketable securities has been
included in the Company's Statement of Redeemable Convertible Preferred Stock
and Stockholders' Equity (Deficit).

     The following is a summary of the cost and estimated fair value of
available-for-sale securities at December 31, 1999, by contractual maturity:

<TABLE>
<CAPTION>
                                                                     ESTIMATED
                                                           COST      FAIR VALUE
                                                         --------    ----------
                                                             (IN THOUSANDS)
<S>                                                      <C>         <C>
Mature in one year or less.............................  $ 73,284     $ 73,292
Mature after one year through two years................    27,065       26,924
                                                         --------     --------
          Total........................................  $100,349     $100,216
                                                         ========     ========
</TABLE>

                                      F-12
<PAGE>   53
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 3. CASH EQUIVALENTS AND MARKETABLE SECURITIES (CONTINUED)
     The following is a summary of available-for-sale securities as of December
31, 1998:

<TABLE>
<CAPTION>
                                                                ESTIMATED
                                                                FAIR VALUE
                                                              --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
Money market fund...........................................     $ 1,381
Bonds of the U.S. Government and its agencies...............      12,217
Commercial paper............................................      17,454
                                                                 -------
                                                                 $31,052
                                                                 =======
Reported as:
Cash equivalents............................................     $ 5,158
Short term marketable securities............................      17,424
Long term marketable securities.............................       8,470
                                                                 -------
                                                                 $31,052
                                                                 =======
</TABLE>

     At December 31, 1998, the fair value of available-for-sale securities
approximated amortized cost.

     As of December 31, 1998 and 1999, there were no material gross realized
gains or losses from sales of securities.

 4. NOTES RECEIVABLE

     At December 31, 1998, Caliper held a note receivable of $200,000 from an
officer of Caliper. This note, which bears interest at 6.61% per year from
January 2002, is collateralized by certain personal assets of the officer and
has certain amortization schedules for periodic payments with the final payment
to be made at the end of 2006.

     At December 31, 1999, in addition to the $200,000 note receivable, Caliper
held an unsecured promissory note of $425,000 in connection with a loan to a
second officer of Caliper. The note bears interest at 5.96% per year and is
repayable upon the earlier of July 29, 2005 or the voluntary termination of his
employment with Caliper.

 5. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1998       1999
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Machinery, equipment, and furniture......................  $ 3,775    $ 6,599
Leasehold improvements...................................      385      1,033
                                                           -------    -------
                                                             4,160      7,632
Accumulated depreciation and amortization................   (1,364)    (2,286)
                                                           -------    -------
Property and equipment, net..............................  $ 2,796    $ 5,346
                                                           =======    =======
</TABLE>

     As of December 31, 1998 and 1999 property and equipment includes assets
acquired under capital leases of approximately $3.8 million and $6.8 million.
Accumulated depreciation related to leased assets was approximately $1.4 million
and $2.3 million at December 31, 1998 and 1999.

                                      F-13
<PAGE>   54
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 6. EQUIPMENT FINANCING AND RENTAL COMMITMENTS

     As of December 31, 1999, Caliper had $7.1 million of property and equipment
financed through long-term obligations and approximately $855,000 unused and
available under an equipment financing credit line. The obligations under the
equipment financings are secured by the equipment financed, bear interest at a
weighted-average fixed rate of approximately 10.6%, and are due in monthly
installments through June 2004. Under the terms of one equipment financing
agreement, ownership of the financed equipment may be purchased by Caliper at
fair value at the end of the financing term. Other equipment financing
agreements require a balloon payment at the end of each loan term.

     As of December 31, 1999, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:

<TABLE>
<CAPTION>
                                                                  CAPITAL LEASES
                                                     OPERATING          AND
                                                      LEASES      EQUIPMENT LOANS
                                                     ---------    ---------------
                                                            (IN THOUSANDS)
<S>                                                  <C>          <C>
Years ending December 31:
  2000.............................................   $ 1,774         $ 1,522
  2001.............................................     1,798           1,345
  2002.............................................     1,839           1,037
  2003.............................................     1,872           1,067
  2004.............................................     1,922             239
  Thereafter.......................................     8,061              --
                                                      -------         -------
          Total minimum lease and principal
            payments...............................   $17,266           5,210
                                                      =======
Amount representing interest.......................                       (85)
                                                                      -------
Present value of future payments...................                     5,125
Current portion of equipment financing.............                    (1,454)
                                                                      -------
Noncurrent portion of equipment financing..........                   $ 3,671
                                                                      =======
</TABLE>

     Rent expense relating to operating leases was approximately $525,000 in
1997, $695,000 in 1998 and $1.8 million in 1999.

