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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K





|x  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002                 |  | 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
|  
|OR
|  
| ̈  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________ |  | 



Commission File Number: 0-29975



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ACLARA BIOSCIENCES, INC.

(Exact Name of Registrant as specified in its Charter)



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|DELAWARE                                                       |  | 94-3222727                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)



1288
Pear Avenue, Mountain View, California 94043

(Address of principal executive offices and Zip Code)



(650) 210-1200

(Registrants telephone number, including area code)



SECURITIES REGISTERED PURSUANT TO 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 Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ̈



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



As of June 28,
2002, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $32 million (based upon the average bid and asked prices of such stock as reported by The Nasdaq Stock Market on such date). Shares of
Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock on that date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.



As
of March 25, 2003, the number of outstanding shares of the Registrants Common Stock was 35,463,049, excluding 900,000 shares of treasury stock.



DOCUMENTS INCORPORATED BY REFERENCE



Certain information required by Items 10, 11, 12 and 13 of Form 10-K is incorporated by reference from the Registrants proxy
statement for the 2003 Annual Meeting of Stockholders, which will be filed, with the Securities and Exchange Commission within 120 days after the close of the Registrants fiscal year ended December 31, 2002.



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This report contains forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 the section, Factors Affecting Operating Results, contained in Part IIItem 7 of this report that may cause our or our industrys 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 of this report to conform these statements to actual results, unless required
by law.



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ACLARA BIOSCIENCES, INC.



FORM 10-K



FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002



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TABLE OF CONTENTS



|                     |  |                                                                                                |  | Page
|-------------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I              
|Item 1.              |  | Business                                                                                       |  | 1   
|Item 2.              |  | Properties                                                                                     |  | 11  
|Item 3.              |  | Legal Proceedings                                                                              |  | 11  
|Item 4.              |  | Submission of Matters to a Vote of Security Holders                                            |  | 11  
|                    
|PART II             
|Item 5.              |  | Market for Registrants Common Stock and Related Stockholder Matters                           |  | 12  
|Item 6.              |  | Selected Financial Data                                                                        |  | 13  
|Item 7.              |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 14  
|Item 7A.             |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 26  
|Item 8.              |  | Financial Statements and Supplementary Data                                                    |  | 27  
|Item 9.              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 27  
|                    
|PART III            
|Item 10.             |  | Directors and Executive Officers of the Registrant                                             |  | 28  
|Item 11.             |  | Executive Compensation                                                                         |  | 28  
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 28  
|Item 13.             |  | Certain Relationships and Related Transactions                                                 |  | 28  
|Item 14              |  | Controls and Procedures                                                                        |  | 28  
|Item 15.             |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 29  
|Signatures           |  | 30                                                                                            
|Certifications       |  | 31                                                                                            
|Financial Statements |  | F-1                                                                                           



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ITEM 1.BUSINESS



OVERVIEW



We are a life sciences company focused on developing and commercializing novel assay chemistry solutions for drug discovery and development, providing critical high-value information about the expression and interaction of genes and
proteins within cells. The company develops, manufactures, and supplies these innovative biology assays as part of the eTagAssay System. The system comprises reagent kits, software and services that simplify and automate various aspects of drug development, pre-clinical testing, and clinical assessment. Our eTag assays are easy to use.
They require no time-consuming sample preparation steps, and provide for the simultaneous analysis of tens to hundreds of different biological analytes across tens of thousands of samples. This multiplexing capability is critical to the overall high
performance of eTag assays. eTag assays represent a universal platform for the analysis of genes, proteins and cellular pathways and can be analyzed using existing capillary electrophoresis instrumentation systems.



Our eTag assays enable an efficient, high throughput
systems biology approach for developing new drug targets and leads. This approach seeks broad understanding about the interaction of genes and proteins within and among cells rather than simply focusing on the activity of a particular gene or
protein. In other words, the approach looks at the whole system rather than individual components. Moreover, these assays have broad applicability in the development of the new paradigm of molecular medicine for patient-specific therapeutic
treatments based on individual genotypes and phenotypes derived from predictive biomarkers. In the future, we believe that physicians may use these novel assays to determine if specific clinical biomarkers, or combinations of biomarkers are present,
making an individual patient amenable, or not, to the use of specific medicines.



Assays of these types are critical for effectively assessing drug efficacy and disease status across relevant cellular pathways or clinical biomarkers by quantitating many genes and proteins, cell
signaling and pathway activation, protein-protein interactions, and/or cell-receptor binding from a single biological sample. We are developing and commercializing these high content assays initially in the target areas of oncology and
toxicogenomics. While we are focused on developing tools for biopharmaceutical applications today, we expect eTag assays can also play a larger role in the future as predictive tests for treatment response and disease management. We
introduced the eTag Assay System commercially through two separate programs in late 2002. We are making the eTag Assay System available through a scalable license-based eTagExpert Access Program, whereby researchers have easy access to common applications, reagents, software, service and support. A Discovery Partners
Program is also available for more proprietary applications with eTag technology.



ACLARA was formed by a spin-off transaction from Soane Technologies, Inc., which was incorporated in 1991 and subsequently changed its name to 2C Optics, Inc. We were incorporated in Delaware in 1995
under the name Soane BioSciences, Inc. and changed our name to ACLARA BioSciences, Inc. in 1998. We maintain an Internet website at www.aclara.com; however, information found on our website is not incorporated by reference into this report. On our
website we make available, free of charge, the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our annual reports on Form 10-K, our quarterly
reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act of 1934. You may read and copy any materials that we file with the SEC at the
SECs Public Reference Room at 450 Fifth Street, NW, Washington DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports, proxy statements, and other documents filed
electronically with the SEC are available at the website maintained by the SEC at http://www.sec.gov.



INDUSTRY BACKGROUND



Paradigm Shift in Drug Discovery and Development.    Prior to the advent of genomics research, one of the most significant challenges facing scientists in the
pharmaceutical industry was finding suitable therapeutic targets, i.e. genes or proteins with which a drug will interact. Today, the critical barriers impeding more efficient



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and effective drug discovery and development have shifted. The genomics revolution is providing pharmaceutical researchers with a dramatic
increase in the number of potential targets against which to conduct screens of compound libraries. A significant challenge today is to efficiently select the most promising targets from a large and growing number of alternatives. In addition,
pharmaceutical researchers are expanding the size of compound libraries they use to screen against new targets. Researchers require new laboratory technologies capable of screening increasingly large libraries of potential drug candidates against an
increasing number of targets in a cost-effective, automated and rapid manner.



Effectively screening larger libraries of candidates is not sufficient. It is also necessary to characterize toxic responses as early in the drug development process as possible so that questionable
candidates can be removed from the development pipeline and vital resources are not wasted on their further optimization. Today, 90% of pharmaceutical drug candidates fail during the development process despite extensive pre-clinical testing and
positive animal testing data. To implement ADME/Tox (Absorption, Distribution, Metabolism, and Excretion/Toxicology) profiling cost effectively in the early phase of the drug discovery process, a high throughput, multiple
analyte assay technology is required.



Biology is Complex: Systems Biology and the Need for More Effective Tools.    Genomics and proteomics are yielding an extraordinary mass of new biological data, which is in turn generating a
fundamental shift in the nature of information and the way it is used to discover therapeutics. Scientists are discovering patterns of gene and protein expression associated with health and disease. They are using these patterns to discover and test
potential new pharmaceuticals, even though they often do not yet know the underlying biological and disease mechanisms. However, the enormous challenge still remains of interconnecting these molecular events in living cells to provide insight into
the pharmacological pathways that drug discovery programs require. It is critical to gain a perspective that is cell-based, where researchers look at the effect of a potential treatment on and among cells. Information held in the cell defines the
temporal and spatial interactions of its components and therefore, its normal and abnormal functions. The concept of systems biology has led to research areas that target the whole cell and physiological pathways.



Unlike traditional biology that examines single genes or
proteins in isolation, systems biology simultaneously studies the complex interaction of many levels of biological informationgenomic DNA, mRNA, proteins, pathways and networksto understand how they work together. This understanding
requires scientists to run more assays and to develop new assays to determine to the fullest possible extent the effects of disease on the organism and the outcome of treatment on diseased and normal tissues. This has fueled a dramatic increase in
the number of cell-based assays as screening tools in both research and drug discovery. Just as automated gene and protein analysis and their database tools are pushing the genomics and proteomics frontiers, automated cell and pathway analysis using
rapid screening methods and bioinformatics will also be essential to understanding systems biology. Not only are more effective tools needed to measure pathway analytes, but these tools also need to be many times more productive and cost-efficient
if they are to be used effectively. Without both better and more complete information as well as significant productivity enhancements, the promise of molecular medicine will never become a reality.



Drug discovery and development in the systems biology era
demands an analytical system that efficiently and effectively measures tens to hundreds of different mRNAs, proteins, protein modifications, and protein-protein interactions from the same sample. In addition, sample throughput of tens of thousands
of samples per day is required as well as high sensitivity and quantitation precision to measure subtle changes in analyte expression and pathway activationa standard of performance that exceeds the capabilities of traditional systemsin
order to accurately measure beneficial or toxic effects of a new drug. The new system must provide:



| |  |  | one platform for measuring expression and activation events, across time, of mRNAs, proteins, protein modifications and protein-protein interactions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | assays with
| | - |  | -----------

| |  | high sensitivity and large dynamic range for measuring small changes and working with limited biological samples;
| | - | -----------------------------------------------------------------------------------------------------------------



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| |  | high specificity or non-biased answers that represent the actual biology of the cell; and
| | - | -----------------------------------------------------------------------------------------

| |  | high reproducibility for comparing assay to assay across experiments and labs;
| | - | ------------------------------------------------------------------------------



| |  |  | affordable and efficient application;
| | - |  | -------------------------------------



| |  |  | easy-to-use and scalable automation for high throughput, using standard and reliable instrumentation; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | flexibility and adaptability for evolving new analytical needs.
| | - |  | ---------------------------------------------------------------



Multiplexing Requirements for New Methods to Perform Systems Biology and Secondary Screening.
Multiplexed assays, or the ability to simultaneously analyze tens to hundreds of different biological analytes across tens of thousands of samples, are an ideal method of securing high content data and for increasing the speed and efficiency of drug
discovery. However, most measurement systems rely on solid-phase formats such as microarrays and beads, which prevent effective quantitative measurement of many critical cell-based analytes such as, for example, cell receptors. Only flexible,
solution-phase multiplexing provides greater versatility and effective performance for addressing cell-based assays as well as gene and protein assays with high sensitivity and precision.



Secondary screening and lead optimization involve performing a variety of measurements on each potential drug
candidate identified in a primary screen. While the number of compounds under investigation is smaller than in primary screening, the number and diversity of measurements performed on each compound is much larger. The purpose of these measurements
is to verify and further characterize the biological activity of each potential drug candidate, or hit. For example, researchers may test each hit against the target at different concentrations to determine its potency. Also, each hit
may be tested against a panel of different enzyme targets. Current technologies typically measure only a single data point at a time, such as the activity of one compound on a particular enzyme, limiting the efficiency and economy of secondary
screening and lead optimization. The change in paradigm is to measure multiple indicators in pathways that may be affected. Multiplexing is an ideal method of securing data needed for increasing the speed and efficiency of secondary screening.
Multiplexed assays for both gene and protein expression that are sensitive, precise and reproducible are essential. Only flexible, solution-phase multiplexing can include multiple biological controls and multiple assay controls in every well.



MOLECULAR MEDICINE AND THE NEW THERAPEUTICS



According to the new paradigm of molecular medicine, a
systems level understanding of disease and drug treatment is paired with information about specific individual patient differences in order to prescribe individualized medicines. Diagnostic and prognostic tests based on each individual
patients genotype and/or phenotype are used to direct and monitor the progress of treatment.



Pharmacogenomics Using Genotyping and Phenotyping Clinical Biomarkers.    Genotyping is the
identification of the specific alleles (or variants) at specific positions within the DNA sequence of an individual. Phenotype is the observed biochemical or physiological characteristics of an individual as determined by his or her
genotype and the environment in which it is expressed. Pharmacogenomics is the study of how individual phenotypic and/or genetic makeup influences drug response. The benefits of this knowledge include the potential for streamlining clinical trials
by targeting a candidate drug to a specific responsive phenotype, reducing both the cost and time of drug development. An additional benefit is the potential for tailoring drug prescriptions by phenotypic or genetic profile to maximize efficacy and
minimize toxic side effects.



To complement the
pharmacogenomics concept, there is a large and growing need for versatile techniques to both quantify and measure a broad range of protein targets and activation events in normal and diseased cells; in other words, to measure phenotypic responses.
Protein targets may be within a cell, secreted from a cell, or on a cell surface and may be associated with many other proteins. Many of these protein targets may need to be



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analyzed from each individual sample. Scientists want to be able to measure cellular responses to external stimuli, such as drug treatments,
or in disease. Phenotyping of proteins and genotyping of DNA need to be done in parallel utilizing a multiplexed analysis to produce high content, cost-effective knowledge.



Gene expression analysis, another form of phenotyping, involves measuring the extent to which specific genes
are represented as messenger RNA (mRNA) copies within a cell. Typically, a differential gene expression analysis is performed, where researchers compare the mRNAs expressed in healthy and diseased samples to identify specific genes
involved in a particular disease process. Another common application involves measuring a change in expression of certain genes when researchers challenge cells using candidate drug compounds. The current leading technologies for gene expression
analysis are:



| |  |  | hybridization microarrays, which can be used to monitor many thousands of gene products at the same time, but only for relatively small numbers of samples because
only one biological sample can be analyzed per individual microarray experiment; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | PCR based methods, which can be applied to large sample sets, but typically can only measure one to three gene products per sample.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



We believe neither of these approaches is suitable for
measuring large numbers of genes (tens to hundreds) over thousands of biological samples, as the testing of patient samples or of pharmaceutical drug candidates requires. We believe that a technology that could provide this capability would address
a significant unmet need in the marketplace.



Oncology.    The oncology area is uniquely suited for early pharmacogenomic application. With more than 500,000 cancer-related deaths reported annually in the United States and the expectation
that the number of cancer cases will double in the next 50 years, the oncology area is particularly open to adopting the most innovative medical advances. Although therapeutic options might abound for a given indication, treatment typically is
expensive and accompanied by a host of adverse side effects that are detrimental to patients quality of life. The optimal therapy for a disease can vary from patient to patient; moreover, the consequence of suboptimal therapy can range from
ineffectiveness to death from extreme adverse reactions. This results in the economic burden of trying multiple treatments, along with added costs of physician time and increased hospitalization. The ability to predict which therapies are most
likely to be effective for certain patients would constitute a powerful advance in oncology. Such predictions would likely arise only from an understanding of disease and therapeutic effect on both a cellular and molecular level. An early success in
treatment based on molecular knowledge of cancer is the use of Herceptin®in the treatment of breast cancer.
Breast cancer can be classified according to the expression of the HER-2/neu oncogene, which is amplified in approximately 30% of primary breast tumors. Herceptin is a HER-2 antibody that slows the progression of breast cancers in cases in which the
HER-2 receptor is over-expressed. Therefore, Herceptin has been marketed along with a test for HER-2 expression to guide its usage. Future therapeutics linked to predictive efficacyprognostic testsmay be expected to offer even greater
potential than Herceptin. In fact, many oncology drugs in late stage development today will likely go through clinical trials with tests using clinical surrogate markers to phenotype patients and therapeutic response.



ADME/Tox
screening/Toxicogenomics.    Adverse drug reactions (ADRs) lead to more than 100,000 deaths per year in the United States. ADRs ranked as one of the top six leading causes of death in the US in 1994. Additionally,
90% of pharmaceutical drug candidates fail during the development process despite extensive pre-clinical testing and positive animal testing data. Poor efficacy, pharmacokinetics and adverse clinical effects account for 70% of the failures. A large
proportion of failures result from conducting pre-clinical drug tests in animals and not in human tissues. Conversely, it is likely that a large proportion of failed drugs in animals could be recovered if tested in human tissues. Ideally, a high
throughput-screening assay would allow simultaneous profiling of gene and protein expression directly from stimulated cells. The results would enable functionally equivalent characterization of ADME/Tox properties of lead compounds. The promise of
the use of human hepatocytes with a consistent population of cells will likely make routine the in vitro toxicity testing of human



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tissues before clinical trials. Lead compounds could likely be eliminated much earlier in the development process and would thereby save time
and eliminate significant pre-clinical and clinical costs.



THE ACLARA SOLUTION



We
are developing eTag assay chemistries to address the critical need for an analytical system that would allow researchers to perform high throughput systems biology in order to easily and efficiently assess tens to hundreds of cellular pathway
or clinical biomarker analytes across thousands of samples.



Solution-Phase Multiplexing.    The eTag Assay System uses our proprietary eTag reporters and high performance solution-based assay chemistries to multiplex the analysis of
cellular signaling pathways and biomarkers. Tens to hundreds of genes, proteins, protein phosphorylation events and protein-protein interactions can be quantitatively analyzed from the same sample. The eTag Assay System represents a universal
platform for sensitive and quantitative analysis of genes and proteins, including cell surface receptors. Specific molecular binding events that occur during the reaction result in the release of electrophoretically distinct eTag reporters,
which are then separated to provide precise, sensitive quantitation of multiple analytes. Because multiple analytes can be analyzed directly from cell lysates in the same assay, biological sample requirements are greatly reduced, enabling
applications where the quantities of biological samples are limited. This is especially important in oncology where tumor biopsies are small and difficult to obtain. Furthermore, researchers can include multiple biological and internal controls in
each individual microwell, thus providing the means for data normalization across experiments and across laboratories. Our universal platform for quantitative analysis of both genes and proteins provides significant improvements in productivity,
throughput and cost, and a simple workflow for direct analysis from lysed human or other tissues.



Gene Expression Profiling of Tens to Hundreds of Genes.    For gene expression analysis, we have
licensed Invader®technology and Cleavase®enzyme from Third Wave Technologies, Inc. (Third Wave). The combination of eTag reporter molecules and the Invader technology
provides superior performance and orders of magnitude improvement in productivity for profiling the expression of many genes compared to other DNA and RNA detection methods. eTag-Multiplex Invader assays quantitate gene expression with high
precision, accuracy and efficiency, enabling researchers to obtain decision-critical results more rapidly and have greater success at detecting targets and drug response. Researchers can easily perform these analyses at high throughput using far
less bio-sample and can compare results across different samples, experiments and labs. They can profile many genes simultaneously in a single reaction directly from crude cell lysates, without the need for sample preparation, polymerase chain
reaction (PCR) or reverse transcription and with built-in internal controls.



Proteomic Multiplex Assays for Tens of Proteins and Cell-based Assays.    Our eTag chemistries are designed for simultaneous measurement of protein
expression in cell signaling pathways, phosphoprotein activation events and protein-protein interactions. A versatile menu of assay methods has been developed to analyze many types of proteins.



The solution phase multiplexing capability of eTag
assays can be applied to the following diverse areas:



| |  |  | ADME/Tox screening;
| | - |  | -------------------



| |  |  | Analysis of cellular pathways and activation events in cancer and inflammation;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Clinical biomarker screening;
| | - |  | -----------------------------



| |  |  | Pharmacogenomics/pharmacoproteomics high throughput screening of functional biomarkers;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Deorphanizing proteins such as kinases and G-Protein Coupled Receptors, or GPCRs; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Therapeutic antibody discovery.
| | - |  | -------------------------------



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KEY BENEFITS OF OUR eTAG
PRODUCTS



We believe that the eTag
Assay System offers researchers a universal platform with superior screening performance while providing large improvements in productivity and cost. This is critical if investigators are to successfully put cellular pathway screens into practice.
The key benefits of our eTag products include the following:



| |  |  | Superior screening performance.    Our eTag multiplex assay chemistries provide high specificity, high quantitation and precision
across a large dynamic range. Higher precision across a large dynamic range means that seemingly minute expression and activation changes are detected reliably providing superior screening results. Even higher performance is gained by normalization
of results using internal biological controls and assay controls that reduce error and provide easy comparisons across experiments and labs. These results are superior to other approaches such as western blots, ELISAs, bead-based systems and arrays.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Smaller quantity of biological sample and higher sensitivity.    Sensitive multiplex assays analyze many targets from the same sample
consuming fewer samples per target analyte. Even greater sensitivity is gained by the separation-based measurement of eTag reporters using capillary electrophoresis due to large signal to noise improvements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Versatility and broad applications.    Our eTag chemistries represent a universal platform for sensitive and precise analysis of
genes, proteins, and cells. This permits investigators to take a systems biology approach to understanding many types of biomarkers in cellular pathways and activation events. We are providing unique, enabling assays for sensitive and precise
analysis of receptor complexes and phosphorylation events.ELISA, bead-based systems, arrays and quantitative PCR only address one or few applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ease of use and direct analysis from cells.    Our eTag assays permit simple assay workflow directly from cells or cell lysates.
Multiplex analyses with homogenous, solution-phase formats are easily automated and scalable to high throughput. Simple workflow of just two to three steps means less time and less cost.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | High throughput.    Our eTag assays are efficient, and their simple workflow provides significant improvement in throughput and
turnaround time.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower cost.    Our eTag assays provide a lower cost approach to measuring multiple analytes and internal controls simultaneously,
improving data quality, conserving reagents and consumables, and reducing the need for additional replicates and external controls. Additionally, the simplified workflow dramatically reduces required manual labor.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OUR STRATEGY



We are developing the eTag Assay System to address
major segments of biopharmaceutical development. Our objective is to be a leading provider of enabling protein and genomic assays for systems biology research and disease management. In addition, we are addressing the new paradigm of molecular
medicine with the use of eTag assays for the development of new therapeutic applications and clinical biomarkers. Our strategic focus in oncology provides a direct pathway for development of new clinical applications and diagnostic tests
linked to the new therapeutics of the future.



Key elements of our strategy include:



| |  |  | Targeting our products toward high information content applications.    We have targeted gene expression, protein and cell-based
applications where it is otherwise difficult or impossible for researchers to obtain similar critical information. These applications are especially valuable in the areas of oncology research and clinical application and in ADME/Tox where
multiplexed analysis of both genes and proteins is important.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Focusing our initial commercial efforts on the largest pharmaceutical and biotechnology companies.    Initially we are targeting
pharmaceutical and biotechnology companies that have development efforts with cancer drugs and are developing pharmacogenomic applications, or are pursuing a new model of toxicogenomic screening.These are the companies that are traditionally
early adopters of technology and are critical to achieving broader market acceptance over time.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Offering commercial access toeTagchemistries through two types of licensing programs: Expert Access Programs and Discovery Partner
Programs.    Our Expert Access Program provides applications where alternative technologies exist, but where the eTag Assay System provides significant improvements in productivity and cost, better information and more
efficient use of biological sample. The Discovery Partners Program offers unique collaborative and highly enabling eTag applications in a customized format to meet a specific customers needs. Examples include receptor complex and
pathway activation analysis and protein deorphanization.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Developing collaborative partnerships with companies and academic institutions that can enhanceeTagassays.    We
have entered into license and supply agreements with Third Wave under which we have rights to incorporate Third Waves Invadertechnology and Cleavase®enzyme with our eTag technology to offer the eTag Assay System for multiplexed gene expression applications for the research market.
We continue to collaborate with notable opinion leaders and academic institutions in the area of cell signaling, oncology and autoimmunity to demonstrate the most compelling attributes of the eTag assays. We also plan to secure several
sources of antibodies for use in eTag assays and to establish service and support relationships with instrumentation companies to make the eTag Assay System more broadly available.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leveraging the substantial existing installed base of instruments.    Our eTag assays easily run on and are compatible with
the substantial installed base of existing capillary electrophoresis instruments.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Developing technology andeTagclinical assays in oncology.    We are actively pursuing strategic relationships in
the area of oncology to develop high-value eTag oncology assays for research and clinical application. We will offer unique assays that focus on cell receptor complexes, pathway activation and cell signaling that can be later developed for
diagnostic use.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OUR TECHNOLOGY



eTag Chemistry
Platform.    Our proprietary eTag Assay System has been developed in response to our pharmaceutical partners desire to screen compound libraries against panels of many types of analytes and their need
to develop tests for surrogate biomarkers that assess drug efficacy and safety. We have developed an assay platform that has the following characteristics:



| |  |  | Greater than 400 different fluorescent reporter molecules that can be easily incorporated into nucleic acid or protein probes using standard labeling methods.
Special cleavage agents are used to specifically release the fluorescent reporter molecules upon binding of the probe to its target.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eTagfluorescent reporter molecules are small, biologically compatible, organic molecules that differ incrementally in their
charge-to-mass ratiosand thus have a specific peak address in a capillary electrophoresis (CE) based separation. In addition, released eTag molecules are ideally suited to electrokinetic injection into capillariesonly released
eTag molecules are detected. In this way, data can be generated in a single well from many analytes in parallel.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Internal biological and assay controls for normalization are present in each and every assay, leading to highly accurate and reproducible identification and
quantification of analytes in a panel.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assays can be carried out on crude cell extracts with no sample purification and wash steps. Assays can be performed in standard microwell plates using
conventional high throughput screening automation instruments.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Proprietary high performance assay chemistries provide superior sensitivity and superior precision across a large dynamic range providing reliable detection
of small fold changes or activation levels. These measure mRNAs, proteins, cell-based receptors, protein phosphorylation events, receptor complexes and protein-protein interactions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Simple solution-phase assay format and workflow.    Most eTag assays have only two steps and work directly on
cells or cell lysates. Solution-phase assays avoid wash-steps common to ELISAs, arrays and bead-based systems, and can be readily automated using standard instrumentation. Solution-phase reagents and assays are easy and save time to develop without
problematic solid-phase conjugation steps and washes, high variability, and avoid many manufacturing variability and stability problems common with solid-phase platform technologies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



eTag System
Solution.    Building upon our proprietary eTag chemistries, we are developing a software solution for the analysis of the data generated in our multiplexed assays. Our eTag Informersoftware makes use of multiple internal controls to assign eTag peaks to particular analytes and to quantify
these analytes. The eTag Informer Software is designed to be compatible with the common capillary electrophoresis instruments that are used to perform eTag assays.



We have developed multiplexed eTag assays for profiling cellular pathways and clinical biomarkers.
Tens of proteins, protein phosphorylation or protein-protein interactions can be quantitatively measured. In addition, quantitative analysis of both mRNA expression panels and protein expression panels can be made from the same sample.



We have developed ready to use assay kits for
panels of mRNA and proteins to address many of the commonly studied events and pathways in drug development, including cytokines (cell growth factors), and metabolic pathways that are involved in drug toxicity. We are continuing the development of
important cell signaling assays for major pathways involved in cancer, inflammation and cell death. In addition, custom eTag multiplex assays are developed and manufactured for customers through our assay services, part of the eTag
Expert Access Program.



SEGMENTS



As of December 31, 2002, ACLARA did not have any separately
reportable business segments.



COLLABORATIONS AND STRATEGIC
PARTNERSHIPS



We have entered into
collaboration agreements with market leaders in various sectors of the life sciences industry. Our objectives with these agreements, as well as those we plan to execute with other leading companies and academic institutions, are to increase the
awareness of, and sponsorship of, our eTag technology, to broaden the applications of and increase the demand for our products and thereby to speed the commercialization of our eTag Assay System.



Third Wave TechnologiesIn October 2002, we
entered into License and Supply Agreements with Third Wave Technologies, Inc. (Third Wave) under which we were granted a license to certain of Third Waves intellectual property. Under these agreements, we have rights to incorporate
Third Waves Invader technology and Cleavase enzyme with our eTag technology to offer the eTag Assay System for multiplexed gene expression applications for the research market. In addition to licensing the Invader technology
platform to us, Third Wave will supply Cleavase enzyme to ACLARA for incorporation into eTag-Invader gene expression assays. Under these agreements we paid a license fee to Third Wave, purchased an initial quantity of Cleavase enzyme and will
make royalty payments to Third Wave. For 2003, 2004 and 2005, as we initiate our eTag commercialization efforts, these royalty payments are fixed in amount. These License and Supply Agreements superceded a previous Joint Development and
Marketing Agreement, signed in October 2001, between ACLARA and Third Wave.



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AmershamIn March 2003, we entered into a Joint Marketing and Services Agreement with Amersham Biosciences, Inc. (Amersham). Under this non-exclusive agreement, Amersham will sell and support the
MegaBACE, its automated high-throughput DNA analysis system, for use with our eTag assay chemistries.
Amersham is a leader in the marketing of capillary electrophoresis instrumentation to the life sciences research market and has a worldwide installed base of over a thousand systems. Amersham markets and provides support for the instrumentation, and
we market and provide support for the eTag Assay System.



Applied BiosystemsWe had entered into collaboration agreements with Applied Biosystems (ABI) for the purpose of co-developing systems, which would use our microfluidic devices (Labcards) in
genetic analysis and pharmaceutical drug screening. Agreements related to these two separate fields were executed in April 1998 and March 1999, respectively. Under these agreements, systems were to be jointly developed and ABI was awarded exclusive
marketing rights for Labcard products for these systems. During 2001, we agreed with ABI to amend the Agreement related to pharmaceutical drug screening to make it nonexclusive and to change the related trilateral agreement between ABI, ACLARA and
Johnson & Johnson to a bilateral agreement between ACLARA and Johnson & Johnson. In March 2002, the agreement related to genetic analysis was amended to render it nonexclusive. Under both of these amended agreements, if ABI wishes to develop
a Labcard product, we will have the right to negotiate to jointly develop and supply the Labcard product. ABI would obtain nonexclusive rights under certain of our patents if no agreement is reached on jointly developing the Labcard product, and we
will receive royalties on product sales. We currently have no ongoing development programs under these agreements.



MARKETING, SALES AND DISTRIBUTION



We market theeTag Assay System through our own business development organization to leading pharmaceutical and biotechnology
companies for research applications. We currently have a small group of employees engaged directly in business development, sales and marketing activities, along with active support in key accounts from technical personnel and from executive
management.



We introduced the eTag Assay
System in late 2002 through two access programs. Under the eTag Expert Access Program, customers can gain access to eTag assays for gene expression profiling, protein expression analysis, and cell-surface antigen assays. This is a
license-based program under which customers can buy eTag reagent kits, software, custom assay services, and consulting support. Under the Discovery Partners Program, customers can gain access to applications that may allow them to discover
and adopt novel drug targets, lead compounds, protein and antibody therapeutics and diagnostics.



RESEARCH AND DEVELOPMENT



We began developing our microfluidic technologies related to lab-on-a-chip products in the early 1990s and have developed a substantial base of intellectual property in this field. However
our primary research and development focus has more recently been on our unique eTag assay chemistries. Currently, all of our research and development programs are directed at continuing the development of the eTag Assay System and at
broadening the applications for which it can be used. The application areas on which we are focusing include gene expression profiling, protein expression analysis and cell signaling and protein-protein interaction assays. In addition we are
developing applications that may facilitate the discovery and adoption of novel drug targets, lead compounds, protein and antibody therapeutics and diagnostics. Research and development expense for the years ended December 31, 2002, 2001 and 2000
was $23.6 million, $23.5 million and $21.0 million, respectively.



COMPETITION



We are aware
that other companies are developing and applying microfluidics, microarray and assay technology to applications in life science research, including certain of the applications at which our products are targeted. In addition, a number of established
companies, such as Affymetrix, Inc., Applied Biosystems (a



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member of Applera Corporation), Amersham Biosciences Corp., and BD Biosciences provide technology and products to the genomics and
pharmaceutical research markets. We believe that the principal competitive factors in our markets are product capability, product reliability, customer service, supplier reputation, cost effectiveness of the technology and the sales and marketing
strength of the supplier.



The markets for life
science research and diagnostic products are highly competitive. Many of our potential competitors in these markets have substantially greater financial, technical and human resources than we do. We cannot assure you that they will not succeed in
developing technologies and products that would render our technologies and products obsolete and noncompetitive. We also cannot assure you that we will be able to compete effectively with these competitors greater marketing presence.



INTELLECTUAL PROPERTY



We seek patent protection on our core technologies,
applications and improvements of these technologies, and on related inventions that will help ensure the company of access to desired markets. As of March 2003, the company owns or has licensed over 240 patents or patent applications. Our policy is
to file patent applications and to protect technology, inventions and improvements to inventions that are commercially important to the development of our business. In line with the companys business plans, emphasis has been placed on building
our patent estate in eTag technology and its applications while consolidating and maintaining our patent estate in microfluidics technology. Patent applications filed by the company last year relate to the following essential areas:



| |  |  | eTag compositions, methods and applications in gene expression and proteomics, particularly as the latter relates to cell-based assays for measurement of
receptor dimerization, analysis of signal transduction pathways, and analysis of receptor-ligand binding for receptor and ligand deorphanization and drug screening; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | microfluidics instruments and devices, their fabrication and their applications, particularly as they relate to high-throughput screening or diagnostic applications
of eTag technology.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
issued patents have expiration dates from 2009 to 2022.



We also rely upon trade secrets, know-how, trademarks, copyright protection and continuing technological 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 trade secrets, trademarks and copyrights, to operate without infringing the proprietary rights of others, to acquire licenses related to enabling technology or products and to
enforce our intellectual property portfolio.



Our
practice is to require our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information developed by or made known to the individual during the course of the individuals relationship with us is to be kept confidential and not disclosed to third parties, subject to a right to
publish certain information in the scientific literature in certain circumstances and subject to other specific exceptions. In the case of employees, the agreements provide that all inventions conceived by the individual while employed by us will be
our exclusive property.



MANUFACTURING



We have developed in-house capabilities for the limited
manufacture ofeTagAssay Kits and components of those kits.



The nature of our assay chemistries necessitates access to specialized chemicals, reagents and raw materials. There are only a limited number of vendors who supply certain of these materials and in certain cases, the



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suppliers are the sole source of supply. We have a contractual arrangement with Third Wave for supply of Cleavase enzyme that is a critical
component of our gene expression products that we will commercialize for gene expression applications and this enzyme is proprietary to Third Wave. We will need to enter into additional contractual relationships to secure supply of antibodies for
use in our protein applications. We currently have no such supply arrangements in place. Certain of these suppliers will be the sole source of supply for the materials supplied.



While certain manufacturing processes will be performed internally by us, we intend to develop relationships
with third party suppliers and manufacturers for commercial scale production of certain components and kits.



We also provide our eTag Informer software to customers to enable them to perform analyses of the data obtained from our
eTag assays. In complex multiplexed assays, software to analyze the results and maintain the related database is an important element of the overall solution.



EMPLOYEES



As of December 31, 2002 we had 95 regular employees, of whom 72 are in research and development including pilot manufacturing, and 23 are
in business development, marketing and administration. None of our employees is covered by collective bargaining agreements, and we consider relations with our employees to be good.



RECENT DEVELOPMENTS



On March 20, 2003, we announced the appointment of Thomas G. Klopack as our chief executive officer and a member of our Board of
Directors. Mr. Klopack brings to ACLARA over 25 years experience commercializing new technologies and substantial life science operating management experience.



ITEM 2.PROPERTIES



We lease approximately 44,000 square feet of laboratory and office space in Mountain View, California. Most of this space is currently devoted to research and development, pilot manufacturing,
marketing and administration. Our lease expires in July 2009.



ITEM 3.LEGAL PROCEEDINGS



Information with respect to this item is incorporated by reference to note 10 in the Notes to Financial Statements.



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



None.





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PART II



|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
|------- |  | --------------------------------------------------------------------



Our common stock trades publicly on The Nasdaq Stock Market
under the symbol ACLA. The following table sets forth for the periods indicated, the quarterly high and low closing sales prices of the common stock on The Nasdaq Stock Market.



|     |  | Three Month Period Ended
|---- |  | ------------------------
|     |  | March 31, 2002          
|High |  | $                       
|Low  |  | $                       
|    
|     |  | Three Month Period Ended
|     |  | March 31, 2001          
|High |  | $                       
|Low  |  | $                       



As of
March 25, 2003, there were approximately 181 holders of record of 35,463,049 shares of outstanding Common Stock. ACLARA has not paid any dividends since its inception and does not intend to pay any dividends on its Common Stock in the foreseeable
future.



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ITEM 6.SELECTED FINANCIAL DATA



The statements of operations data for each of the years ended December 31, 2002, 2001 and 2000, and the balance sheet data as of December
31, 2002 and 2001, have been derived from our audited financial statements included elsewhere in this report. The statement of operations data for the years ended December 31, 1999 and 1998 and the balance sheet data as of December 31, 2000, 1999
and 1998 have been derived from our audited financial statements not included in this report. Our historical results are not necessarily indicative of results to be expected for any future period. The data presented below has been derived from
financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read with our financial statements, including the accompanying Notes to the Financial Statements,
and with Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.



|                                                                                                          |  | Year Ended December 31,               |        
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | -------
|                                                                                                          |  | 2002                                  |        
|                                                                                                          |  | (in thousands, except per share data) |        
|STATEMENTS OF OPERATIONS DATA:                                                                            |  |                                       |        
|Revenues                                                                                                  |  | $                                     | 2,520  
|                                                                                                          |  |                                       |        
|Costs and operating expenses:                                                                             |  |                                       |        
|Research and development                                                                                  |  |                                       | 23,575 
|Selling, general and administrative                                                                       |  |                                       | 12,471 
|Restructuring expense                                                                                     |  |                                       | 3,327  
|Litigation settlements                                                                                    |  |                                       | 3,953  
|                                                                                                          |  |                                       |        
|Total costs and operating expenses                                                                        |  |                                       | 43,326 
|                                                                                                          |  |                                       |        
|Loss from operations                                                                                      |  |                                       | (40,806
|Interest income (expense), net                                                                            |  |                                       | 3,559  
|                                                                                                          |  |                                       |        
|Net loss before extraordinary loss                                                                        |  |                                       | (37,247
|Extraordinary loss on early retirement of debt                                                            |  |                                       |       
|                                                                                                          |  |                                       |        
|Net loss                                                                                                  |  | $                                     | (37,247
|                                                                                                          |  |                                       |        
|Dividends related to beneficial conversion feature of preferred stock                                     |  |                                       |       
|Accretion to redemption value and accrued dividends on mandatorily redeemable
convertible preferred stock |  |                                       |       
|                                                                                                          |  |                                       |        
|Net loss attributable to common stockholders                                                              |  | $                                     | (37,247
|                                                                                                          |  |                                       |        
|Net loss per common share, before extraordinary loss, basic and diluted                                   |  | $                                     | (1.04  
|Extraordinary loss per common share, basic and diluted                                                    |  |                                       |       
|                                                                                                          |  |                                       |        
|Net loss per common share, basic and diluted                                                              |  | $                                     | (1.04  
|                                                                                                          |  |                                       |        
|Shares used in computing net loss per common share, basic and diluted                                     |  |                                       | 35,885 
|                                                                                                          |  |                                       |        



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|                                                             |  | December 31,   |        
|------------------------------------------------------------ |  | -------------- | -------
|                                                             |  | 2002           |        
|                                                             |  | (in thousands) |        
|BALANCE SHEET DATA:                                          |  |                |        
|Cash, cash equivalents, short-term and long-term investments |  | $              | 72,460 
|Restricted cash                                              |  |                | 34,125 
|Working capital                                              |  |                | 84,768 
|Total assets                                                 |  |                | 118,918
|Capital lease obligations, net of current portion            |  |                | 95     
|Loans payable, net of current portion                        |  |                | 447    
|Mandatory redeemable convertible preferred stock             |  |                |       
|Total stockholders equity (deficit)                         |  |                | 114,086

---

|(1) |  | In February 2003, the restrictions on the restricted cash balance were eliminated upon the cancellation of the related letter of credit.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



The following discussion of the financial condition and
results of operations should be read in conjunction with our financial statements and the notes to those statements included elsewhere in this Form 10-K.



OVERVIEW



We were formed by a spin-off transaction from Soane Technologies, Inc. that was incorporated in 1991 and subsequently changed its name to
2C Optics, Inc. We were incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed our name in 1998 to ACLARA BioSciences, Inc. ACLARA is a leading developer of assay chemistry for life science research. Since our inception
we have engaged primarily in research and development activities related to the application of our proprietary microfluidics and assay chemistry technologies to genomic and proteomic applications in the field of drug discovery and development.