     In December 1998, Caliper entered into a 10-year facility operating lease
agreement. Caliper also entered into a sublease agreement pursuant to which it
received a monthly amount of $18,000 from December 1998 through November 1999
and a monthly amount of $24,000 in December 1999 and January 2000. The
appropriate amount has been offset against the operating lease commitment for
2000, as shown above.

     In connection with the facility lease, Caliper has a $1 million standby
letter-of-credit arrangement with a bank expiring on October 20, 2008. Caliper
has pledged a certificate of deposit of $1 million as collateral to this letter
of credit.

     In January 1999, Caliper entered into a $2.5 million financing agreement
with a financial institution for the purchase of property and equipment which
bears interest commensurate to the weekly average of the four-year U.S. Treasury
Securities. The drawdown period under the equipment financing credit line
expires on June 30, 2000. During 1999, Caliper drew down the remaining $1.8
million balance of the equipment financing credit line which existed as of
December 31, 1998 at a weighted-average interest rate of 11.8% and financed an
additional $1.6 million of property and equipment purchases under the financing
agreement with a financial institution at a weighted-average interest rate of
12.3%. These obligations will be repaid in monthly installments through June
2004.

                                      F-14
<PAGE>   55
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

     Convertible preferred stock outstanding as of December 31, 1998 was as
follows:

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1998
                                        ----------------------------------------
                                                                     REDEMPTION/
                                                      ISSUED AND     LIQUIDATION
                                        AUTHORIZED    OUTSTANDING       VALUE
                                        ----------    -----------    -----------
<S>                                     <C>           <C>            <C>
Convertible preferred stock:
  Series A............................   1,293,462       829,142     $ 1,008,900
  Undesignated Preferred stock........     127,499            --              --
                                        ----------    ----------     -----------
                                         1,420,961       829,142       1,008,900
                                        ----------    ----------     -----------
Redeemable convertible preferred
  stock:
  Series B............................   8,550,706     5,448,454       7,515,862
  Series C............................   3,333,333     2,136,752      11,130,907
  Series D............................   5,195,000     3,330,129      22,460,607
  Series E............................   2,500,000       788,357       7,608,461
                                        ----------    ----------     -----------
                                        19,579,039    11,703,692      48,715,837
                                        ----------    ----------     -----------
          Total.......................  21,000,000    12,532,834     $49,724,737
                                        ==========    ==========     ===========
</TABLE>

     During 1998 and 1999, Caliper recorded $2.2 million and $2.3 million,
respectively, for accretions up to the date of initial public offering. Upon the
closing of the initial public offering, each of the outstanding 11,703,692
redeemable convertible preferred stock and 829,142 convertible preferred stock
was automatically converted into one share of common stock.

WARRANTS

     In January 1996, in connection with an equipment financing agreement,
Caliper issued a warrant that entitles the holder to purchase 3,276 shares of
common stock at an exercise price of $1.22 per share. This warrant is
exercisable through the earlier of the effective date of a merger of Caliper or
January 3, 2002.

     In May 1996, in connection with a capital lease agreement, Caliper granted
a warrant that entitles the holder to purchase 32,767 shares of Series B
preferred stock at an exercise price of $1.22 per share. This warrant is
exercisable through May 10, 2002.

     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. These warrants are exercisable
through October 11, 2006.

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

     In August 1995, Caliper executed an agreement which called for the issue of
two warrants, upon achievement of a certain patent milestone, to purchase a
total of 38,460 shares of common stock at an exercise price of $1.22 per share.
This patent milestone was met in December 1999, and the two warrants will be
issued in 2000. These warrants will expire in January 2006. The fair value of
the warrants was capitalized in 1999 and is being amortized over 5 years.

COMMON STOCK SUBJECT TO REPURCHASE

     Common stock issued to founders of Caliper vest generally over five years
at 20% one year from the date of grant and on a monthly, pro rata basis
thereafter. From inception through December 31, 1999, the founders
                                      F-15
<PAGE>   56
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
of Caliper have purchased 1,708,234 shares of common stock, of which 152,242
shares are unvested and remain subject to repurchase at the original issuance
price in the event of termination of employment or services to Caliper. Caliper
has not repurchased any shares in accordance with these rights.