Essentially all our revenues to date have been
generated from commercial research collaborations and from government grants. Total revenues were $2.5 million, $3.2 million and $3.5 million for the years ended December 31, 2002, 2001 and 2000, respectively. Substantially all of these revenues
have been derived from collaborations and grants that will not be active in 2003. Our sources of potential revenue in 2003 and for the next several years are likely to be primarily from commercialization of our eTag assay chemistries. In late
2002, we introduced commercial access programs under which customers can gain access to our eTag Assay System.



We have invested substantial amounts in establishing our assay chemistries for life science research. From our inception to December 31,
2002, we have incurred $86.8 million in research and development expenses. Over 70% of our 95 employees at December 31, 2002 were engaged in research and development activities.



We have incurred significant losses since our inception. As of December 31, 2002, our accumulated deficit was
$143.1 million and total stockholders equity was $114.1 million. Operating expenses were $43.3 million (including a $3.3 million charge related to restructuring and $4.0 million related to litigation settlement), $40.1 million (including
a $5.8 million charge related to settlements of litigation) and $71.6 million (including a $34.3 million charge related to settlements of litigation) for the years ended December 31, 2002, 2001 and 2000, respectively. We expect to incur additional
operating losses over at least the next two years as we continue to invest heavily in research and development activities, build our sales and marketing organizations and commercialize our eTag products.



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RESULTS OF OPERATIONS



YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



Revenue.    Our
total revenues for the years ended December 31, 2002, 2001 and 2000 were $2.5 million, $3.2 million and $3.5 million, respectively. Our revenues to date have derived primarily from commercial collaboration agreements and government grants.
Variations in these revenues have derived from the timing and amount of the award of the government grants and the completion of the collaboration efforts. Revenue from product sales has not been material. Substantially all of these revenues have
been derived from collaborations and grants that will not be active in 2003. Our sources of potential revenue in 2003 and for the next several years are likely to be primarily from commercialization of our eTag assay chemistries. In late
2002, we introduced commercial access programs under which customers can gain access to our eTag Assay System. Under the eTag Expert Access Program, customers can gain access to eTag assays for gene expression profiling, protein
expression analysis, and cell-surface antigen assays. This is a license-based program under which customers can buy eTag reagent kits, software, custom assay services, and consulting support. Under the Discovery Partners Program, customers
can gain access to applications that may allow them to discover and adopt novel drug targets, lead compounds, protein and antibody therapeutics and diagnostics.



Research and Development.    Research and development expenses for the years ended
December 31, 2002, 2001 and 2000 were $23.6 million, $23.5 million and $21.0 million, respectively. Research and development expenses were essentially unchanged in total for 2002 and 2001. Increased expense in 2002 related to the first of two $2.5
million minimum royalty payments under a litigation settlement was offset by a decrease of $1.6 million in personnel and project expenses and a $1.2 million decrease in stock-based compensation expense. The increase in research and development
expenses from 2000 to 2001 was primarily due to increased staffing and other project and personnel related costs, being partially offset by a reduction of $5.3 million in stock-based compensation expense. We expect to continue to devote substantial
resources to research and development. Essentially all of our research and development expenditures are now focused on developing the eTag Assay System and on expanding the applications for which it can be used.



Selling, General and
Administrative.    Selling, general and administrative expenses for the years ended 2002, 2001 and 2000 were $12.5 million, $10.8 million and $16.4 million, respectively. The increase of $1.7 million from 2001 to 2002
was primarily due to increased personnel expenses related to an increase in marketing and business development staffing and activity. The decrease from 2000 to 2001 was primarily due to a reduction of $7.8 million in litigation-related legal fees,
being partially offset by an increase in expenses related to the number of personnel in the marketing and business development functions We expect that our selling, general and administrative expenses will continue to be substantial as we
commercialize our products, and as a result of the administrative and support infrastructure required to support our operations.



Litigation Settlements.    As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common
stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sold the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put obligation associated with these shares at $20.8
million. Based on the change in ACLARAs stock price and in accordance with EITF No. 96-13 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF No.
96-13) and its related interpretations, and Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS 133), the put obligation was subsequently revalued on
a quarterly basis and at December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, the put obligation had a value of $27.2 million, $28.7 million, $30.5 million, and $30.9 respectively. As a result of these revaluations,
revaluation expenses of $4.0 million and $6.4 million were recorded in the accompanying Statements of Operations for the years ended December 31, 2002 and 2001, respectively. The revaluation of the put obligation used a Black-Scholes pricing
model with changes in valuation being recorded in the Statements of Operations. (See Note 9 in the accompanying Notes to Financial Statements.)



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In October
2002, we paid Caliper $32.5 million related to this settlement. Of this amount approximately $1.4 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement
agreement. On February 15, 2003 the letter of credit that had been issued to secure our performance under the settlement agreement was terminated.



Restructuring.    During the third quarter of 2002 ACLARA initiated a restructuring plan to streamline our
operations, reduce costs associated with the microfluidics aspect of our business and increase our focus on our eTag assay chemistry. Accordingly, we recognized a restructuring charge of $3.3 million during the third quarter, including $0.8
million of severance and related costs related to the reduction of our employment level by over 50 employees. This reduction was phased in over the second half of 2002 and primarily affected the microfluidics area of our business, where
essentially all of our active programs were eliminated. Termination benefits related to severance packages, out-placement services and other associated costs are included in restructuring expense on the statement of operation and restructuring
accrual on the balance sheet at December 31, 2002. We also wrote off approximately $2.5 million of fixed assets that are not expected to be used prospectively.



The following table sets forth an analysis of the components of the restructuring charges (in thousands):



|                                     |  | Severance    |      |   | Fixed  |   |        | Other   |  |   |       |  
|------------------------------------ |  | ------------ | ---- | - | ------ | - | ------ | ------- |  | - | ----- | -
|                                     |  | and Benefits |      |   | Assets |   |        | Charges |  |   | Total |  
|Restructuring provision:             |  |              |      |   |        |   |        |         |  |   |       |  
|Severance and benefits               |  | $            | 753  |   |        | $ |       |         |  | $ |      |  
|Property and equipment write off     |  |              |     |   |        |   | 2,467  |         |  |   |      |  
|Other charges                        |  |              |     |   |        |   |       |         |  |   | 107   |  
|                                     |  |              |      |   |        |   |        |         |  |   |       |  
|Total                                |  | $            | 753  |   |        | $ | 2,467  |         |  | $ | 107   |  
|Non-cash charges                     |  |              |     |   |        |   | (2,467 | )       |  |   |      |  
|Cash paid                            |  |              | (280 | ) |        |   |       |         |  |   | (79   | )
|                                     |  |              |      |   |        |   |        |         |  |   |       |  
|Reserve balance at December 31, 2002 |  | $            | 473  |   |        | $ |       |         |  | $ | 28    |  
|                                     |  |              |      |   |        |   |        |         |  |   |       |  



ACLARA
anticipates the remaining reserve of $501,000 will be substantially paid out by the first quarter of 2003.



Interest Income (Expense), Net.    Interest income (expense) net represents income earned on our cash and cash
equivalents, short-term investments, long-term investments and restricted cash, and interest paid on bridge loans, capital leases and equipment loans. Net interest income was $3.6 million, $7.8 million and $10.0 million in 2002, 2001 and 2000,
respectively. The decrease in net interest income from 2001 to 2002 and 2000 to 2001 was primarily due to lower average balances in cash, cash equivalents, short-term and long-term investments and lower market interest rates.



Extraordinary Loss.    In 2000, we
recorded an extraordinary loss of $1.1 million related to the early payoff of capital leases and equipment financing loans. These leases and loans were paid off on September 1, 2000 with a cash payment totaling $4.1 million.



Income Taxes.    We incurred net
operating losses in 2002, 2001 and 2000 and consequently we did not pay any federal, state or foreign income taxes. As of December 31, 2002, we had federal net operating loss carryforwards of approximately $126 million and California net operating
loss carryforwards of approximately $57 million. We also had federal research and development tax credit carryforwards of approximately $1.8 million and California research and development tax credit carryforwards of approximately $2.3 million.
If not utilized, the net operating losses and credit carryforwards will expire at various dates beginning in 2005 through 2010. Utilization of net operating losses and credits may be subject to substantial annual limitations due to change of
ownership provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. See Note 16 in the accompanying Notes to
Financial Statements.



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LIQUIDITY AND CAPITAL
RESOURCES



Since inception, we have financed
our operations primarily through our initial public offering in March 2000 that raised net proceeds of $201.0 million, private placements of preferred stock totaling $32.3 million, loans from the landlord of our Mountain View facility and equipment
financing lines of credit totaling $4.4 million, capital leases totaling $1.8 million, and research and development funding from collaborators and government grants. As of December 31, 2002, we had total cash resources of $106.6 million,
comprising $38.0 million in cash and cash equivalents, $12.8 million in short-term marketable investments, $21.6 million in long-term marketable investments and $34.1 million in restricted cash. The restrictions on this restricted cash balance
were eliminated in February 2003 upon the termination of the underlying letter of credit that had been issued in relation to a litigation settlement. Although the litigation settlement amount was fully paid in October 2002, the letter of credit
securing that payment was not cancelled until February 2003.



Financing activities used cash of $416,000 for the year ended December 31, 2002 and provided cash of $633,000 and $197.4 million for the years ended December 31, 2001 and 2000, respectively. These amounts represent the net proceeds
that we received from the sale of preferred stock, common stock and proceeds from stockholder notes receivable being offset by repayments of equipment financing loans and capital leases and a repurchase of stock. In October 2002, we repurchased for
$1.35 million 900,000 shares of Common Stock previously issued to Caliper in relation to a litigation settlement. In March 2000, we completed an initial public offering of 10,350,000 shares of common stock at an offering price of $21.00 per share,
raising net proceeds of $201.0 million.



Our
operating activities used cash of $61.6 million, $20.0 million and $16.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. Uses of cash in operating activities primarily resulted from operating losses adjusted for non-cash
expenses and changes in working capital and other liabilities. Included in 2002 was $31.2 million related to the payment of a previous litigation settlement, $2.5 million minimum royalties related to the same litigation settlement and $2.8 million
of inventory purchases. Excluding these items, cash used in operations was $25.5 million, substantially less than net loss due to non-cash charges included in net loss.



As part of our investing activities, cash outflows for additions of property and equipment were $2.3 million,
$4.0 million and $2.4 million for the years ended December 31, 2002, 2001 and 2000, respectively. In 2002 we purchased a license for $1.5 million from Third Wave.



A loan agreement with the landlord of our Mountain View facility allowed us to borrow $663,000 for leasehold
improvements at an annual interest rate of 8.5%. The principal balance of this loan at December 31, 2002 was $507,000. The note matures on July 1, 2009.



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In March 1999,
ACLARA entered into a ten year operating lease agreement for our Mountain View facility. The future annual minimum loan payments including accrued interest and lease payments under the loan and lease agreements at December 31, 2002 are as follows
(in thousands):



|Years Ending December 31,               |  | Capital Lease Commitments |     |   | Loan Payments |   |      | Operating Lease Commitments
|--------------------------------------- |  | ------------------------- | --- | - | ------------- | - | ---- | ---------------------------
|2003                                    |  | $                         | 156 |   |               | $ | 101  |                            
|2004                                    |  |                           | 98  |   |               |   | 101  |                            
|2005                                    |  |                           |    |   |               |   | 101  |                            
|2006                                    |  |                           |    |   |               |   | 101  |                            
|2007                                    |  |                           |    |   |               |   | 101  |                            
|2008 and thereafter                     |  |                           |    |   |               |   | 126  |                            
|                                        |  |                           |     |   |               |   |      |                            
|Total minimum loan and lease payments   |  |                           | 254 |   |               |   | 631  |                            
|                                        |  |                           |     |   |               |   |      |                            
|Amount representing interest            |  |                           | (17 | ) |               |   | (124 | )                          
|                                        |  |                           |     |   |               |   |      |                            
|Present value of minimum lease payments |  | $                         | 237 |   |               | $ | 507  |                            
|                                        |  |                           |     |   |               |   |      |                            



We are
involved in certain litigation as discussed in Note 10 of Notes to Financial Statements.



We believe that our current cash and cash equivalents, short-term and long-term marketable investment balances and funding anticipated from collaborators and customers will be sufficient to satisfy our
anticipated cash needs for working capital and capital expenditures for at least the next 24 months. After that time, we cannot be certain that additional funding, if required, will be available on acceptable terms, or at all. Despite our
expectations, we may need to raise additional capital in the future. We may raise additional funds through public or private financing, collaborative relationships or other arrangements. Further, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed may harm our business and operating results.



As part of our litigation settlement with Caliper, we provided a letter of credit to Caliper in the amount of
$32.5 million as a guarantee of our performance under the settlement agreement. The banking institution that issued the letter of credit required us to maintain a balance of 105% of the letter of credit amount in a segregated account. This amount of
$34.1 million is recorded as restricted cash in our financial statements at December 31, 2002. In October 2002, we paid Caliper $32.5 million related to this settlement. Of this amount, approximately $1.4 million was for the repurchase at the
then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. On February 15, 2003 the letter of credit was terminated and the restricted cash was released.



CRITICAL ACCOUNTING POLICIES



ACLARA regularly reviews its selection and application of
significant accounting policies and related financial disclosures. Our significant accounting policies are described in Note 2 in the accompanying Notes to Financial Statements. The application of these accounting policies requires that management
make estimates and judgments. On an ongoing basis, ACLARA evaluates its estimates, which are based on historical experience and market and other conditions and on assumptions that we believe to be reasonable. Actual results may differ from these
estimates due to actual market and other conditions, and assumptions being significantly different than was anticipated at the time of preparation of these estimates. Such differences may affect future financial results. We believe the following
estimates reflect the application of our most critical accounting policies and require our most significant judgments.



Revenue Recognition.    ACLARA recognizes revenue from government grants in the period in which research and
development costs are incurred. Non-refundable milestone payments received related to substantive at-risk milestones are recognized when our performance of the milestone under the terms of the collaboration is



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achieved and there are no further performance obligations. Research and development fees from commercial collaboration agreements are
generally recognized as revenue on a straight-line basis over the life of the collaboration agreement or as the research work is performed. Any amounts received in advance of performance, or with ongoing obligations still present, are deferred until
performance has been completed and such obligations have been met. Product revenue is recognized when title and risk of ownership has transferred, remaining obligations are insignificant and collection of any remaining related account receivable is
reasonably assured. ACLARA did not offer warranties on its products sold through December 31, 2002.



Litigation Settlements.    As part of the litigation settlement with Caliper, 900,000 shares of ACLARA common
stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sold the shares after August 21, 2002 but before February 21, 2003. In accordance with, EITF No. 96-13 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF No. 96-13) and its related interpretations, and Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
Instruments and Hedging Activities (SFAS 133), the put obligation associated with these shares was revalued on a quarterly basis until it was settled. ACLARA estimates the fair value of the put obligation using a Black-Scholes
pricing model with changes in valuation being recorded in the Statement of Operations. The Black-Scholes pricing model requires certain estimates and assumptions, including estimated volatility of ACLARAs common stock and estimated life of the
put obligation. On October 15, 2002, ACLARA made a payment of $32.5 million to Caliper related to this settlement of litigation and put obligation.



From time to time, ACLARA may become involved in litigation relating to claims arising from the ordinary course of business. Management
considers such claims on case-by-case basis. We accrue for loss contingencies if both of the following conditions are met:



| |  |  | Information available prior to the issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been
incurred at the date of the financial statements; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The amount of loss can be reasonably estimated.
| | - |  | -----------------------------------------------



Future changes in these estimates may require us to record additional reserves and may materially affect our results of operations,
financial condition and future cash flows.



Cash Equivalents and Marketable Investments.    ACLARA maintains investment portfolio holdings of various issuers, types and maturities. ACLARA considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. Management determines the appropriate classification of its short-term and long-term marketable investment securities at the time of purchase and reevaluates such determination as
of each balance sheet date. At December 31, 2002, these investment securities are classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of
accumulated other comprehensive income (loss). Management also assesses whether declines in the fair value of investment securities are other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the
individual security is written down to fair value and the amount of the write down is included in earnings. In determining whether a decline is other than temporary, management considers the following factors:



| |  |  | Length of the time and the extent to which the market value has been less than cost;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | The financial condition and near-term prospects of the issuer; and
| | - |  | ------------------------------------------------------------------



| |  |  | The intent and ability of ACLARA to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Inventory.    Our inventories are stated at the lower of cost or market, cost being determined under the first-in, first-out method. We review inventories periodically and reduce items considered to
be slow moving or obsolete to estimated net realizable value through an appropriate reserve. No reserve was provided as of



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December 31, 2002, however if our estimates of the market value or demand of our inventory are more favorable than actual market conditions,
we may be required to make inventory write-downs in the future. We had inventories with a carrying value of $2.8 million at December 31, 2002.



RECENT ACCOUNTING PRONOUNCEMENTS



For recent accounting pronouncements, see Note 2 in the accompanying Notes to Financial Statements.



FACTORS AFFECTING OPERATING RESULTS



The following risk factors outline certain risks and
uncertainties concerning future results and should be read in conjunction with the other information contained in this Annual Report on Form 10K. Any of these risk factors could materially and adversely affect our business, results of operations,
financial condition and future growth prospects. Additional risks and uncertainties that we do not currently know about or that we currently deem immaterial may also impair our business, financial condition, results of operations and future growth
prospects.



WE HAVE A HISTORY OF OPERATING LOSSES AND AN
ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.



Since we were founded in May 1995, we have engaged primarily in research and development efforts. We have incurred operating losses every year since inception, and we may never achieve profitability.
Net losses for the years ended December 31, 2002, 2001 and 2000 were $37.2 million, $29.0 million and $59.2 million, respectively. As of December 31, 2002, we had an accumulated deficit of $143.1 million. Our losses have resulted principally from
costs incurred in connection with our research and development activities, from litigation settlement charges and from selling, general and administration costs associated with our operations.



To date, we have not generated any significant revenue from
the sale of products. Our ability to generate revenues from product sales or to achieve profitability is dependent on our ability, alone or with collaborative partners, to successfully design, develop, manufacture and commercialize our proprietary
assay chemistry systems in a timely manner. Our revenue to date has been generated principally from collaborative research and development agreements, government grants and commercial collaborations related to our former microfluidics activities.
None of these revenue sources are expected to be significant in 2003, when our eTag Assay System is anticipated to be the primary source of revenue. We expect that our costs will continue to exceed our revenues on an annual basis for at least
the next two years. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.



OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.



Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to
decline. Some of the factors that could cause our operating results to fluctuate include:



| |  |  | the willingness of our customers to enter into our access programs and the adoption of our technologies by customers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of the release, and the competitiveness of our products;
| | - |  | -------------------------------------------------------------------



| |  |  | expiration or termination of contracts with collaborators or government research grants, which may not be renewed or replaced;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | final outcome of litigation to which we are currently a party or threatened claims against us;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | disagreements regarding intellectual property rights; and
| | - |  | ---------------------------------------------------------



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| |  |  | general and industry-specific economic conditions, which may affect our customers research and development expenditures and use of our products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



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 the short-term. In particular, research and development and selling, general and administrative
expenses are not affected directly by variations in revenue.



Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons to results of historical operations are not a good indication of our future performance. It is possible that in some future
quarter or quarters, our operating results will be below the expectations of securities analysts or investors, or will be below the level of prior periods. In these cases, our stock price could fluctuate significantly or decline.



NONE OF OUR PRODUCTS HAS YET BEEN SUCCESSFULLY COMMERCIALIZED.



We are in the process of commercially launching our
eTag assay chemistries, through our Expert Access Program and Discovery Partners Program. However, we have limited experience with developing, manufacturing, distributing or selling commercial products. We may not be able to perfect the
design of our products due to the complexity of the technologies on which they are based and/or the demands of the scientific processes that they address. Additionally we may not be able to adequately provide the desired level of services required
under our access programs. For instance, we have limited experience establishing the high degrees of accuracy, reliability and ease of use required for commercial introduction of our products and services. Even though we have designed products that
function in a prototype system or on a limited volume basis, we cannot assure you that we will be able to adapt the design or develop our organization to allow for large-scale manufacturing. Although we have projected launch periods for certain of
our products, we cannot assure you that we will complete development of the products by those launch dates, or at all. If we are unable to design commercially viable assay chemistry products, or other products or systems, either independently or
with our collaborative partners, we may be unable to remain in business.



COMMERCIALIZATION OF OUR PRODUCTS DEPENDS ON MARKET ACCEPTANCE OF OUR ASSAY CHEMISTRY TECHNOLOGY. IF THIS DOES NOT ACHIEVE ACCEPTANCE, OUR ABILITY TO GENERATE SALES WOULD BE LIMITED AND OUR LOSSES WOULD INCREASE.



Demand for our products is substantially dependent upon
widespread market acceptance of our assay chemistry products for applications in drug discovery and for applications in genomics, proteomics and pharmaceutical drug screening. Our assay chemistry products represent a new technological approach, and
our ability to sell assay chemistry products will depend on the willingness of customers to adopt such new technological approaches. We cannot assure you that our assay chemistry products will achieve substantial acceptance in our target markets.
Market acceptance will depend on many factors, including:



| |  |  | our ability to demonstrate to potential customers the benefits and cost effectiveness of our assay chemistry products, relative to competing technologies and
products;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent and success of our efforts to market, sell and distribute the assay chemistry products; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | adoption of the systems biology approach to drug discovery and development.
| | - |  | ---------------------------------------------------------------------------



Further, failure of our initial assay chemistry products to be favorably received by the market could
undermine our ability to successfully introduce subsequent assay chemistry products. If our assay chemistry products do not gain market acceptance, our losses would increase and we may be unable to remain in business.



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OUR DIRECT AND THIRD PARTY
SALES AND MARKETING CHANNELS NEED TO BE DEVELOPED. IF WE ARE UNABLE TO DO SO SUCCESSFULLY, WE MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUES.



We do not have fully developed sales and distribution channels for our products. We have recently restructured our relationship with Third
Wave and have assumed direct responsibility for the commercialization of eTag assay chemistry products for the gene expression market that incorporate Third Waves technology. In addition, for applications in proteomics, we will continue
to be dependent on our own sales and marketing organization, which has yet to be fully developed. We may not be able to successfully recruit executive management and sales and marketing personnel to market and sell our products.



Our ability to generate revenues will be dependent on the
development of the appropriate partnerships, on the resources devoted by our partners to commercialization activities and on the success of those activities. Our ability to generate revenue will also be dependent on our success in recruiting
management and business development personnel and in building a sales and marketing organization. We cannot assure you that we will be able to successfully build and manage effective sales and distribution channels, or that our partners will devote
sufficient resources to our commercialization efforts to be effective.



IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD BE UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN THE MARKET. THE COST OF ENFORCING OUR PROPRIETARY
RIGHTS MAY BE EXPENSIVE AND RESULT IN INCREASED LOSSES. WE MAY BE FOUND TO INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.



Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United
States and in other countries, and our inability to do so could harm our competitive position. We rely on our portfolio of over 240 issued and pending patent applications in the United States and in other countries to protect a large part of our
intellectual property and our competitive position. We cannot assure you that any of the currently pending or future patent applications will be issued as patents, or that any patents issued to us will not be challenged, invalidated, held
unenforceable or circumvented. Further, we cannot assure you that our intellectual property rights will be sufficiently broad to prevent third parties from producing competing products similar in design to our products.



In addition to patent protection, we also rely on protection
of trade secrets, know-how and confidential and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, we
cannot assure you that these agreements will provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information or that adequate remedies would exist if unauthorized use or disclosure were
to occur. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. Further, we
cannot assure you that others have not or will not independently develop substantially equivalent know-how and technology.



Our commercial success also depends in part on avoiding the infringement of other parties patents or proprietary rights and the
breach of any licenses that may relate to our technologies and products. We are aware of various third-party patents that may relate to our technology. We believe that we do not infringe these patents but cannot assure you that we will not be found
in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently developing or with new products that we may seek to develop in the future. If third parties assert infringement claims
against us, we may be forced to enter into license arrangements with them. We cannot assure you that we could enter into the required licenses on commercially reasonably terms, if at all. The failure to obtain necessary licenses or to implement
alternative approaches may prevent us from commercializing products under development and would impair our ability to be commercially



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competitive. We may also become subject to interference proceedings conducted in the U.S. Patent and Trademark Office to determine the
priority of inventions.



The defense and
prosecution, if necessary, of intellectual property suits, U.S. Patent and Trademark Office interference proceedings and related legal and administrative proceedings will result in substantial expense to us, and significant diversion of effort by
our technical and management personnel. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, could put our patents at risk of being
invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.



Further, there is a risk that some of our confidential information could be compromised during the discovery process of any litigation.
During the course of any lawsuit, 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.



WE HAVE LIMITED MANUFACTURING EXPERIENCE AND WILL BE SUBJECT TO THE RISK OF DEVELOPING AND MAINTAINING RELATIONSHIPS WITH THIRD PARTY MANUFACTURERS AND SUPPLIERS AND THE RISK OF IMPAIRMENT IN VALUE OF INVENTORY.



We have no experience manufacturing our products in the high
volumes that will be necessary for us to achieve significant commercial sales. To date, we have limited our manufacturing activities to low volume manufacturing of eTag assay chemistry products for testing purposes and for validation use by
our collaborative partners and potential customers. The nature of our assay chemistries necessitates access to specialized chemicals, reagents and raw materials, such as antibodies used in conjunction with our eTag components. There are only
a limited number of vendors who supply these materials and for some of these materials the suppliers are the sole source of supply. We cannot be certain that we will be able to successfully secure supply of all needed materials, nor can we be
certain that these vendors will supply these materials consistently or in the quantities necessary for high volume production. We will need to enter into contractual relationships with these or other manufacturers to facilitate commercial scale
production ofeTag assay chemistry products, and we cannot assure you that we will be able to do so on a timely basis, for sufficient quantities of products or on commercially reasonable terms. We will need to secure supply of antibodies for
use in our protein applications and there can be no assurance that we will be able to do so on commercially reasonable terms. We will be dependent on Third Wave, for supply of Cleavase enzyme that is a critical component of products that we will
commercialize for gene expression applications and this enzyme is proprietary to Third Wave. Failure of Third Wave to supply enzyme could seriously impair our business. Pursuant to the Supply Agreement with Third Wave, we purchased an initial
quantity of Cleavase enzyme from Third Wave. This initial quantity of enzyme represents more than one years supply. Accordingly, we cannot assure you that we can establish or maintain reliable, high-volume manufacturing at commercially
reasonable costs. In addition, the loss of any of these suppliers may result in a delay or interruption of our supply of assay chemistries. Any significant delay or interruption would have a material adverse effect on our ability to supply adequate
quantities of our products and would result in lost revenues. In addition, we have limited experience in developing and providing the software tools necessary to perform analyses of data derived from our eTag assays.



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



Our performance is substantially
dependent on the performance of our senior management and key scientific and technical personnel. The loss of the services of any member of our senior management, scientific or technical staff may significantly delay or prevent the achievement of
product development and other business objectives



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and could have a material adverse effect on our business, operating results and financial condition. Our future success will also depend on
our ability to identify, recruit and retain additional qualified scientific, technical and managerial personnel. There is currently a shortage of skilled executives and intense competition for such personnel in the areas of our activities, and we
cannot assure you that we will be able to continue to attract and retain personnel with the advanced qualifications necessary for the development of our business. The inability to attract and retain the necessary scientific, technical and managerial
personnel could have a material adverse effect on our research and development activities, sales revenue, operating costs and future growth prospects.



WE EXPECT INTENSE COMPETITION IN OUR TARGET MARKETS.



We compete with companies that design, manufacture and market analytical instruments and reagents for genomics, proteomics and
pharmaceutical drug screening using alternate technologies for applications such as gene expression analysis and protein function analysis and other products and systems. In addition, a number of companies are developing new technologies for
miniaturizing various laboratory procedures for genomics, proteomics and drug screening markets targeted by us, using such methods as beads, hybridization chips and high-density microwell plates.



We anticipate that we will face increased competition in the
future as companies enter the market with new technologies. Rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introduction, characterize the markets for our products. One or
more of our competitors may render our technology obsolete or uneconomical by advances in existing technological approaches or the development of different approaches. Many of these competitors have greater financial and personnel resources and more
experience in research and development than we have. We also cannot assure you that we will be able to compete effectively with the competitors greater market presence. Furthermore, we cannot assure you that the pharmaceutical and
biotechnology companies which are our potential customers or our strategic partners will not develop competing products.



WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE, WHICH WOULD INCREASE OUR LOSSES IF SUCH CLAIMS OCCURRED.



As we begin commercialization of our products,
we will face exposure to product liability claims. Any product liability claims arising in the future, regardless of their merit or eventual outcome, could increase our losses. We cannot assure you that we will continue to be able to maintain our
current coverage or obtain new insurance on acceptable terms with adequate coverage, or at reasonable costs. In addition, potential product liability claims may exceed the amount of our insurance or may be excluded from coverage under the terms of
the policy.



WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN
NEEDED OR GENERATE THE CAPITAL NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS, WHICH COULD HURT OUR ABILITY TO COMPETE OR ACHIEVE PROFITABILITY.



It might be necessary for us to raise additional capital over the next few years to continue our research and development efforts and to
commercialize our products. We believe that the proceeds from our initial public offering and projected revenue from collaborations should be sufficient to fund our anticipated levels of operations through at least the next 24 months. However, we
cannot assure you that our business or operations will not change in a manner that would consume available resources more rapidly than anticipated. We also cannot assure you that existing or potential future collaborations or sales revenue will be
adequate to fund our operations. We may need additional funds sooner than planned to meet operational needs, capital requirements for product development and commercialization and payment of monetary damages in any on-going or future litigation. We
cannot assure you that additional funds will be available when needed, or on terms acceptable to us, or that sufficient revenue will be generated from sales. If adequate funds are not available, we may have to reduce substantially or eliminate
expenditures for the development and production of certain of our proposed



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products or obtain funds through arrangements with collaboration partners that require us to relinquish rights to certain of our technologies
or products. Either of these alternatives could have a material adverse effect on our business, operating results, financial condition and future growth prospects.



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



Our executive officers, directors and their affiliates presently beneficially own or control a significant percentage of the outstanding shares of common stock. Accordingly, our current executive officers, directors and their
affiliates, if acting together, would have the ability to influence the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets and
any other significant corporate transactions. The concentration of ownership could also delay or prevent a change of control of our company at a premium price if these stockholders oppose it.



THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE.



There has only been a public market for our common stock since
March 21, 2000, and since then our common stock has traded in a range between $1.30 and $60.00 per share.



The trading price of our common stock may continue to be highly volatile and could be subject to wide fluctuations in price in response to
various factors, many of which are beyond our control, including: quarterly fluctuations in results of operations; our ability to successfully commercialize our products; technological innovations or new commercial products by us or our competitors;
developments concerning government regulations or proprietary rights which could affect the potential growth of our customers; the execution of new collaborative agreements and material changes in the relationships with business partners; market
reaction to trends in revenues and expenses, especially research and development; changes in earnings estimates by analysts; sales of common stock by existing stockholders; and economic and political conditions.



The market price for our common stock may also be affected by
our ability to meet analysts expectations. Any failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, the stock market, and the NASDAQ National Market and the market
for technology companies in particular, is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance
of these companies. In the past, companies that have experienced volatility in the market price of their securities have been the subjects of securities class action litigation, and as noted elsewhere in this Form 10-K, we have been sued in a
securities class action lawsuit. Although we believe that the class action lawsuit and the other lawsuits described elsewhere in this Form 10-K are without merit, an adverse determination in any of the lawsuits could have a very significant effect
on our business and results of operations, and could materially affect the price of our stock. Moreover, regardless of the ultimate result, it is likely that the lawsuits will divert managements attention and resources from other matters,
which could also adversely affect our business and the price of our stock.



ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW LIMIT THE ABILITY OF ANOTHER PARTY TO ACQUIRE US, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.



Certain provisions of our certificate of incorporation and our bylaws could delay or prevent a third party
from acquiring us, even if doing so might be beneficial to our stockholders. For example, we have a classified board of directors whose members serve staggered three-year terms and are removable only for cause. In addition, on March 16, 2001, ACLARA
adopted a stockholder rights plan (the Rights Plan). Pursuant to the



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Rights Plan, ACLARAs Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (a Right) on
each outstanding share of ACLARAs common stock. Each Right will entitle stockholders to buy one-one hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.50 in the event that the Rights
become exercisable. Subject to limited exceptions, the Rights will be exercisable if a person or group acquires 15% or more of the Companys common stock or announces a tender offer for 15% or more of the common stock. If ACLARA is acquired in
a merger or other business combination transaction which has not been approved by the Board of Directors, each Right will entitle its holder to purchase, at the Rights then-current exercise price, a number of the acquiring companys
common shares having a market value at the time of twice the Rights exercise price. These provisions may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control
of ACLARA. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger or combination with us. These
factors could also limit the price that investors might be willing to pay for our common stock in the future.



ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value
adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell securities, which have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at
the same time maximize yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any
single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than two years.



The following tables present the hypothetical changes in fair
values in ACLARAs cash, cash equivalents, short-term and long-term marketable investments held at December 31, 2002 that are sensitive to the changes in interest rates. The modeling technique used measures the change in fair values arising
from hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (BPS), 100 BPS and 150 BPS. Fair values represent the market principal plus accrued interest at December 31, 2002 (in thousands).



|                                        |  | Given an Interest Rate Decrease of X Basis Points |        | Given an Interest Rate Increase of X Basis Points
|--------------------------------------- |  | ------------------------------------------------- | ------ | -------------------------------------------------
|Issuer                                  |  | 150 BPS                                           |        | 100 BPS                                          
|Money Market                            |  | $                                                 | 36,402 |                                                  
|Bonds of US Government and its agencies |  | $                                                 | 36,834 |                                                  
|                                        |  |                                                   |        |                                                  
|                                        |  | $                                                 | 73,236 |                                                  
|                                        |  |                                                   |        |                                                  



The
weighted average maturity of ACLARAs long-term marketable investments at December 31, 2002 was 697 days.



With the exception of the put obligation associated with the settlement of litigation, we do not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion.



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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Certain information required by this Item is included in Item 6 of Part II of this Report and is incorporated herein by reference. All
other information required by this Item is included in Item 15 of this Report and is incorporated herein by reference.



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

FINANCIAL DISCLOSURE



None.



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PART III



ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Information required by this item is incorporated by reference from our definitive proxy statement for the 2003 Annual Meeting of
Stockholders (the Proxy Statement) to be filed with the Securities and Exchange Commission.



ITEM 11.EXECUTIVE COMPENSATION



Information required by this item is incorporated by reference from our Proxy Statement.



ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS



Information required by this item is incorporated by reference from our Proxy Statement.



ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Information required by this item is incorporated by reference from our Proxy Statement.



ITEM 14.CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures (as defined in Securities Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are
designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



Within 90 days prior to the date of this annual report, we carried out an evaluation, under the supervision and with the participation of
the Companys management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective. There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the
date we completed our evaluation.



28



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ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



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



1.    Financial Statements:



|                                                                                                             |  | Page
|------------------------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Accountants                                                                            |  | F-2 
|Balance Sheets at December 31, 2002 and 2001                                                                 |  | F-3 
|Statements of OperationsYears Ended December 31, 2002, 2001 and
2000                                        |  | F-4 
|Statements of Stockholders Equity (Deficit)For the Period From May 5, 1995
(inception) toDecember 31, 2002 |  | F-5 
|Statements of Cash FlowsYears Ended December 31, 2002, 2001 and
2000                                        |  | F-7 
|Notes to Financial Statements                                                                                |  | F-9 



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



The exhibits listed in the accompanying exhibit index are filed with or incorporated by reference as part of
this report.



(b)    Reports on Form 8-K:



None.



29



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SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2003.



ACLARA BIOSCIENCES, INC.By:

/s/    THOMAS G. KLOPACKThomas G. Klopack Chief Executive Officer




POWER OF ATTORNEY



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



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



|Name                                                |  | Title                                                                                            |  | Date          
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | --------------
|                                                   
|/s/    THOMAS G.
KLOPACKThomas G. Klopack           |  | Chief Executive Officer and Director (principal executive officer)                               |  | March 31, 2003
|                                                   
|/s/    ALFRED G.
MERRIWEATHERAlfred G. Merriweather |  | Vice President, Finance and Chief Financial Officer (principal financial and accounting
officer) |  | March 31, 2003
|                                                   
|Thomas R. Baruch                                    |  | Director                                                                                         |  | March 31, 2003
|                                                   
|/s/    HERBERT H.
HOOPERHerbert H. Hooper           |  | Director                                                                                         |  | March 31, 2003
|                                                   
|Edward M. Hurwitz                                   |  | Director                                                                                         |  | March 31, 2003
|                                                   
|/s/    JOSEPH M.
LIMBERJoseph M. Limber             |  | Director                                                                                         |  | March 31, 2003
|                                                   
|/s/    ANDRE F.
MARIONAndre F. Marion               |  | Director                                                                                         |  | March 31, 2003
|                                                   
|/s/    KEVIN C.
TANGKevin C. Tang                   |  | Director                                                                                         |  | March 31, 2003





30



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CERTIFICATIONS



I, Thomas G. Klopack,
certify that:



|1. |  | I have reviewed this annual report on Form 10-K of ACLARA BioSciences, Inc.;
|-- |  | ----------------------------------------------------------------------------



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



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:    March 31, 2003



By:

/s/    THOMAS G.
KLOPACKThomas G. Klopack Chief Executive Officer




31



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I, Alfred G. Merriweather,
certify that:



|1. |  | I have reviewed this annual report on Form 10-K of ACLARA BioSciences, Inc.;
|-- |  | ----------------------------------------------------------------------------



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



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls: and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:    March 31, 2003



By:

/s/    ALFRED G.
MERRIWEATHERAlfred G. Merriweather Chief Financial Officer




32



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ACLARA BIOSCIENCES, INC.

(A COMPANY IN THE DEVELOPMENT STAGE)



INDEX TO FINANCIAL STATEMENTS



|                                                                                                               |  | Page
|-------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Accountants                                                                              |  | F-2 
|Balance Sheets at December 31, 2002 and 2001                                                                   |  | F-3 
|Statements of Operations  Fiscal Years Ended December 31, 2002, 2001,
2000                                    |  | F-4 
|Statements of Stockholders Equity (Deficit)  For the Period from May 5,
1995(inception to December 31, 2002) |  | F-5 
|Statements of Cash Flows  Fiscal Years Ended December 31, 2002, 2001,
2000                                    |  | F-7 
|Notes to Financial Statements                                                                                  |  | F-9 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders

of ACLARA BioSciences, Inc.



In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of ACLARA BioSciences, Inc. (a development stage enterprise) at December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2002 and, cumulatively, for the period from May 5, 1995 (date of inception) through December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.



/S/    PRICEWATERHOUSECOOPERS LLP



San Jose, California

January 24, 2003, except for Note 4,  as to which the date is February 15, 2003



F-2



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##### Table of Contents



ACLARA
BIOSCIENCES, INC.