STOCK OPTION PLANS

     In October 1999, Caliper's board of directors and stockholders adopted the
1999 Equity Incentive Plan ("1999 Equity Plan"). The 1999 Equity Plan amended
and restated the 1996 Stock Incentive Plan and increased the shares reserved for
issuance to 4 million. In addition, the 1999 Equity Plan provides for an
automatic increase in the shares reserved for issuance by the greater of 5% of
outstanding shares on a fully-diluted basis or the number of shares that have
been made subject to awards granted under the 1999 Equity Plan during the prior
12-month period. The automatic share reserve increase may not exceed 12,820,000
shares in aggregate over the 10-year period.

     In 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. As of December 31, 1999, the Company has not granted any
options under the 1999 Directors' Plan.

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

                                      F-16
<PAGE>   57
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
     A summary of activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING       WEIGHTED-
                                              --------------------------    AVERAGE
                                  OPTIONS     NUMBER OF      EXERCISE      EXERCISE
                                 AVAILABLE     OPTIONS        PRICE          PRICE
                                 ----------   ---------   --------------   ---------
<S>                              <C>          <C>         <C>              <C>
Balance at December 31, 1996...     255,726     417,993   $0.06 - $ 0.47     $0.25
  Authorized...................     961,538          --         --              --
  Granted......................    (890,051)    890,051   $0.47 - $ 0.62     $0.51
  Exercised....................          --    (155,798)  $0.06 - $ 0.62     $0.38
  Canceled.....................         962        (962)      $0.47          $0.47
                                 ----------   ---------
Balance at December 31, 1997...     328,175   1,151,284   $0.06 - $ 0.62     $0.43
  Authorized...................   1,282,038          --         --              --
  Granted......................    (423,253)    423,253   $0.62 - $ 0.97     $0.86
  Exercised....................          --    (181,881)  $0.06 - $ 0.62     $0.45
  Canceled.....................     318,088    (326,649)  $0.06 - $ 0.62     $0.45
                                 ----------   ---------
Balance at December 31, 1998...   1,505,048   1,066,007   $0.06 - $ 0.97     $0.59
  Authorized...................   1,474,109          --         --              --
  Granted......................  (1,728,454)  1,728,454   $0.97 - $14.00     $2.88
  Exercised....................          --    (389,638)  $0.06 - $ 0.97     $0.59
  Canceled.....................      20,839     (20,839)  $0.62 - $ 0.97     $0.70
                                 ----------   ---------
Balance at December 31, 1999...   1,271,542   2,383,984   $0.06 - $14.00     $2.25
                                 ==========   =========
</TABLE>

     The weighted-average fair value of options granted during 1997, 1998, and
1999 was $0.13, $0.22, and $0.73 respectively.

     Caliper granted nonqualified options of 458,010, 79,484, and 303,845 for
the years ended December 31, 1997, 1998 and 1999, respectively.

     The following table summarizes information with respect to stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                  ---------------------------------------------   --------------------------
                                  WEIGHTED
                                  AVERAGE           WEIGHTED      NUMBER        WEIGHTED
   RANGE OF        NUMBER        REMAINING          AVERAGE         OF      AVERAGE EXERCISE
EXERCISE PRICE    OF SHARES   CONTRACTUAL LIFE   EXERCISE PRICE   SHARES         PRICE
---------------   ---------   ----------------   --------------   -------   ----------------
<S>               <C>         <C>                <C>              <C>       <C>
$ 0.06 - $ 0.47..   280,602         6.84             $ 0.33        89,797        $0.27
     $0.62          202,051         7.89             $ 0.62        31,852        $0.62
     $0.97        1,161,262         9.13             $ 0.97       135,675        $0.96
     $3.12          579,288         9.75             $ 3.12         3,205        $3.12
$12.99 - $14.00     160,781         9.92             $13.80            --           --
                  ---------                                       -------
$ 0.06 - $14.00   2,383,984         8.96             $ 2.25       260,529        $0.71
                  =========                                       =======
</TABLE>

     In February 1996, Caliper completed the acquisition of ChemCore Corporation
("ChemCore"), an early stage research and development entity. As part of the
ChemCore merger, Caliper exchanged, at the ratio of 0.552762 to 1, outstanding
options to purchase 240,499 shares of ChemCore common stock at an exercise price
of $0.20 for options to purchase 132,936 shares of Caliper's common stock at an
exercise price $0.36 per share. These options were initially granted at the fair
value of ChemCore's common stock and generally vest over five years at a rate of
20% per year.