(A Company in the Development Stage)



BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                         |  | December 31, 2002 |          |   | December 31, 2001 |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | -
|ASSETS                                                                                                                                   |  |                   |          |   |                   |  
|Current assets:                                                                                                                          |  |                   |          |   |                   |  
|Cash and cash equivalents                                                                                                                |  | $                 | 38,006   |   |                   | $
|Restricted cash                                                                                                                          |  |                   | 34,125   |   |                   |  
|Short-term marketable investments                                                                                                        |  |                   | 12,842   |   |                   |  
|Accounts receivable                                                                                                                      |  |                   | 469      |   |                   |  
|Prepaid expenses and other current assets                                                                                                |  |                   | 422      |   |                   |  
|Inventories                                                                                                                              |  |                   | 2,780    |   |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total current assets                                                                                                                     |  |                   | 88,644   |   |                   |  
|Long-term marketable investments                                                                                                         |  |                   | 21,612   |   |                   |  
|Restricted cash                                                                                                                          |  |                   |         |   |                   |  
|Property and equipment, net                                                                                                              |  |                   | 7,098    |   |                   |  
|Other assets, net                                                                                                                        |  |                   | 1,564    |   |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total assets                                                                                                                             |  | $                 | 118,918  |   |                   | $
|                                                                                                                                         |  |                   |          |   |                   |  
|                                                                                                                                        
|LIABILITIES & STOCKHOLDERS EQUITY                                                                                                       |  |                   |          |   |                   |  
|Current liabilities:                                                                                                                     |  |                   |          |   |                   |  
|Accounts payable                                                                                                                         |  | $                 | 689      |   |                   | $
|Accrued payroll and related expenses                                                                                                     |  |                   | 1,023    |   |                   |  
|Accrued expenses and other current liabilities                                                                                           |  |                   | 1,357    |   |                   |  
|Deferred revenue                                                                                                                         |  |                   | 104      |   |                   |  
|Litigation settlements accrual                                                                                                           |  |                   |         |   |                   |  
|Restructuring accrual                                                                                                                    |  |                   | 501      |   |                   |  
|Current portion of loans payable                                                                                                         |  |                   | 202      |   |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total current liabilities                                                                                                                |  |                   | 3,876    |   |                   |  
|Loans payable, net of current portion                                                                                                    |  |                   | 542      |   |                   |  
|Deferred rent                                                                                                                            |  |                   | 414      |   |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total liabilities                                                                                                                        |  |                   | 4,832    |   |                   |  
|                                                                                                                                        
|Commitments and contingencies (Note 10)                                                                                                  |  |                   |          |   |                   |  
|                                                                                                                                        
|Stockholders equity:                                                                                                                    |  |                   |          |   |                   |  
|Common stock, $0.001 par value:                                                                                                          |  |                   |          |   |                   |  
|Authorized 150,000,000 shares; Issued and outstanding: 35,391,018 shares at December 31,
2002 and 35,871,066 shares at December 31, 2001 |  |                   | 36       |   |                   |  
|Treasury stock at cost (900,000 shares at December 31, 2002 and no shares at December
31, 2001)                                          |  |                   | (1,350   | ) |                   |  
|Additional paid-in capital                                                                                                               |  |                   | 258,798  |   |                   |  
|Deferred stock-based compensation                                                                                                        |  |                   | (627     | ) |                   |  
|Stockholder notes receivable for common stock                                                                                            |  |                   |         |   |                   |  
|Accumulated other comprehensive income                                                                                                   |  |                   | 297      |   |                   |  
|Deficit accumulated during development stage                                                                                             |  |                   | (143,068 | ) |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total stockholders equity                                                                                                               |  |                   | 114,086  |   |                   |  
|                                                                                                                                         |  |                   |          |   |                   |  
|Total liabilities and stockholders equity                                                                                               |  | $                 | 118,918  |   |                   | $
|                                                                                                                                         |  |                   |          |   |                   |  



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



F-3



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



STATEMENTS OF OPERATIONS

(in thousands, except
per share data)



|                                                                                                          |  | Year Ended December 31, |         |   | Cumulative Period from May 5, 1995 (Inception) to December 31,
2002 |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ------------------------------------------------------------------- | -
|                                                                                                          |  | 2002                    |         |   | 2001                                                                |  
|Revenues                                                                                                  |  | $                       | 2,520   |   |                                                                     | $
|Costs and operating expenses:                                                                             |  |                         |         |   |                                                                     |  
|Research and development                                                                                  |  |                         | 23,575  |   |                                                                     |  
|Selling, general and administrative                                                                       |  |                         | 12,471  |   |                                                                     |  
|Restructuring expense                                                                                     |  |                         | 3,327   |   |                                                                     |  
|Litigation settlements                                                                                    |  |                         | 3,953   |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Total costs and operating expenses                                                                        |  |                         | 43,326  |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Loss from operations                                                                                      |  |                         | (40,806 | ) |                                                                     |  
|Interest income                                                                                           |  |                         | 3,612   |   |                                                                     |  
|Interest expense                                                                                          |  |                         | (53     | ) |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Net loss before extraordinary loss                                                                        |  |                         | (37,247 | ) |                                                                     |  
|Extraordinary loss on early retirement of debt                                                            |  |                         |        |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Net loss                                                                                                  |  |                         | (37,247 | ) |                                                                     |  
|Dividends related to beneficial conversion feature of preferred stock                                     |  |                         |        |   |                                                                     |  
|Accretion to redemption value and accrued dividends on mandatorily redeemable
convertible preferred stock |  |                         |        |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Net loss attributable to common stockholders                                                              |  | $                       | (37,247 | ) |                                                                     | $
|                                                                                                          |  |                         |         |   |                                                                     |  
|Loss per common share, before extraordinary loss, basic and diluted                                       |  | $                       | (1.04   | ) |                                                                     | $
|Extraordinary loss per common share, basic and diluted                                                    |  |                         |        |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  
|Net loss per common share, basic and diluted                                                              |  | $                       | (1.04   | ) |                                                                     | $
|                                                                                                          |  |                         |         |   |                                                                     |  
|Weighted average shares used in net loss per common share calculation, basic and
diluted                  |  |                         | 35,885  |   |                                                                     |  
|                                                                                                          |  |                         |         |   |                                                                     |  



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





F-4



---

##### Table of Contents



ACLARA
BIOSCIENCES, INC.

(A Company in the Development Stage)



STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

For the Period from May 5, 1995 (Date of Inception) to December 31, 2002

(in thousands)



|                                                                                                                                                                      |        | Common Stock |        | Treasury Stock |   | Additional Paid-in Capital |   |   | Deferred Stock-Based Compensation |   |        | Stockholders Notes Receivable for Stock |  |   | Other Comprehensive Income |   | Deficit Accumulated During the Development Stage |   |     | Stockholders Equity (Deficit) | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------ | ------ | -------------- | - | -------------------------- | - | - | --------------------------------- | - | ------ | ---------------------------------------- |  | - | -------------------------- | - | ------------------------------------------------ | - | --- | ------------------------------ | 
|                                                                                                                                                                      | Shares |              | Amount |                |   |                            |   |   |                                   |  
|Company stock and Series A mandatorily redeemable convertible preferred stock issued in
May 1995 to parent company for tangible and intangible assets and liabilities |        |             |        | $              |  |                            | $ |  |                                   | $ |       |                                          |  | $ |                           |   |                                                  | $ |    |                                | 
|Accretion of redeemable convertible preferred stock                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Net loss                                                                                                                                                              |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|                                                                                                                                                                      |        |              |        |                |   |                            |   |   |                                   |   |        |                                          |  |   |                            |   |                                                  |   |     |                                | 
|Balances, December 31, 1995                                                                                                                                           |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Stock option exercise throughout the period                                                                                                                           |        | 587          |        |                |  |                            |   |  |                                   |   | 23     |                                          |  |   |                           |   |                                                  |   | (23 | )                              | 
|Accretion of redeemable convertible preferred stock                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   | (23    | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Net loss                                                                                                                                                              |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|                                                                                                                                                                      |        |              |        |                |   |                            |   |   |                                   |   |        |                                          |  |   |                            |   |                                                  |   |     |                                | 
|Balances, December 31, 1996                                                                                                                                           |        | 587          |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   | (23 | )                              | 
|Stock option exercise throughout the period                                                                                                                           |        | 752          |        |                | 1 |                            |   |  |                                   |   | 38     |                                          |  |   |                           |   |                                                  |   | (21 | )                              | 
|Common stock issued in February 1997 at $0.13 per share in exchange for
equipment                                                                                     |        | 9            |        |                |  |                            |   |  |                                   |   | 1      |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Accretion of redeemable convertible preferred stock                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   | (39    | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Net loss                                                                                                                                                              |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|                                                                                                                                                                      |        |              |        |                |   |                            |   |   |                                   |   |        |                                          |  |   |                            |   |                                                  |   |     |                                | 
|Balances, December 31, 1997                                                                                                                                           |        | 1,348        |        |                | 1 |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   | (44 | )                              | 
|Warrants issued in February 1998                                                                                                                                      |        |             |        |                |  |                            |   |  |                                   |   | 85     |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Stock option exercise throughout the period                                                                                                                           |        | 246          |        |                | 1 |                            |   |  |                                   |   | 38     |                                          |  |   |                           |   |                                                  |   | (23 | )                              | 
|Repayment of notes receivable from stockholders                                                                                                                       |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   | 23  |                                | 
|Deferred stock-based compensation                                                                                                                                     |        |             |        |                |  |                            |   |  |                                   |   | 1,671  |                                          |  |   | (1,671                     | ) |                                                  |   |    |                                | 
|Amortization of deferred stock-based compensation                                                                                                                     |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   | 286                        |   |                                                  |   |    |                                | 
|Accretion of redeemable convertible preferred stock                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   | (489   | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Net loss                                                                                                                                                              |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|                                                                                                                                                                      |        |              |        |                |   |                            |   |   |                                   |   |        |                                          |  |   |                            |   |                                                  |   |     |                                | 
|Balances, December 31, 1998                                                                                                                                           |        | 1,594        |        |                | 2 |                            |   |  |                                   |   | 1,305  |                                          |  |   | (1,385                     | ) |                                                  |   | (44 | )                              | 
|Warrants issued in May 1999                                                                                                                                           |        |             |        |                |  |                            |   |  |                                   |   | 445    |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Repurchase of common stock                                                                                                                                            |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Repurchase of Series A mandatory redeemable convertible preferred stock and accretion of
Series A in March 1999                                                       |        |             |        |                |  |                            |   |  |                                   |   | (2,529 | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Stock option exercise throughout the period                                                                                                                           |        | 109          |        |                |  |                            |   |  |                                   |   | 24     |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Repayment of notes receivable from stockholders                                                                                                                       |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   | 38  |                                | 
|Deferred stock-based compensation                                                                                                                                     |        |             |        |                |  |                            |   |  |                                   |   | 6,102  |                                          |  |   | (6,102                     | ) |                                                  |   |    |                                | 
|Amortization of deferred stock-based compensation                                                                                                                     |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   | 979                        |   |                                                  |   |    |                                | 
|Accretion of redeemable convertible preferred stock                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   | (2,759 | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Issuance of preferred stock with beneficial conversion feature                                                                                                        |        |             |        |                |  |                            |   |  |                                   |   | 5,000  |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Deemed dividend on preferred stock                                                                                                                                    |        |             |        |                |  |                            |   |  |                                   |   | (5,000 | )                                        |  |   |                           |   |                                                  |   |    |                                | 
|Change in unrealized gain on marketable investments                                                                                                                   |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|Net loss                                                                                                                                                              |        |             |        |                |  |                            |   |  |                                   |   |       |                                          |  |   |                           |   |                                                  |   |    |                                | 
|                                                                                                                                                                      |        |              |        |                |   |                            |   |   |                                   |   |        |                                          |  |   |                            |   |                                                  |   |     |                                | 
|Balances, December 31, 1999                                                                                                                                           |        | 1,703        |        |                | 2 |                            |   |  |                                   |   | 2,588  |                                          |  |   | (6,508                     | ) |                                                  |   | (6  | )                              | 



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)(Continued)

For the Period from May 5, 1995 (Date of Inception) to December 31, 2002

(in thousands)



|                                                                                                                                                               |        | Common Stock |   | Treasury Stock |   |    | Additional Paid-in Capital |   |        | Deferred Stock-Based Compensation |  |   | Stockholders Notes Receivable for Stock |   |  | Other Comprehensive Income |        | Deficit Accumulated During the Development Stage |  |   | Stockholders Equity (Deficit) |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------ | - | -------------- | - | -- | -------------------------- | - | ------ | --------------------------------- |  | - | ---------------------------------------- | - |  | -------------------------- | ------ | ------------------------------------------------ |  | - | ------------------------------ | -
|                                                                                                                                                               | Shares |              |   | Amount         |   |    |                            |   |        |                                   | 
|Balances, December 31, 1999                                                                                                                                    |        | 1,703        |   |                | $ | 2  |                            | $ |       |                                   |  | $ | 2,588                                    |   |  | $                          | (6,508 | )                                                |  | $ | (6                             | )
|Exercise of warrants in February 2000                                                                                                                          |        | 10           |   |                |   |   |                            |   |       |                                   |  |   | 20                                       |   |  |                            |       |                                                  |  |   |                               |  
|Issuance of shares of common stock at $21 per share related to initial public offering,
in March 2000, net of underwriting and issuance costs of $16.3 million |        | 10,350       |   |                |   | 10 |                            |   |        |                                   |  |   | 200,993                                  |   |  |                            |       |                                                  |  |   |                               |  
|Conversion of redeemable convertible preferred stock into common stock, in connection
with the initial public offering in March 2000                           |        | 20,922       |   |                |   | 21 |                            |   |       |                                   |  |   | 36,009                                   |   |  |                            |       |                                                  |  |   |                               |  
|Issuance of common stock under employee stock purchase plan throughout the
period                                                                              |        | 26           |   |                |   |   |                            |   |       |                                   |  |   | 387                                      |   |  |                            |       |                                                  |  |   |                               |  
|Stock option exercise throughout the period                                                                                                                    |        | 1,677        |   |                |   | 2  |                            |   |       |                                   |  |   | 774                                      |   |  |                            |       |                                                  |  |   | (613                           | )
|Repayment of notes receivable from stockholders                                                                                                                |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | 50                             |  
|Interest on notes receivable from stockholders                                                                                                                 |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | (29                            | )
|Repurchase of common stock in exchange of cancellation of notes receivable for
stockholders                                                                    |        | (140         | ) |                |   |   |                            |   |       |                                   |  |   | (56                                      | ) |  |                            |       |                                                  |  |   | 56                             |  
|Deferred stock-based compensation                                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   | 7,460                                    |   |  |                            | (7,460 | )                                                |  |   |                               |  
|Amortization of deferred stock-based compensation                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            | 7,623  |                                                  |  |   |                               |  
|Change in unrealized gain on marketable investments                                                                                                            |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|Net loss                                                                                                                                                       |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|                                                                                                                                                               |        |              |   |                |   |    |                            |   |        |                                   |  |   |                                          |   |  |                            |        |                                                  |  |   |                                |  
|Balances, December 31, 2000                                                                                                                                    |        | 34,548       |   |                |   | 35 |                            |   |       |                                   |  |   | 248,175                                  |   |  |                            | (6,345 | )                                                |  |   | (542                           | )
|Stock option exercise throughout the period                                                                                                                    |        | 312          |   |                |   |   |                            |   |       |                                   |  |   | 205                                      |   |  |                            |       |                                                  |  |   |                               |  
|Issuance of common stock in connection with litigation settlement                                                                                              |        | 900          |   |                |   | 1  |                            |   |       |                                   |  |   | 11,699                                   |   |  |                            |       |                                                  |  |   |                               |  
|Issuance of common stock under employee stock purchase plan throughout the
period                                                                              |        | 111          |   |                |   |   |                            |   |       |                                   |  |   | 476                                      |   |  |                            |       |                                                  |  |   |                               |  
|Repayment of note receivable from stockholders                                                                                                                 |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | 3                              |  
|Interest on note receivable from stockholders                                                                                                                  |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | (32                            | )
|Deferred stock-based compensation                                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   | (1,228                                   | ) |  |                            | 1,228  |                                                  |  |   |                               |  
|Amortization of deferred stock-based compensation                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            | 2,332  |                                                  |  |   |                               |  
|Change in unrealized gain on marketable investments                                                                                                            |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|Net loss                                                                                                                                                       |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|                                                                                                                                                               |        |              |   |                |   |    |                            |   |        |                                   |  |   |                                          |   |  |                            |        |                                                  |  |   |                                |  
|Balances, December 31, 2001                                                                                                                                    |        | 35,871       |   |                |   | 36 |                            |   |       |                                   |  |   | 259,327                                  |   |  |                            | (2,785 | )                                                |  |   | (571                           | )
|Stock option exercise throughout the period                                                                                                                    |        | 228          |   |                |   |   |                            |   |       |                                   |  |   | 90                                       |   |  |                            |       |                                                  |  |   |                               |  
|Issuance of common stock under employee stock purchase plan throughout the
period                                                                              |        | 195          |   |                |   |   |                            |   |       |                                   |  |   | 367                                      |   |  |                            |       |                                                  |  |   |                               |  
|Repayment of notes receivable from stockholders                                                                                                                |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | 596                            |  
|Interest on notes receivable                                                                                                                                   |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   | (25                            | )
|Deferred stock-based compensation                                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   | (985                                     | ) |  |                            | 985    |                                                  |  |   |                               |  
|Amortization of deferred stock-based compensation                                                                                                              |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            | 1,173  |                                                  |  |   |                               |  
|Change in unrealized gain on marketable investments                                                                                                            |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|Repurchase of common stock                                                                                                                                     |        | (903         | ) |                |   |   |                            |   | (1,350 | )                                 |  |   | (1                                       | ) |  |                            |       |                                                  |  |   |                               |  
|Net loss                                                                                                                                                       |        |             |   |                |   |   |                            |   |       |                                   |  |   |                                         |   |  |                            |       |                                                  |  |   |                               |  
|                                                                                                                                                               |        |              |   |                |   |    |                            |   |        |                                   |  |   |                                          |   |  |                            |        |                                                  |  |   |                                |  
|Balances, December 31, 2002                                                                                                                                    |        | 35,391       |   |                | $ | 36 |                            | $ | (1,350 | )                                 |  | $ | 258,798                                  |   |  | $                          | (627   | )                                                |  | $ |                               |  
|                                                                                                                                                               |        |              |   |                |   |    |                            |   |        |                                   |  |   |                                          |   |  |                            |        |                                                  |  |   |                                |  



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



F-6



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##### Table of Contents



ACLARA
BIOSCIENCES, INC.

(A Company in the Development Stage)



STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                            |  | Year Ended December 31, |         |   | Cumulative Period from May 5, 1995 (Inception) to December 31, 2002 |  
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ------------------------------------------------------------------- | -
|                                                                            |  | 2002                    |         |   | 2001                                                                |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                         |         |   |                                                                     |  
|Net loss                                                                    |  | $                       | (37,247 | ) |                                                                     | $
|Adjustments to reconcile net loss to net cash used in operating
activities: |  |                         |         |   |                                                                     |  
|Depreciation and amortization                                               |  |                         | 1,879   |   |                                                                     |  
|Amortization of discount on marketable investments                          |  |                         | (299    | ) |                                                                     |  
|Amortization of note and long-term debt discount                            |  |                         |        |   |                                                                     |  
|Amortization of deferred stock-based compensation                           |  |                         | 1,173   |   |                                                                     |  
|Loss on sale of fixed assets                                                |  |                         | 45      |   |                                                                     |  
|Amortization of other assets                                                |  |                         | 55      |   |                                                                     |  
|Preferred stock issued for interest expense                                 |  |                         |        |   |                                                                     |  
|Non-cash restructuring charge                                               |  |                         | 2,467   |   |                                                                     |  
|Interest income from notes receivable from stockholders                     |  |                         | (25     | ) |                                                                     |  
|Revaluation of litigation settlement                                        |  |                         | 3,953   |   |                                                                     |  
|Changes in assets and liabilities:                                          |  |                         |         |   |                                                                     |  
|Accounts receivable                                                         |  |                         | 1,071   |   |                                                                     |  
|Prepaid expenses and other current assets                                   |  |                         | 87      |   |                                                                     |  
|Inventories                                                                 |  |                         | (2,766  | ) |                                                                     |  
|Accounts payable                                                            |  |                         | (285    | ) |                                                                     |  
|Accrued payroll and related expenses                                        |  |                         | (54     | ) |                                                                     |  
|Accrued expenses and other liabilities                                      |  |                         | (630    | ) |                                                                     |  
|Restructuring accrual                                                       |  |                         | 501     |   |                                                                     |  
|Litigation settlement                                                       |  |                         | (31,150 | ) |                                                                     |  
|Deferred revenue                                                            |  |                         | (492    | ) |                                                                     |  
|Deferred rent                                                               |  |                         | 92      |   |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|Net cash used in operating activities                                       |  |                         | (61,625 | ) |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                         |         |   |                                                                     |  
|Acquisition of property and equipment                                       |  |                         | (2,318  | ) |                                                                     |  
|Sales of property and equipment                                             |  |                         | 53      |   |                                                                     |  
|Change in restricted cash                                                   |  |                         | 500     |   |                                                                     |  
|Purchase of investments                                                     |  |                         | (88,334 | ) |                                                                     |  
|Maturities of investments                                                   |  |                         | 160,676 |   |                                                                     |  
|Change in other assets                                                      |  |                         | (1,500  | ) |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|Net cash (used) provided by in investing activities                         |  |                         | 69,077  |   |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                         |         |   |                                                                     |  
|Principal payments for leasehold obligations                                |  |                         | (54     | ) |                                                                     |  
|Principal payments on capital lease obligations                             |  |                         | (65     | ) |                                                                     |  
|Proceeds from issuance of notes payable to related parties                  |  |                         |        |   |                                                                     |  
|Proceeds from issuance of loans payable                                     |  |                         |        |   |                                                                     |  
|Repayments of loans payable                                                 |  |                         |        |   |                                                                     |  
|Proceeds from issuance of preferred stock, net of issuance costs            |  |                         |        |   |                                                                     |  
|Principal payments for notes payable to related parties                     |  |                         |        |   |                                                                     |  
|Repurchase of Series A preferred stock and one share of common stock        |  |                         |        |   |                                                                     |  
|Proceeds from initial public offering, net of issuance costs                |  |                         |        |   |                                                                     |  
|Proceeds from notes receivable from stockholders                            |  |                         | 596     |   |                                                                     |  
|Proceeds from issuance of common stock                                      |  |                         | 457     |   |                                                                     |  
|Repurchase of common stock                                                  |  |                         | (1,350  | ) |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|Net cash (used in) provided by financing activities                         |  |                         | (416    | ) |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|Net increases (decreases) in cash and cash equivalents                      |  |                         | 7,036   |   |                                                                     |  
|Cash and cash equivalents, beginning of period                              |  |                         | 30,970  |   |                                                                     |  
|                                                                            |  |                         |         |   |                                                                     |  
|Cash and cash equivalents, end of period                                    |  | $                       | 38,006  |   |                                                                     | $
|                                                                            |  |                         |         |   |                                                                     |  



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



F-7



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



STATEMENTS OF CASH FLOWS(Continued)

(in
thousands)



|                                                                                              |  | Year Ended December 31, |        |   | Cumulative Period from May 5, 1995 (Inception) to
December 31, 2002 |  
|--------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ------------------------------------------------------------------- | -
|                                                                                              |  | 2002                    |        |   | 2001                                                                |  
|Supplemental Disclosures of Cash Flow Information:                                            |  |                         |        |   |                                                                     |  
|Cash paid during the period for interest                                                      |  | $                       | 53     |   |                                                                     | $
|Supplemental Disclosure of Significant Noncash Investing and Financing
Activities:            |  |                         |        |   |                                                                     |  
|Additions to property and equipment acquired under capital lease
obligation                   |  | $                       | 296    |   |                                                                     | $
|Issuance of notes receivable in exchange for common stock                                     |  | $                       |       |   |                                                                     | $
|Net assets obtained in exchange for Series A preferred stock                                  |  | $                       |       |   |                                                                     | $
|Issuance of warrants in connection with notes payable                                         |  | $                       |       |   |                                                                     | $
|Deferred stock-based compensation                                                             |  | $                       | (1,173 | ) |                                                                     | $
|Accretion of mandatorily redeemable preferred stock and accrued
dividends                     |  | $                       |       |   |                                                                     | $
|Conversion of notes payable into preferred stock                                              |  | $                       |       |   |                                                                     | $
|Conversion of redeemable convertible preferred stock into common stock                        |  | $                       |       |   |                                                                     | $
|Repurchase of common stock in exchange for cancellation of notes receivable from
stockholders |  | $                       |       |   |                                                                     | $
|Issuance of common stock in connection with litigation settlement                             |  | $                       |       |   |                                                                     | $



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



F-8



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS





1.    FORMATION AND BUSINESS OF THE COMPANY



ACLARA was incorporated in Delaware in 1995 under the name Soane BioSciences, Inc. and changed its name in 1998 to ACLARA BioSciences, Inc. ACLARA has developed and is commercializing its novel
eTag assay chemistries through access programs for applications in drug discovery and development.



In March 2000, ACLARA completed an initial public offering of 9,000,000 shares of its common stock to the public, at a per share price of
$21.00. In conjunction with the initial public offering, ACLARAs underwriters exercised an option to purchase an additional 1,350,000 shares of common stock at a price of $21.00 per share to cover over-allotments. ACLARA received net proceeds
from the offering of $201.0 million. Upon the closing of the initial public offering, each of the outstanding 20,922,289 shares of mandatorily redeemable convertible preferred stock was automatically converted into one share of common stock.



2.    SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



Use of Estimates



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



Cash
Equivalents, Short-Term and Long-Term Marketable Investments



ACLARA considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Management determines the appropriate classification of its short-term and long-term
marketable investment securities at the time of purchase and reevaluates such determination as of each balance sheet date. Management has classified ACLARAs marketable investments 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 other comprehensive income. The cost of securities sold is based on the specific identification method.



Fair Value of Financial Instruments



Carrying amounts of certain of ACLARAs financial
instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon the borrowing rates available to ACLARA for loans with
similar terms, the carrying value of notes payable approximate their fair value.



Concentration of Credit Risk and Major Customers



ACLARA invests its cash, cash equivalents, short-term investments and long-term investments in U.S. government and agency securities, debt
instruments of financial institutions and corporations, and money market funds with strong credit ratings. Pursuant to ACLARAs investment guidelines, the investment portfolio should have an overall weighted average maturity of less than 24
months with no one individual security having a maturity of greater than 36 months. Management believes that its investment guidelines limit credit risk and maintain liquidity.



ACLARAs receivables are primarily derived from commercial collaborations and government grants, and
accordingly, there is no collateral required for these receivables.



F-9



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





At
December 31, 2002, one commercial collaborators and one government grants accounted for 13% and 65% of accounts receivable, respectively. At December 31, 2001, two commercial collaborators accounted for 65% and 32% of accounts receivable,
respectively.



In 2002, two commercial accounts
accounted for 49% and 36% of ACLARAs total revenues, respectively.



In 2001, two government grants and two collaborative partners individually accounted for 33%, 15%, 25% and 17% of ACLARAs total revenue, respectively. In 2000, two collaborative partners individually accounted for 38%
and 25% of ACLARAs total revenue, respectively.



Inventory



Inventories
are stated at the lower-of cost-or-market, with cost determined on a first-in, first-out basis.



Property and Equipment



Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: three
years for computer equipment and software, five years for machinery and equipment and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the useful lives of the related assets or the remaining lease
term. Maintenance and repairs expenditures are charged to operations as incurred.



Intangible Assets



Intangible assets are amortized using the straight-line method over their expected useful lives. Intangible assets at December 31, 2002 principally comprised a technology license. The license was purchased during the year
ended December 31, 2002 at a cost of $1,500,000 and with an expected useful life of seven years from the date of purchase. Amortization expense during the year ended December 31, 2002 was $36,000. The license had a net carrying amount of $1,464,000
at December 31, 2002 and was included within Other assets, net.



Impairment of Long-Lived Assets



In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived assets, including property and equipment, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS No. 144, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.



F-10



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





Income
Taxes



Deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected to be realized.



Research and Development Costs



Costs related to research, design and development of products, including costs incurred under grant and collaborative arrangements, are charged to research and development expense as incurred.



Revenue Recognition



ACLARA recognizes revenue from government grants in the
period in which research and development costs are incurred. Non-refundable milestone payments received related to substantive at-risk milestones are recognized when our performance of the milestone under the terms of the collaboration is achieved
and there are no further performance obligations. Research and development fees from commercial collaboration agreements are generally recognized as revenue on a straight-line basis over the life of the collaboration agreement or as the research
work is performed. Any amounts received in advance of performance, or with ongoing obligations still present, are deferred until performance has been completed and such obligations have been met. Product revenue is recognized when title and risk of
ownership has transferred, remaining obligations are insignificant and collection of any remaining related account receivable is reasonably assured. ACLARA did not offer warranties on its products sold through December 31, 2002.



Certain Risks and Uncertainties



ACLARAs products and services are concentrated in
rapidly changing, highly competitive markets, which are characterized by rapid technological advances, changes in customer requirements and evolving regulatory requirements and industry standards. Any failure by ACLARA to anticipate or to respond
adequately to technological developments in its industry, changes in customer requirements or changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of products or services, could have
a material adverse effect on ACLARAs business, operating results and future cash flows.



Segments



ACLARA did not have any separately reportable business segments as of December 31, 2002.



Accounting for Stock-Based Compensation



ACLARA accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and its related interpretations and has elected to follow the disclosure-only provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Under APB No. 25, compensation expense is based on the difference, if any, on the date of the stock option grant between the fair value of ACLARAs stock and the
exercise price of the stock option.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





Had
compensation cost for stock-based employee compensation arrangements been determined based on the fair value at the date of the awards consistent with the provisions of SFAS No. 123, the impact on ACLARAs net loss would be as follows (in
thousands, except per share data):



|                                                                                                       |  | Years Ended December 31, |        
|------------------------------------------------------------------------------------------------------ |  | ------------------------ | -------
|                                                                                                       |  | 2002                     |        
|Net loss attributable to common stockholders:                                                          |  |                          |        
|As reported                                                                                            |  | $                        | (37,247
|Add: Stock-based compensation expense included in reported net loss                                    |  |                          | 1,173  
|Deduct: Total stock-based compensation expense determined under fair value based method
for all awards |  |                          | (2,608 
|                                                                                                       |  |                          |        
|Pro forma net loss                                                                                     |  | $                        | (38,682
|                                                                                                       |  |                          |        
|Net loss per share:                                                                                    |  |                          |        
|Basicas reported                                                                                      |  | $                        | (1.04  
|                                                                                                       |  |                          |        
|Basicpro forma                                                                                        |  | $                        | (1.08  
|                                                                                                       |  |                          |        
|Dilutedas reported                                                                                    |  | $                        | (1.04  
|                                                                                                       |  |                          |        
|Dilutedpro forma                                                                                      |  | $                        | (1.08  
|                                                                                                       |  |                          |        



ACLARA
accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services.



Comprehensive Income



Comprehensive income generally represents all changes in stockholders equity (deficit) except those resulting from investments or contributions by stockholders. ACLARAs unrealized gains on available-for-sale securities
represent the only component of comprehensive income that is excluded from ACLARAs net loss for the years ended December 31, 2002, 2001, 2000 and for the cumulative period from May 5, 1995 (date of inception) to December 31, 2002. As this
component of comprehensive income is not significant, individually or in the aggregate, no separate statements of comprehensive income have been presented.



Recent Accounting Pronouncements



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or
acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company believes that
the adoption of this standard will have no material impact on its financial statements.



In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)



an amendment of FASB Statement No. 123. SFAS No. 148 amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Transition provisions and annual disclosure
requirements are effective for fiscal years beginning after December 15, 2002. Interim disclosure requirements effective for interim periods beginning after December 15, 2002. The Company does not expect to effect a voluntary change in accounting to
the fair value method, and, accordingly, does not expect the adoption of SFAS No. 148 to have a significant impact on the Companys future results of operations or financial position.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Interpretation No. 45 requires a Company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed
under the guarantee and elaborates on existing disclosure requirements. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not expect the
adoption of Interpretation No. 45 to have a significant impact on the Companys future results of operations or financial position.



In November 2002, the Emerging Issues Task Force (EITF) issued Issue No. 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. EITF issue No. 00-21 addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how arrangement consideration should be measured and allocated to the separate
units of accounting. EITF Issue No. 00-21 will be effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 or the Company may elect to report the change in accounting as a cumulative-effect adjustment. The
Company believes that the adoption of this standard will have no material impact on its financial statements.



Net Loss Per Share



Basic net loss 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 shares subject to repurchase, stock options and warrants (calculated using the treasury stock method). Potentially dilutive securities have been
excluded from the diluted net loss per share computations as they have an antidilutive effect due to ACLARAs net loss.



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



|                                                                                     |  | Years Ended December 31, |        
|------------------------------------------------------------------------------------ |  | ------------------------ | -------
|                                                                                     |  | 2002                     |        
|Basic and diluted:                                                                   |  |                          |        
|Net loss before extraordinary loss                                                   |  | $                        | (37,247
|Extraordinary loss on early retirement of debt                                       |  |                          |       
|                                                                                     |  |                          |        
|Net loss attributable to common stockholders                                         |  | $                        | (37,247
|                                                                                     |  |                          |        
|Weighted-average shares of common stock outstanding                                  |  |                          | 35,921 
|Less: weighted-average shares subject to repurchase                                  |  |                          | (36    
|                                                                                     |  |                          |        
|Weighted-average shares of common stock used in basic and diluted net loss per
share |  |                          | 35,885 
|                                                                                     |  |                          |        



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





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



|                     |  | Years Ended December 31,
|-------------------- |  | ------------------------
|                     |  | 2002                    
|Options and warrants |  | 3,119                   



3.    CASH, CASH EQUIVALENTS AND MARKETABLE INVESTMENTS



The following is a summary of cash, cash equivalents, short-term and long-term marketable investments which are classified as
available-for-sale at December 31, 2002 (in thousands):



|                                        |  | Amortized Cost |        | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Market Value
|--------------------------------------- |  | -------------- | ------ | ---------------------- | - | ----------------------- |  | -----------------
|Checking and money market funds         |  | $              | 38,006 |                        | $ |                        |  | $                
|Bonds of US government and its agencies |  |                | 34,157 |                        |   | 297                     |  |                  
|                                        |  |                |        |                        |   |                         |  |                  
|                                        |  | $              | 72,163 |                        | $ | 297                     |  | $                
|                                        |  |                |        |                        |   |                         |  |                  
|Reported as:                            |  |                |        |                        |   |                         |  |                  
|Cash and cash equivalents               |  | $              | 38,006 |                        | $ |                        |  | $                
|Short-term marketable investments       |  |                | 12,657 |                        |   | 185                     |  |                  
|Long-term marketable investments        |  |                | 21,500 |                        |   | 112                     |  |                  
|                                        |  |                |        |                        |   |                         |  |                  
|                                        |  | $              | 72,163 |                        | $ | 297                     |  | $                
|                                        |  |                |        |                        |   |                         |  |                  



Unrealized gains and losses are reported in other comprehensive income.



The following is a summary of cash, cash equivalents and short-term marketable investments which are classified as available-for-sale at December 31, 2001 (in thousands):



|                                        |  | Amortized Costs |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Market Value
|--------------------------------------- |  | --------------- | ------- | ---------------------- | - | ----------------------- |  | -----------------
|Checking and Money Market fund          |  | $               | 24,368  |                        | $ |                        |  | $                
|Commercial Paper                        |  |                 | 19,907  |                        |   |                        |  |                  
|Bonds of US Government and its agencies |  |                 | 92,895  |                        |   | 345                     |  |                  
|                                        |  |                 |         |                        |   |                         |  |                  
|                                        |  | $               | 137,170 |                        | $ | 345                     |  | $                
|                                        |  |                 |         |                        |   |                         |  |                  
|Reported as:                            |  |                 |         |                        |   |                         |  |                  
|Cash and cash equivalents               |  | $               | 30,970  |                        | $ |                        |  | $                
|Short-term marketable investments       |  |                 | 45,772  |                        |   | 111                     |  |                  
|Long-term marketable investments        |  |                 | 60,428  |                        |   | 234                     |  |                  
|                                        |  |                 |         |                        |   |                         |  |                  
|                                        |  | $               | 137,170 |                        | $ | 345                     |  | $                
|                                        |  |                 |         |                        |   |                         |  |                  



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





At
December 31, 2002, the Companys marketable securities had the following maturities (in thousands):



|                             |  | Amortized Cost |        | Estimated Fair Value
|---------------------------- |  | -------------- | ------ | --------------------
|Less than one year           |  | $              | 12,657 |                     
|From one year to three years |  |                | 21,500 |                     
|                             |  |                |        |                     
|                             |  | $              | 34,157 |                     
|                             |  |                |        |                     



4.    RESTRICTED CASH



Current restricted cash at December 31, 2002 comprises $34.1 million held in escrow as part of our settlement of litigation with Caliper Technologies Corporation (Caliper). Pursuant to the Caliper settlement
agreement, ACLARA has provided a letter of credit to Caliper in the amount of $32.5 million as a guarantee of ACLARAs performance. The banking institution that had issued the letter of credit required ACLARA to maintain a balance of 105% of
the letter of credit amount in a segregated account. This amount of $34.1 million is invested in short-term US government agency debt and money market funds. In October 2002, we paid Caliper $32.5 million related to this settlement. Of this amount
approximately $1.4 million was for the repurchase at the then-current market price of the 900,000 shares previously issued to Caliper in the original settlement agreement. On February 15, 2003 the letter of credit was terminated and the restricted
cash was released.



5.    INVENTORIES



Inventories at December 31, 2002 and 2001
consist of the following (in thousands):



|               |  | December 31,
|-------------- |  | ------------
|               |  | 2002        
|Raw materials  |  | $           
|Finished goods |  |             
|               |  |             
|               |  | $           
|               |  |             



6.    PROPERTY AND EQUIPMENT



Property and equipment consists of the following (in thousands):



|                                                |  | December 31, |       
|----------------------------------------------- |  | ------------ | ------
|                                                |  | 2002         |       
|Machinery and equipment                         |  | $            | 3,402 
|Furniture and fixtures                          |  |              | 720   
|Computer equipment and software                 |  |              | 1,239 
|Leasehold improvements                          |  |              | 5,420 
|                                                |  |              |       
|                                                |  | $            | 10,781
|                                                |  |              |       
|Less: accumulated depreciation and amortization |  |              | (3,683
|                                                |  |              |       
|                                                |  | $            | 7,098 
|                                                |  |              |       



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





Depreciation and amortization expense during the years ended December 31, 2002, 2001, 2000 and the cumulative period from May 5, 1995 (date of inception) to December 31, 2002, was $1.8 million, $1.6 million $1.0 million and $5.7
million, respectively. At December 31, 2002, ACLARA has assets held under capital lease obligations in the amount of $296,000 and accumulated amortization of $41,000. There were no capital leases at December 31, 2001.



7.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES



Accrued liabilities consisted of the
following (in thousands):





|                      |  | December 31,
|--------------------- |  | ------------
|                      |  | 2002        
|Goods and services    |  | $           
|Professional services |  |             
|Other                 |  |             
|                      |  |             
|                      |  | $           
|                      |  |             



8.    RESTRUCTURING



During the third quarter of 2002 ACLARA approved and initiated a restructuring plan that reduced costs associated with the microfluidics aspect of our business so we could increase our focus on our eTag assay chemistry.
Accordingly, we recognized a restructuring charge of $3.3 million during the third quarter. The charge included $0.8 million of severance and benefits related to the involuntary termination of approximately 50 employees. The terminated
employees were primarily in research and development associated with microfluidics. Termination benefits related to severance packages, out-placement services and other associated costs are included in restructuring expense on the statement of
operations and restructuring accrual on the balance sheet at December 31, 2002. We also wrote off approximately $2.5 million of fixed assets that are not expected to be used prospectively.



ACLARA anticipates the remaining reserve of $501,000 will be substantially paid out by the first quarter of
2003.