                                      F-17
<PAGE>   58
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
     A summary of activity of options assumed as part of the ChemCore merger is
as follows:

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING
                                                          ---------------------
                                                          NUMBER OF    EXERCISE
                                                           OPTIONS      PRICE
                                                          ---------    --------
<S>                                                       <C>          <C>
Balance at December 31, 1996 and 1997...................   132,936      $0.36
Exercised...............................................    (9,950)     $0.36
                                                          --------
Balance at December 31, 1998............................   122,986      $0.36
Exercised...............................................  (122,986)     $0.36
                                                          --------
Balance at December 31, 1999............................        --
                                                          ========
</TABLE>

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 base
compensation. 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. As of December 31, 1999,
Caliper has not granted any shares under the 1999 Purchase Plan.

STOCK BASED COMPENSATION

     Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if Caliper had accounted for its
employee stock options under the fair-value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes method and the following assumptions for 1997, 1998 and 1999:
volatility of 0.01, risk-free interest rate of 6%, an expected life of five
years, and no dividends.

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

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                               ---------------------------------------
                                                  1997          1998          1999
                                               ----------    ----------    -----------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>           <C>           <C>
Net loss attributable to common stockholders:
  As reported................................   $(7,751)      $(5,149)      $(16,701)
  Pro forma..................................   $(7,810)      $(5,223)      $(17,319)
Basic and diluted net loss per share:
  As reported................................   $ (4.39)      $ (2.39)      $  (4.56)
  Pro forma..................................   $ (4.42)      $ (2.42)      $  (4.73)
</TABLE>

                                      F-18
<PAGE>   59
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
     The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years.

     Caliper has recorded deferred stock compensation of approximately $500,000
for the year ended December 31, 1998 and $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 $3.9 million for the year ended December 31,
1999.

RESERVED STOCK

     As of December 31, 1999, Caliper had reserved shares of common stock for
future issuance as follows:

<TABLE>
<S>                                                           <C>
Stock options...............................................  3,455,526
Warrants....................................................    112,963
1999 Purchase Plan..........................................    300,000
1999 Directors' Plan........................................    200,000
Stock agreement.............................................      7,692
                                                              ---------
                                                              4,076,181
                                                              =========
</TABLE>

8. INCOME TAXES

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

     As of December 31, 1999, Caliper had federal and California net operating
loss carryforwards of approximately $20.2 million and $1.4 million. Caliper also
had federal research and development tax credit carryforwards of approximately
$900,000 and $500,000. The federal net operating loss and credit carryforwards
will expire at various dates beginning in the year 2000 through 2019, if not
utilized. The state of California 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.

                                      F-19
<PAGE>   60
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (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:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                           1998        1999
                                                          -------    --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Net operating loss carryforwards........................  $ 3,600    $  7,000
Research credit carryforwards...........................    1,000       1,400
Capitalized research and development....................    1,600       1,500
Other, net..............................................      100         600
                                                          -------    --------
Net deferred tax assets.................................    6,300      10,500
Valuation allowance.....................................   (6,300)    (10,500)
                                                          -------    --------
          Total.........................................  $    --    $     --
                                                          =======    ========
</TABLE>

     Because of Caliper's lack of earnings history, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$1.0 million and $4.2 million during the years ended December 31, 1998 and 1999.

 9. 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, 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. The suit seeks damages and equitable remedies to prevent
Aclara and Caliper's former patent counsel from benefiting from the alleged
misappropriation and breach of duties. On January 12, 2000, Caliper filed a
lawsuit in United States District Court for the Northern District of California
alleging that Aclara is infringing four U.S. patents licensed to Caliper by
Lockheed Martin Energy Research Corporation. These patents cover technology for
controlling the flow of materials in microfluidic chips, as well as devices,
systems and applications that make use of this technology. Caliper subsequently
amended this complaint to allege that Aclara is infringing another of its
patents covering technology for controlling the flow of materials in
microfluidic chips. While Caliper believes that its complaints are meritorious,
there can be no assurance that Caliper will prevail in its action against any or
all of the defendants, or that if Caliper prevails, any damages or equitable
remedies awarded, if any, will be commercially valuable. Furthermore, Caliper
has incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in pursuing its claims against Aclara and Caliper's
former patent counsel.