The following table sets forth an analysis
of the components of the restructuring charges (in thousands):



|                                     |  | Severance and Benefits |      |   | Fixed Assets |   |        | Other Charges |  |   | Total |  
|------------------------------------ |  | ---------------------- | ---- | - | ------------ | - | ------ | ------------- |  | - | ----- | -
|Restructuring provision:             |  |                        |      |   |              |   |        |               |  |   |       |  
|Severance and benefits               |  | $                      | 753  |   |              | $ |       |               |  | $ |      |  
|Property and equipment write off     |  |                        |     |   |              |   | 2,467  |               |  |   |      |  
|Other charges                        |  |                        |     |   |              |   |       |               |  |   | 107   |  
|                                     |  |                        |      |   |              |   |        |               |  |   |       |  
|Total                                |  | $                      | 753  |   |              | $ | 2,467  |               |  | $ | 107   |  
|Non-cash charges                     |  |                        |     |   |              |   | (2,467 | )             |  |   |      |  
|Cash paid                            |  |                        | (280 | ) |              |   |       |               |  |   | (79   | )
|                                     |  |                        |      |   |              |   |        |               |  |   |       |  
|Reserve balance at December 31, 2002 |  | $                      | 473  |   |              | $ |       |               |  | $ | 28    |  
|                                     |  |                        |      |   |              |   |        |               |  |   |       |  



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





9.    LITIGATION SETTLEMENTS



In August 2000, ACLARA signed a settlement agreement with 2C Optics (now named Rodenstock, N.A.) pursuant to which Rodenstock N.A. agreed to drop all its claims against ACLARA in exchange for receipt of two payments
totaling $1.75 million. As a result of this agreement, a $1.75 million litigation settlement expense was recorded in the accompanying Statement of Operations for the year ended December 31, 2000. At December 31, 2000, $1.25 million of the
settlement was held in escrow and recorded as restricted cash. This escrow balance was discharged in August 2001.



On June 15, 2001, ACLARA filed suit against its former General Counsel, Bertram Rowland (Rowland), in the Superior Court of
California, San Mateo County. ACLARAs action, which arose from Rowlands alleged dual representation of ACLARA and Caliper Technologies Corp., asserted various causes of action, including breach of fiduciary duty, professional
malpractice, and concealment, and sought damages, as well as rescission of Rowlands employment agreement, stock option agreement and indemnity agreement. These agreements related to Rowlands now terminated status as General Counsel of
ACLARA. Rowland had answered the Complaint, denied all claims and asserted various affirmative defenses. On or about October 2, 2001, Rowland filed a Cross-Complaint against ACLARA and Joseph Limber, the Companys President and Chief Executive
Officer. Rowland alleged a variety of claims, including fraud, negligent misrepresentation, breach of contract regarding the above-noted agreements, and securities fraud under California state law, and he sought damages. The Company and Mr. Limber
answered the Cross-Complaint, denied all claims and asserted affirmative defenses. In June 2002, Rowland dismissed his causes of action relating to alleged fraud or misrepresentation with respect to securities and alleged breach of contract with
respect to his employment agreement or stock option agreement. Rowland and ACLARA reached an agreement in January 2003 to settle all claims under these complaints. The settlement had no adverse effect on our results of operation or cash flows.



As part of the litigation settlement with
Caliper, 900,000 shares of ACLARA common stock were issued in March 2001 with a guaranteed liquidation price of $36.11 per share if Caliper sold the shares after August 21, 2002 but before February 21, 2003. ACLARA initially valued the put
obligation associated with these shares at $20.8 million. Based on the change in ACLARAs stock price and in accordance with EITF No. 96-13 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock (EITF No. 96-13) and its related interpretations, and Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS
133), the put obligation was subsequently revalued at the end of each reporting period prior to its settlement in October 2002. At December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, the put obligation had a value of
$27.2 million, $28.7 million, $30.5 million, and $30.9 respectively. As a result of these revaluations and the eventual settlement, in October 2002, revaluation expenses of $4.0 million and $6.4 million were recorded in the accompanying Statements
of Operations for the years ended December 31, 2002 and 2001, respectively. The revaluation of the put obligation used a Black-Scholes pricing model with changes in valuation being recorded in the Statements of Operations.



In August 2001, a law firm agreed to pay ACLARA $600,000 as a
settlement resolving all disputes between the law firm and ACLARA arising out of the alleged dual representation of ACLARAs former general counsel of both Caliper and ACLARA. The payment of $600,000 was recorded as an offset to litigation
settlements expense in the accompanying Statement of Operations for the year ended December 31, 2001.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





10.    COMMITMENTS AND CONTINGENCIES



Operating Lease



In March 1999, ACLARA entered into a ten-year operating lease for office space. Lease payments for the years ended December 31, 2002, 2001, 2000 and for the cumulative period from May 5, 1995 (date of inception) to December
31, 2002, were $1,126,000, $1,088,000, $1,051,000, and $4,228,000, respectively.



The future annual minimum lease payments under the leases at December 31, 2002 are as follows (in thousands):



|Years Ending December 31,    |  | Operating Lease Commitments
|---------------------------- |  | ---------------------------
|2003                         |  | $                          
|2004                         |  |                            
|2005                         |  |                            
|2006                         |  |                            
|2007                         |  |                            
|2008 and thereafter          |  |                            
|                             |  |                            
|Total minimum lease payments |  | $                          
|                             |  |                            



Legal
Matters



In August 2000, ACLARA entered into
a settlement and release with Rodenstock North America (Rodenstock) (formerly 2C Optics) relating to a dispute arising out of ACLARAs repurchase of its Series A Preferred Stock from Rodenstock in 1999. (See Note 9 above.) The
settlement agreement was approved by the board of directors of Rodenstock and a majority of Rodenstocks outstanding shares entitled to vote on the matter. On April 27, 2001, S&A Biotech Investments, LLC (S&A), a stockholder
of Rodenstock, filed a shareholder derivative suit in the Superior Court of California for the County of Santa Clara, naming the directors of Rodenstock as individual defendants, Rodenstock as a nominal defendant, and ACLARA as a defendant. S&A
alleges breach of fiduciary duties by Rodenstock and the individual defendants, including Thomas Baruch, who was the chairman of the boards of ACLARA and Rodenstock, in connection with the August 2000 settlement between ACLARA and Rodenstock.
S&A also asserts a claim against ACLARA for allegedly aiding and abetting the purported breach of fiduciary duty by Rodenstock and Rodenstocks directors. Among other remedies, S&A seeks rescission of the settlement agreement and the
above-referenced stock repurchase. ACLARA filed its demurrer, and Rodenstock and Mr. Baruch filed their demurrers and notices of summary judgment, which were heard in April, 2002. The Court denied all demurrers, but granted Rodenstock and Mr.
Baruchs notice for summary judgment. Plaintiff has dismissed without prejudice its claim against ACLARA while it considers appealing the judgment for the other defendants.



ACLARA and certain of its current or former officers and directors (the ACLARA defendants) are
named as defendants in a securities class action lawsuit filed in the United States District Court for the Southern District of New York. This action, which was filed on November 13, 2001 and is now captioned ACLARA Biosciences, Inc. Initial
Public Offering Securities Litigation, also names several of the underwriters involved in ACLARAs initial public offering (IPO) as defendants. This class action is brought on behalf of a purported class of purchasers of ACLARA
common stock from the time of ACLARAs IPO (March 20, 2000) through December 6, 2000. The central allegation in this action is that the underwriters in the ACLARA IPO solicited and received undisclosed commissions from, and entered into
undisclosed arrangements with, certain investors who purchased ACLARA stock in the IPO and the after-market. The complaint also alleges that the ACLARA defendants violated the federal securities laws by failing to disclose in the IPO prospectus that
the underwriters had engaged in these allegedly undisclosed arrangements. (More than 300 issuers have been named in similar lawsuits.) In July 2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated
with issuers (including ACLARA defendants) was filed by the entire group of issuer defendants in these similar



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)



actions. On February 19, 2003, the Court in this action issued its decision on Defendants omnibus motion to dismiss. This decision
dismissed the Section 10(b) claim as to ACLARA but denied the motion to dismiss the Section 11 claim as to ACLARA and virtually all of the other defendants. ACLARA believes it has meritorious defenses and intends to vigorously defend itself against
this suit. As a result of this belief, no liability for this suit has been recorded in the accompanying financial statements. However, we could be forced to incur significant expenses in the litigation, and in the event there is an adverse outcome,
our business could be harmed.



11.    RESEARCH AND DEVELOPMENT COLLABORATIONS



In March 1999, ACLARA entered into an agreement with the R.W. Johnson Pharmaceutical Research Institute (PRI), a division of Johnson and Johnson and Applied Biosystems. Under this
agreement, ACLARA and Applied Biosystems agreed to develop and provide to PRI advanced prototype microfluidic systems for pharmaceutical drug screenings. Under a side agreement between ACLARA and Applied Biosystems, any royalty received from PRI for
manufacturing or selling of microfluidic electrophoresis devices would be split between Applied Biosystems and ACLARA. In October 2001, ACLARA, PRI and Applied Biosystems agreed to modify the three-way drug screening collaboration agreements to
allow for a two-way collaboration on this program between ACLARA and PRI but excluding Applied Biosystems. Under the terms of the modified collaboration, ACLARA recognized $800,000 of revenue in 2001 and $200,000 in 2002. Currently, ACLARA has no
ongoing research or development programs under these agreements.



In October 2001, ACLARA entered into an exclusive worldwide distribution agreement (Distribution Agreement) with Roche Diagnostics Corporation (Roche) for ACLARAs Arteas products. The Distribution
Agreement included a $500,000 fee payable to ACLARA, which provided Roche with exclusive rights of first refusal and negotiation rights to access certain other products of ACLARA. The Distribution Agreement was terminated in October 2002. The
Company recorded revenues of $795,000 and $99,000 related to the agreement during the years ended December 31, 2002 and 2001, respectively.



In November 2001, ACLARA entered into a research and development agreement (R & D Agreement) with Roche for the provision
of research by ACLARA in various areas. Pursuant to the terms of the R & D Agreement, $70,000 and $80,000 of revenue has been recognized in the accompanying Statements of Operations for the years ended December 31, 2002 and 2001, respectively.



On October 15, 2002, ACLARA entered into License
and Supply Agreements with Third Wave Technologies, Inc. (Third Wave) and terminated the previous Development and Commercialization Agreement between the parties. The License Agreement allows ACLARA to incorporate certain of Third
Waves technology into products for certain applications in the gene expression field. ACLARA paid an upfront license fee of $1.5 million and will pay fixed royalties in 2003 through 2005 and royalties on applicable revenues on an
escalating scale in years after 2005. Under the Supply Agreement, Third Wave will supply enzyme to ACLARA for use in accordance with this agreement.



12.    LOANS PAYABLE AND CAPITAL LEASES



In March 1999, ACLARA entered into a loan agreement with its landlord to borrow $663,000 for leasehold
improvements at an interest rate of 8.5% per annum. In December 1999 ACLARA borrowed the proceeds of $663,000 under a ten-year promissory note with interest calculated on the basis of a 30-day month. The loan matures on July 1, 2009. At December 31,
2002, $507,000 was outstanding.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





In August
2002, ACLARA entered into a two-year capital lease agreement to borrow $296,000 for equipment at an interest rate of 3.27%. The loan matures on August 28, 2004. At December 31, 2002, $237,000 was outstanding as follows (thousands):



Maturities of term debt and capital leases were as follows:



|                         |  | Capital Leases |     | Loans Payable
|------------------------ |  | -------------- | --- | -------------
|Year Ending December 31, |  |                |     |              
|2003                     |  | $              | 142 |              
|2004                     |  |                | 95  |              
|2005                     |  |                |    |              
|2006                     |  |                |    |              
|2007 and thereafter      |  |                |    |              
|                         |  |                |     |              
|                         |  | $              | 237 |              
|                         |  |                |     |              



13.    STOCKHOLDERS EQUITY



Common Stock



ACLARAs Certificate of Incorporation, as amended, authorizes ACLARA to issue 150,000,000 shares of $0.001 par value common stock. A portion of common stock options granted to ACLARA employees have been exercised before
the stock options were vested. As a result of these early exercises, the unvested portion of the exercised stock option is subject to a right of repurchase by ACLARA over the vesting period. The vesting period is generally four years. 36,091 and
106,449 shares of common stock were subject to repurchase by ACLARA at December 31, 2002 and December 31, 2001, respectively.



Deemed Dividends



In December 1999, ACLARA issued 1,241,723 shares of Series H mandatorily redeemable convertible preferred stock at $4.03 per share for
proceeds of $5,000,000. The issuance resulted in a beneficial conversion feature of $5,000,000, calculated in accordance with Emerging Issues Task Force No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features.
The beneficial conversion feature is reflected as a preferred dividend in the Statement of Operations for the year ended December 31, 1999.



Warrants



In December 1996, ACLARA issued warrants to purchase 135,000 shares of common stock at a price of $1.33 per share to the lessor of
ACLARAs previous facility. The warrants will expire upon the earliest of December 6, 2003 or the closing of an acquisition of ACLARA.



In May 1999, in conjunction with a loan agreement with a financial institution, ACLARA issued warrants to purchase 138,890 shares of
common stock at an exercise price of $1.80 per share. The warrants have a ten-year term ending in May 2009.



The value of the warrants was calculated using the Black-Scholes pricing model and has been charged to additional paid in capital and
amortized to interest expense or rent expense as appropriate over the life of the notes or lease term. An amount of $314,228, representing the unamortized value of the warrants issued in



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)



connection with debt was fully expensed to the statement of operations during the year ended December 31, 2000 when the related loan was paid
off.



Stock Option Plans



As of December 31, 2002, there were 8,666,504 shares of
common stock reserved for issuance under the Companys 1995 Stock Plan and Amended and Restated 1997 Stock Plan (the 1997 Plan and together with the 1995 Stock Plan, the Plans) for issuance to employees, directors and
consultants of ACLARA. The 1997 Plan contains a provision whereby the number of shares reserved will increase by 1,125,000 on each anniversary of the adoption of the 1997 Plan by the Companys Board of Directors.



In certain cases, and in accordance with the Plan, employees
have been granted options that permit the exercise of options through the use of a full recourse note payable to ACLARA. The shares purchased through a note payable are held in escrow by ACLARA until the note has been fully repaid. Interest is
charged on the note at federal rates. At December 31, 2002 and December 31, 2001, the outstanding balance of notes receivable and accrued interest was $0 and $571,000, respectively. All such promissory notes were paid in full during 2002.



Options granted under the Plans may be incentive
stock options or non-statutory stock options. Stock purchase rights may also be granted under the Plans. The Board of Directors or its designated stock administrator determines the period over which options become exercisable, usually as the stock
option vests. Stock options granted to employees generally vest at a rate of 25% of the stock option grant after one year of employment followed by an additional 1/48of the stock option grant vesting each month thereafter. The vesting schedule for stock options granted to non-employees who are not on the Board of Directors varies, as
determined by the stock administrator. The vesting schedule for stock options granted after ACLARAs initial public offering in March 2000 to independent members of the Board of Directors provides for vesting in cumulative quarterly
installments of 1/4of the option on each of the quarterly anniversaries of the grant date, commencing with the
ninth quarterly anniversary of the grant, so that they are 100% vested on the third anniversary of the grant date.



The exercise price of incentive stock options can be no less than 100% of the fair market value per share of ACLARAs common stock on
the last market trading day prior to the grant date. The exercise price of nonstatutory stock options can be no less than the par value per share of ACLARA common stock.



The term of incentive stock options of which the grantee owns more than 10% of the voting power of all
classes of the Companys capital stock is no longer than five years. For all other options, the term is no longer than ten years.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





Activity
under the Plans is as follows:



|                                                                 |  |                            |   |  | Outstanding Options          
|---------------------------------------------------------------- |  | -------------------------- | - |  | -----------------------------
|                                                                 |  | Shares Available for Grant |   |  | Number of Shares Under Option
|Options reserved at inception of the 1995 Stock Plan             |  | 1,418,501                  |   |  |                             
|Options granted                                                  |  | (1,252,418                 | ) |  | 1,252,418                    
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 1995                                      |  | 166,083                    |   |  | 1,252,418                    
|Additional shares reserved                                       |  | 525,000                    |   |  |                             
|Options granted                                                  |  | (349,275                   | ) |  | 349,275                      
|Options exercised                                                |  |                           |   |  | (586,901                     
|Options canceled                                                 |  | 75,000                     |   |  | (75,000                      
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 1996                                      |  | 416,808                    |   |  | 939,792                      
|Additional shares reserved                                       |  | 750,000                    |   |  |                             
|Options granted                                                  |  | (588,019                   | ) |  | 588,019                      
|Options exercised                                                |  |                           |   |  | (751,434                     
|Options canceled                                                 |  | 131,813                    |   |  | (131,813                     
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 1997                                      |  | 710,602                    |   |  | 644,564                      
|Additional shares reserved (including shares under the1997 Plan) |  | 1,500,000                  |   |  |                             
|Options granted                                                  |  | (1,358,127                 | ) |  | 1,358,127                    
|Options exercised                                                |  |                           |   |  | (246,057                     
|Options canceled                                                 |  | 148,695                    |   |  | (148,695                     
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 1998                                      |  | 1,001,170                  |   |  | 1,607,939                    
|Additional shares reserved                                       |  | 820,503                    |   |  |                             
|Options granted                                                  |  | (1,554,126                 | ) |  | 1,554,126                    
|Options exercised                                                |  |                           |   |  | (109,554                     
|Options canceled                                                 |  | 161,447                    |   |  | (161,447                     
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 1999                                      |  | 428,994                    |   |  | 2,891,064                    
|Additional shares reserved                                       |  | 1,402,500                  |   |  |                             
|Options granted                                                  |  | (1,438,320                 | ) |  | 1,438,320                    
|Options exercised                                                |  |                           |   |  | (1,676,796                   
|Options canceled                                                 |  | 374,962                    |   |  | (374,962                     
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 2000                                      |  | 768,136                    |   |  | 2,277,626                    
|Additional shares reserved                                       |  | 1,125,000                  |   |  |                             
|Options granted                                                  |  | (2,195,025                 | ) |  | 2,195,025                    
|Options exercised                                                |  |                           |   |  | (311,820                     
|Options canceled                                                 |  | 1,102,181                  |   |  | (1,102,181                   
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 2001                                      |  | 800,292                    |   |  | 3,058,650                    
|Additional shares reserved                                       |  | 1,125,000                  |   |  |                              
|Options granted                                                  |  | (1,099,787                 | ) |  | 1,099,787                    
|Options exercised                                                |  |                            |   |  | (227,842                     
|Options canceled                                                 |  | 950,344                    |   |  | (950,344                     
|                                                                 |  |                            |   |  |                              
|Balances, December 31, 2002                                      |  | 1,775,849                  |   |  | 2,980,251                    
|                                                                 |  |                            |   |  |                              



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





The
options outstanding and currently exercisable by exercise price at December 31, 2002 are as follows:



|Exercise Price |                    | Options Outstanding |                                                     | Weighted Average Exercise Price |  | Options Currently Exercisable
|-------------- | ------------------ | ------------------- | --------------------------------------------------- | ------------------------------- |  | -----------------------------
|               | Number Outstanding |                     | Weighted Average Remaining Contractual Life (Years) |                                 |  | Options Exercisable          
|$0.04          |                    | 9,000               |                                                     | 2.35                            |  | $                            
|$0.09          |                    | 3,000               |                                                     | 3.97                            |  | $                            
|$0.11          |                    | 9,376               |                                                     | 4.69                            |  | $                            
|$0.40          |                    | 110,630             |                                                     | 5.88                            |  | $                            
|$0.63          |                    | 69,560              |                                                     | 6.64                            |  | $                            
|$0.63          |                    | 2,501               |                                                     | 6.92                            |  | $                            
|$1.443.23     |                    | 860,700             |                                                     | 9.54                            |  | $                            
|$3.333.70     |                    | 390,685             |                                                     | 8.64                            |  | $                            
|$4.23          |                    | 4,000               |                                                     | 9.04                            |  | $                            
|$4.335.00     |                    | 173,095             |                                                     | 8.59                            |  | $                            
|$5.02          |                    | 875,092             |                                                     | 8.28                            |  | $                            
|$5.035.95     |                    | 212,000             |                                                     | 8.76                            |  | $                            
|$6.326.69     |                    | 25,125              |                                                     | 8.63                            |  | $                            
|$7.067.96     |                    | 54,200              |                                                     | 8.49                            |  | $                            
|$8.268.85     |                    | 14,000              |                                                     | 8.49                            |  | $                            
|$9.75          |                    | 22,388              |                                                     | 8.13                            |  | $                            
|$10.00         |                    | 19,312              |                                                     | 7.20                            |  | $                            
|$11.81         |                    | 69,100              |                                                     | 7.93                            |  | $                            
|$18.50         |                    | 30,061              |                                                     | 7.76                            |  | $                            
|$28.00         |                    | 12,176              |                                                     | 7.41                            |  | $                            
|$38.81         |                    | 14,250              |                                                     | 7.57                            |  | $                            
|               |                    |                     |                                                     |                                 |  |                              
|               |                    | 2,980,251           |                                                     | 7.43                            |  | $                            
|               |                    |                     |                                                     |                                 |  |                              



As of
December 31, 2001, options to purchase 917,965 shares of common stock were exercisable under the Plans.



Employee Stock Purchase Plan



ACLARA adopted an Employee Stock Purchase Plan (Purchase Plan) in February of 2000. Qualified employees may elect to have a
certain percentage of their salary withheld to purchase shares of ACLARAs common stock under the Purchase Plan. The Purchase Plan contains successive six-month offering periods and the price of stock purchased under the Purchase Plan is equal
to 85% of the lower of the fair market value of the stock either at the beginning of the offering period or at the end of the offering period. ACLARA has reserved 800,000 shares of common stock under the Purchase Plan. Purchases under the Purchase
Plan for years ended December 2002 and December 31, 2001 were 195,234 and 107,512 shares of common stock at an average price of $1.89 and $15.19 per share, respectively. Shares available for future purchase under the Purchase Plan are 471,802 at
December 31, 2002. The Purchase Plan will terminate in May 2010.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





Deferred Stock-Based Compensation



ACLARA has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The fair value of each option grant to employees is estimated on the date of grant using the Black-Scholes method
with the following weighted average assumptions:



|                                |  | Year Ended December 31, |  
|------------------------------- |  | ----------------------- | -
|                                |  | 2002                    |  
|Expected dividend yield         |  | 0.00                    | %
|Risk-free interest rate         |  | 3.58                    | %
|Expected life (in years)        |  | 5.0                     |  
|Expected stock price volatility |  | 100                     | %



The
expected life is based on the assumption that stock options on average are exercised one year after they are fully vested. The risk free interest rate was calculated in accordance with the grant date and expected life calculated. The expected stock
price volatility is based upon the expected volatility of ACLARAs stock over the life of the option.



The weighted average per share estimated fair value of employee stock options granted during 2002, 2001 and 2000 was $2.31, $4.29 and
$12.90, respectively.



During 2000 and 1999,
ACLARA issued stock options to certain employees under the Plans with exercise prices below the deemed fair value of ACLARAs common stock at the date of grant. In accordance with the requirements of APB 25, ACLARA has recorded deferred
stock-based compensation for the difference between the exercise price of the stock options and the deemed fair value of ACLARAs common stock at the date of grant. This deferred stock-based compensation is amortized to expense over the period
during which the options or common stock subject to repurchase vest, generally four years, using the straight line method.



During the years ended December 31, 2002, 2001 and 2000, ACLARA has recorded deferred stock-based compensation related to stock options
granted to employees and non-employees of $0, $0 and $7,460,000, of which $1.2 million, $2.3 million and $7.6 has been amortized and recognized as an expense in the accompanying Statement of Operations for the years ended 2002, 2001 and 2000,
respectively. For the years ended December 31, 2002 and, 2001, $1.0 million and $1.2 million respectively of unamortized deferred stock-based compensation was reversed relating to the termination of certain ACLARA employees.



Preferred Share Purchase Rights



On March 16, 2001, ACLARA adopted a Stockholder Rights Plan
(the Rights Plan). Pursuant to the Rights Plan, ACLARAs Board declared a dividend distribution of one Preferred Share Purchase Right (a Right) on each outstanding share of ACLARAs common stock. Subject to limited
exceptions, the Rights will be exercisable if a person or group acquires 15% or more of the Companys common stock or announces a tender offer for 15% or more of the common stock. If ACLARA is acquired in a merger or other business combination
transaction which has not been approved by the Board of Directors, each Right will entitle its holder to purchase, at the Rights then-current exercise price, a number of the acquiring companys common shares having a market value at the
time of twice the Rights exercise price. Under certain circumstances, each Right will entitle stockholders to buy one one-hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.50.
ACLARAs Board will be entitled to redeem the Rights at $0.01 per Right at any time before a person has acquired 15% or more of the outstanding common stock. The dividend distribution to establish the new Rights Plan is payable to stockholders
of record on April 6, 2001. The Rights Plan will expire in 2011.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





14.    EMPLOYEE BENEFIT PLAN



ACLARA established a 401(k) Plan (Plan) to provide tax deferred salary deductions for all eligible employees. Participants may make voluntary contributions to the Plan up to 20% of their compensation, limited by
certain Internal Revenue Service restrictions. ACLARAs matching contribution is discretionary and is determined by the Board of Directors. ACLARA has not contributed to the Plan since its inception.



15.    RELATED PARTY TRANSACTIONS



In October 2001, ACLARA amended the terms of a research
collaboration with the R.W. Johnson Pharmaceutical Research Institute (PRI). PRI previously owned shares of Series D, Series E and Series F mandatorily redeemable convertible preferred stock, which were subsequently converted to common
stock during ACLARAs initial public offering in March 2000. Revenue from this collaboration totaled $200,000, $800,000 and $1.3 million for the years ended December 31, 2002, 2001 and 2000, respectively.



During 2000, ACLARA issued promissory notes to three officers
and three other employees totaling approximately $613,000 for the exercise of certain stock options. These notes bore interest of between 4.6% and 5.8% per annum with the principal and accrued interest being repayable between two and three years
from the date of issuance. The amount outstanding at December 31, 2002 and December 31, 2001 including accrued interest was $0 and $571,000, respectively. The promissory notes were full recourse and were collateralized by a pledge of ACLARAs
common stock. As of December 31, 2002, all such promissory notes had been repaid in full.



In July 2000, ACLARA issued a loan of approximately $41,000 to an officer. The amount outstanding at December 31, 2002 and December 31, 2001 including accrued interest was $0 and $45,000, respectively.
The loan bore an interest at a rate of 6.6% per annum with a term of approximately two years from the date of issuance. The loan was collateralized by a pledge of ACLARAs common stock. The loan was repaid in full in October 2002.



ACLARA has entered into change of control and indemnification
agreements with each executive officer.



16.    INCOME TAXES



The net deferred tax assets are comprised of the following (in thousands):



|                                     |  | December 31, |        
|------------------------------------ |  | ------------ | -------
|                                     |  | 2002         |        
|Net operating loss carryforwards     |  | $            | 46,147 
|Depreciation and amortization        |  |              | 3,203  
|Tax credit carried-forward           |  |              | 3,333  
|Accrued litigation costs             |  |              |       
|Capitalized research and development |  |              | 2,554  
|                                     |  |              |        
|Deferred income tax assets           |  |              | 55,237 
|Less: valuation allowance            |  |              | (55,237
|                                     |  |              |        
|Net deferred tax assets              |  | $            |       
|                                     |  |              |        



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





The
reconciliation of the statutory federal income tax rate to ACLARAs effective tax rate is as follows:



|                                   |  | December 31, |   
|---------------------------------- |  | ------------ | --
|                                   |  | 2002         |   
|Tax at federal statutory rate      |  | (34.00       | )%
|State tax, net of federal benefits |  | (3.11        | )%
|Stock-based compensation           |  | 1.26         | % 
|Deferred tax assets, not benefited |  | 37.73        | % 
|Tax credits                        |  | (1.95        | )%
|Other                              |  | 0.07         | % 
|                                   |  |              |   
|Provision for taxes                |  |             | % 
|                                   |  |              |   



Based on
the available evidence, management believes it is more likely than not that the net deferred tax assets are not fully realizable. Accordingly, ACLARA has provided a full valuation allowance against its net deferred tax assets at December 31, 2002.



At December 31, 2002, ACLARA had federal and
state net operating loss carryforwards of approximately $126 million and $57 million, respectively. If not utilized, the federal loss carryforwards begin to expire in the year 2010, and the state loss carryforwards begin to expire in the year 2005.



ACLARA has tax credit carryforwards of
$1,837,000 and $2,266,000 for federal and state income tax purposes, respectively. If not utilized, the federal tax credits will begin to expire in 2010, and the state credits will begin to expire in 2005.



The Internal Revenue Code limits the use of net operating loss
and tax credits carry forwards in certain situations where changes occur in the stock ownership of a company. If ACLARA should have an ownership change, as defined by tax law, utilization of the carryforwards could be restricted.



17.    EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT



During the year ended December 31, 2000,
ACLARA recorded an extraordinary loss of $1.1 million related to the early retirement of debt.



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##### Table of Contents

ACLARA BIOSCIENCES, INC.

(A Company in the Development Stage)



NOTES TO FINANCIAL STATEMENTS(Continued)





18.    QUARTERLY FINANCIAL DATA (UNAUDITED)



|                                             |  | First Quarter                         |         |   | Second Quarter |   |         | Third Quarter |  |   | Fourth Quarter |  
|-------------------------------------------- |  | ------------------------------------- | ------- | - | -------------- | - | ------- | ------------- |  | - | -------------- | -
|                                             |  | (in thousands, except per share data) |        
|2002                                         |  |                                       |         |   |                |   |         |               |  |   |                |  
|Revenues                                     |  | $                                     | 590     |   |                | $ | 673     |               |  | $ | 505            |  
|Litigation settlements                       |  |                                       | (1,534  | ) |                |   | (1,810  | )             |  |   | (396           | )
|Restructuring                                |  |                                       |        |   |                |   |        |               |  |   | (3,327         | )
|Loss from operations                         |  |                                       | (10,169 | ) |                |   | (10,883 | )             |  |   | (12,052        | )
|Net loss                                     |  |                                       | (9,088  | ) |                |   | (9,858  | )             |  |   | (11,192        | )
|Net loss per common share, basic and diluted |  | $                                     | (0.25   | ) |                | $ | (0.27   | )             |  | $ | (0.31          | )
|                                             |  |                                       |         |   |                |   |         |               |  |   |                |  
|                                            
|2001                                         |  |                                       |         |   |                |   |         |               |  |   |                |  
|Revenues                                     |  | $                                     | 934     |   |                | $ | 849     |               |  | $ | 507            |  
|Litigation settlements                       |  |                                       | (4,777  | ) |                |   | 2,389   |               |  |   | (2,839         | )
|Loss from operations                         |  |                                       | (12,477 | ) |                |   | (5,220  | )             |  |   | (10,823        | )
|Net loss                                     |  |                                       | (9,815  | ) |                |   | (3,219  | )             |  |   | (9,086         | )
|Net loss per common share, basic and diluted |  | $                                     | (0.28   | ) |                | $ | (0.09   | )             |  | $ | (0.26          | )
|                                             |  |                                       |         |   |                |   |         |               |  |   |                |  



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##### Table of Contents

EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Certificate of Incorporation of ACLARA BioSciences, Inc.
(Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 filed with the Securities and Exchange Commission, File No. 222-95107 (our Form S-1).)              
|              
|3.2            |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of
ACLARA BioSciences, Inc. (Incorporated by reference to Exhibit 3.6 to our Form S-1.)                                                                                                   
|              
|3.3            |  | Amended and Restated Bylaws of ACLARA BioSciences, Inc. (Incorporated by reference to
Exhibit 3.4 to our Form S-1.)                                                                                                                                                     
|              
|10.1*          |  | Form of Indemnification Agreement between ACLARA and each of our directors and
officers (Incorporated by reference to Exhibit 10.1 to our Form S-1.)                                                                                                                    
|              
|10.2 *         |  | 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.2 to our Form
S-1.)                                                                                                                                                                                     
|              
|10.3 *         |  | Amended and Restated ACLARA BioSciences, Inc. 1997 Stock Plan (Incorporated by
reference to Exhibit 10.3 to our Form S-1.)                                                                                                                                              
|              
|10.4           |  | Amended and Restated Investors Rights Agreement, dated as of December 30, 1999
(Incorporated by reference to Exhibit 10.4 to our Form S-1.)                                                                                                                            
|              
|10.5           |  | Lease Agreement between ACLARA BioSciences, Inc. and The Pear Avenue Group, dated
March 1, 1999 (Incorporated by reference to Exhibit 10.8 to our Form S-1.)                                                                                                            
|              
|10.6           |  | Master Equipment Lease between Phoenix Leasing and Soane BioSciences, Inc., dated as
of November 15, 1995 (Incorporated by reference to Exhibit 10.9 to our Form S-1.)                                                                                                  
|              
|10.7+          |  | Agreement for an Exclusive Alliance to Develop, Manufacture and Market a Chip-Based
Screening System for Cell Analysis between Cellomics, Inc. and ACLARA BioSciences, Inc, dated as of October 26, 1999 (Incorporated by reference to Exhibit 10.10 to our Form S-1.)  
|              
|10.8+          |  | Collaboration Agreement between ACLARA BioSciences, Inc. and The Perkin-Elmer
Corporation, dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.11 to our Form S-1.)                                                                                     
|              
|10.9+          |  | Side Agreement between ACLARA BioSciences, Inc. and The Perkin-Elmer Corporation,
dated as of March 19, 1999 (Incorporated by reference to Exhibit 10.12 to our Form S-1.)                                                                                              
|              
|10.10+         |  | Custom Instrument Development and Commercialization Agreement between The R.W.
Johnson Pharmaceutical Research Initiative, The Perkin-Elmer Corporation and ACLARA BioSciences, Inc., signed in March 1999 (Incorporated by reference to Exhibit 10.13 to our Form S-1.)
|              
|10.11+         |  | Collaboration Agreement between Soane BioSciences, Inc. and The Perkin-Elmer
Corporation, dated as of April 25, 1998 (Incorporated by reference to Exhibit 10.14 to our Form S-1.)                                                                                      
|              
|10.12          |  | Master Loan and Security Agreement by and between ACLARA BioSciences, Inc. and
Transamerica Business Credit Corporation, dated as of May 27, 1999 (Incorporated by reference to Exhibit 10.15 to our Form S-1.)                                                         
|              
|10.13          |  | ACLARA BioSciences, Inc. Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 10.16 to our Form S-1.)                                                                                                                                                     
|              
|10.14          |  | Agreement between Packard BioScience Company and ACLARA BioSciences, dated as of
February 21, 2000 (Incorporated by reference to Exhibit 10.17 to our Form S-1.)                                                                                                        
|              
|10.15          |  | Consulting Agreement with Dr. Eric Lander dated as of January 15, 2000 (Incorporated
by reference to Exhibit 10.18 to our Form S-1.)                                                                                                                                    
|              
|10.16          |  | Consulting Agreement with Mr. Andre Marion dated as of January 19, 2000 (Incorporated
by reference to Exhibit 10.19 to our Form S-1.)                                                                                                                                   



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##### Table of Contents

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17+         |  | Settlement Agreement and Mutual General Release between Caliper Technologies Corp.
and ACLARA BioSciences, Inc., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 15, 2001.)                                                                 
|              
|10.18+         |  | Cross-License Agreement between Caliper Technologies Corp. and ACLARA BioSciences,
Inc., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 14, 2001.)                                                                                    
|              
|10.19          |  | Common Stock Issuance Agreement between ACLARA BioSciences, Inc. and Caliper
Technologies Corp., dated as of March 12, 2001 (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on May 15, 2001.)                                                                                 
|              
|10.20+         |  | Amended and Partially Restated Collaboration Agreement between ACLARA BioSciences,
Inc. and PE Corporation (NY), executed as of March 22, 2002. (Incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K filed on April 1, 2002.)                                                              
|              
|10.21          |  | Second Side Agreement Between ACLARA BioSciences, Inc. and PE Corporation (NY),
effective as of September 30, 2000. (Incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K filed on April 1, 2002.)                                                                                          
|              
|10.22+         |  | Supply and Distributorship Agreement between ACLARA BioSciences, Inc. and Roche
Diagnostics Corporation, dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed on April 1, 2002.)                                                                       
|              
|10.23          |  | First Amendment to the Custom Instrument Development and Commercialization Agreement
between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., executed as of October 1, 2001. (Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K filed on April 1, 2002.)
|              
|10.24+         |  | Second Amendment to the Custom Instrument Development and Commercialization Agreement
between The R.W. Johnson Pharmaceutical Research Institute and ACLARA BioSciences, Inc., dated as of October 26, 2001. (Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K filed on April 1, 2002.) 
|              
|10.25+         |  | Development and Commercialization Agreement between Third Wave Technologies, Inc. and
ACLARA BioSciences, Inc., dated as of October 24, 2001. (Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed on April 1, 2002.)                                                                
|              
|10.26+         |  | Agreement between Third Wave Technologies, Inc. and ACLARA BioSciences, Inc. dated as
of October 24, 2001. (Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K filed on April 1, 2002.)                                                                                                   
|              
|10.27          |  | Amendment to the ACLARA BioSciences, Inc. Employee Stock Purchase Plan, effective
April 23, 2002. (Incorporated by reference to Exhibit 10.31 to our Quarterly Report on Form 10-Q filed on August 14, 2002.)                                                                                                       
|              
|10.28+         |  | License Agreement between Third Wave Technologies, Inc and ACLARA BioSciences, Inc.
dated October 15, 2002. (Incorporated by reference to Exhibit 10.32 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                                                                                           
|              
|10.29+         |  | Supply Agreement between Third Wave Technologies, Inc and ACLARA BioSciences, Inc.
dated October 15, 2002. (Incorporated by reference to Exhibit 10.33 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                                                                                            
|              
|10.30+         |  | InvaderCreator Access Agreement between Third Wave Technolgies, Inc and ACLARA
BioSciences, Inc. dated October 15, 2002. (Incorporated by reference to Exhibit 10.34 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                                                                              



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##### Table of Contents

|Exhibit Number |  | Description                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31+         |  | Transition Manufacturing Plan Letter Agreement between Third Wave Technologies, Inc.
and ACLARA BioSciences, Inc. dated October 15, 2002. (Incorporated by reference to Exhibit 10.35 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)
|              
|10.32          |  | InvaderCreator Access Letter Agreement between Third Wave Technologies, Inc and
ACLARA BioSciences, Inc. dated October 15, 2002. (Incorporated by reference to Exhibit 10.36 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)         
|              
|10.33          |  | Termination Agreement between Roche Diagnostics Corporation and ACLARA BioSciences,
Inc. dated October 10, 2002. (Incorporated by reference to Exhibit 10.37 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                         
|              
|10.34*         |  | General Release and Separation Agreement between Joseph M. Limber and ACLARA
BioSciences, Inc. dated October 10, 2002. (Incorporated by reference to Exhibit 10.38 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                   
|              
|10.35*         |  | Change in Control Agreement between Joseph M. Limber and ACLARA BioSciences, Inc.
dated October 10, 2002. (Incorporated by reference to Exhibit 10.39 to our Quarterly Report on Form 10-Q filed on November 14, 2002.)                                
|              
|10.36*         |  | Form of Change of Control Agreement between ACLARA BioSciences, Inc. and each of our
executive officers except the chief executive officer.                                                                                                            
|              
|10.37*         |  | Letter Agreement between Edward M. Hurwitz and ACLARA BioSciences, Inc. dated October
29, 2002.                                                                                                                                                        
|              
|10.38*         |  | Letter Agreement between Edward M. Hurwitz and ACLARA BioSciences, Inc. dated
November 27, 2002.                                                                                                                                                       
|              
|10.39*         |  | Employment Letter Agreement between Thomas Klopack and ACLARA BioSciences, Inc. dated
March 18, 2003.                                                                                                                                                  
|              
|10.40*         |  | Severance Agreement between Thomas Klopack and ACLARA BioSciences, Inc. dated March
18, 2003.                                                                                                                                                          
|              
|23             |  | Consent of PricewaterhouseCoopers LLP, Independent Accountants.                                                                                                                                                                                        
|              
|24             |  | Powers of Attorney (see signature page to this report).                                                                                                                                                                                                

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+  Confidential treatment
has been granted as to portions of this exhibit.

*  Management contract or compensatory plan or arrangement.



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