     On April 23, 1999, Aclara Biosciences filed a lawsuit in United States
District Court for the Northern District of California alleging that Caliper is
making, using, selling or offering for sale microfluidic devices that infringe
United States Patent Number 5,750,015 in willful disregard of Aclara's patent
rights. This patent concerns methods and devices for moving molecules by the
application of electrical fields. The Aclara action seeks damages for past and
future reduced sales or lost profits based upon the making, using, selling and
offering for sale of Caliper's products and processes, and seeks to enjoin
Caliper's continued activities relating to these products. This action subjects
Caliper to potential liability for damages, including treble damages, and could
require Caliper to cease making, using or selling the affected products, or to
obtain a license in order to continue to manufacture, use or sell the affected
products. While Caliper believes that it has meritorious defenses in this
action, there can be no assurance that Caliper will prevail or that any license
required would be

                                      F-20
<PAGE>   61
                           CALIPER TECHNOLOGIES CORP.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 9. LITIGATION (CONTINUED)
made available on commercially acceptable terms, if at all. Furthermore, Caliper
has incurred and is likely to continue to incur substantial costs and expend
substantial personnel time in defending against the claims filed by Aclara.
Caliper's failure to successfully defend itself against the Aclara action could
have a material adverse effect on Caliper's business, financial condition and
operating results.

                                      F-21
<PAGE>   62

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                         DESCRIPTION OF DOCUMENT
        -----------                      -----------------------
        <S>            <C>
         3.1(1)        Amended and Restated Certificate of Incorporation of
                       Caliper.
         3.2(2)        Bylaws of Caliper.
         4.1           Reference is made to Exhibits 3.1 and 3.2.
         4.2(3)        Specimen Stock Certificate.
        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)     1999 Equity Incentive Plan.
        10.4(3)(4)     1999 Employee Stock Purchase Plan.
        10.5(3)(4)     1999 Non-Employee Directors' Stock Option Plan.
        10.6(3)(4)     Employment Agreement, dated January 18, 1999, between
                       Caliper and Daniel L. Kisner, M.D.
        10.7(3)(4)     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.
        10.11(3)(5)    Termination, Transition and Technology Access Program
                       Agreement, dated November 24, 1998, between Caliper and
                       Hoffmann-La Roche Inc.
        10.12(3)(5)    Technology Access Agreement, dated December 21, 1998,
                       between Caliper and Amgen, Inc.
        10.13(3)(5)    Technology Access Agreement, dated August 12, 1999, between
                       Caliper and Eli Lilly and Company.
        10.14(3)(5)    Screening Collaboration Agreement, dated December 16, 1998,
                       between Caliper and Neurocrine Biosciences, Inc.
        10.15(3)(5)    Sole Commercial Patent License Agreement, effective
                       September 1, 1995, between Lockheed Martin Energy Research
                       Corporation and Caliper, as amended (domestic).
        10.16(3)(5)    Sole Commercial Patent License Agreement, effective
                       September 1, 1995, between Lockheed Martin Energy Research
                       Corporation and Caliper, as amended (international).
        10.17(3)(4)    Consulting Agreement, dated April 30, 1997, between Caliper
                       and Dr. David V. Milligan.
        10.18(3)(4)    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)    Promissory Note, dated March 25, 1997, between Caliper and
                       Michael R. Knapp, Ph.D.
</TABLE>
<PAGE>   63

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                         DESCRIPTION OF DOCUMENT
        -----------                      -----------------------
        <S>            <C>
        10.21(3)(4)    Option Agreement, dated August 9, 1995, between Caliper and
                       Michael R. Knapp, Ph.D.
        10.22(3)(4)    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          Warrant for the purchase of shares of Common Stock issued to
                       Michael R. Knapp, dated October 11, 1996.
        10.25          Warrant for the purchase of shares of Common Stock issued to
                       Michael R. Knapp, dated February 2, 2000.
        23.1           Consent of Ernst & Young LLP, independent auditors.
        24.1           Power of Attorney (reference is made to the signature page
                       of this report).
        27.1           Financial Data Schedule.
</TABLE>

---------------
(1) Previously filed as Exhibit 3.3 to our Registration Statement on Form S-1,
    Registration No. 333-88827.

(2) Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1,
    Registration No. 333-88827.

(3) Previously filed as the like-numbered Exhibit to our Registration Statement
    on Form S-1, Registration No. 333-88827.

(4) Management contract or compensatory plan or arrangement.

(5) Confidential treatment has been granted for a portion of this exhibit.