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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

|    |  |                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934for the quarterly period ended June 30, 2003

|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934for the
transition period from ___________ to ___________.

Commission file # 000-28229

CALIPER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)


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

68 ELM STREET
HOPKINTON, MA 01748

(Address and zip code of principal executive offices)

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

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).     Yes  [X]  No [  ]

COMMON SHARES OUTSTANDING ON AUGUST 8, 2003: 28,161,195





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION  
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS                                 
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 3.3                  
|EXHIBIT 10.55                
|EXHIBIT 10.56                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



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##### Table of Contents



CALIPER TECHNOLOGIES CORP.
TABLE OF CONTENTS

|              |  |                                                                                       |    |                                                                                                           |    |      |   | 
|------------- |  | ------------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|              |  |                                                                                       |    |                                                                                                           |    | Page
|              |  |                                                                                       |    |                                                                                                           |    |     
|PART I        |  | FINANCIAL INFORMATION                                                                 |    |                                                                                                           |    |     
|              |  | Item 1.                                                                               |    | Financial Statements (unaudited)                                                                          |    |      |   | 
|              |  |                                                                                       |    | Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002                           |    |      | 2 | 
|              |  |                                                                                       |    | Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2003 and 2002 |    |      | 3 | 
|              |  |                                                                                       |    | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002           |    |      | 4 | 
|              |  | Notes to Unaudited Condensed Consolidated Financial Statements                        |    |                                                                                                           | 5  |     
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |    |                                                                                                           | 12 |     
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |                                                                                                           | 25 |     
|Item 4.       |  | Controls and Procedures                                                               |    |                                                                                                           | 26 |     
|PART II       |  | OTHER INFORMATION                                                                     |    |                                                                                                           |    |     
|Item 1.       |  | Legal Proceedings                                                                     |    |                                                                                                           | 27 |     
|Item 2.       |  | Changes in Securities and Use of Proceeds                                             |    |                                                                                                           | 27 |     
|Item 3.       |  | Defaults upon Senior Securities                                                       |    |                                                                                                           | 27 |     
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                   |    |                                                                                                           | 28 |     
|Item 5.       |  | Other Information                                                                     |    |                                                                                                           | 28 |     
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                           | 28 |     
|SIGNATURES    |  |                                                                                       | 30 |                                                                                                          
|EXHIBIT INDEX |  |                                                                                       | 31 |                                                                                                          

1



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




CALIPER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                  |                                                                                                                  |   |             |          |              |   |         |         |  
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | - | ----------- | -------- | ------------ | - | ------- | ------- | -
|                                                  |                                                                                                                  |   | June 30,    |          | December 31,
|                                                  |                                                                                                                  |   | 2003        |          | 2002        
|                                                  |                                                                                                                  |   |             |          |             
|                                                  |                                                                                                                  |   | (unaudited) |          | (Note 1)    
|Assets                                            |                                                                                                                  |   |             |          |              |   |         |        
|Current assets:                                   |                                                                                                                  |   |             |          |              |   |         |        
|                                                  | Cash and cash equivalents                                                                                        |   | $           | 55,639   |              |   | $       | 16,184  |  
|                                                  | Marketable securities                                                                                            |   |             | 79,839   |              |   |         | 138,139 |  
|                                                  | Accounts receivable, net of allowance for
doubtful accounts of $0 at June 30, 2003 and
$119 at December 31, 2002 |   |             | 2,987    |              |   |         | 1,754   |  
|                                                  | Accounts receivable - related party                                                                              |   |             | 224      |              |   |         | 115     |  
|                                                  | Royalties receivable from Aclara                                                                                 |   |             | 1,250    |              |   |         |        |  
|                                                  | Inventories                                                                                                      |   |             | 4,416    |              |   |         | 5,964   |  
|                                                  | Prepaid expenses and other current assets                                                                        |   |             | 2,187    |              |   |         | 1,508   |  
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Total current assets                              |                                                                                                                  |   | 146,542     |          |              |   | 163,664 |        
|Security deposits                                 |                                                                                                                  |   | 2,718       |          |              |   | 3,000   |        
|Property and equipment, net                       |                                                                                                                  |   | 9,787       |          |              |   | 12,545  |        
|Notes receivable from officers                    |                                                                                                                  |   | 178         |          |              |   | 215     |        
|Other assets, net                                 |                                                                                                                  |   | 501         |          |              |   | 454     |        
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Total assets                                      |                                                                                                                  | $ | 159,726     |          |              | $ | 179,878 |        
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Liabilities and stockholders equity              |                                                                                                                  |   |             |          |              |   |         |        
|Current liabilities:                              |                                                                                                                  |   |             |          |              |   |         |        
|                                                  | Accounts payable                                                                                                 |   | $           | 1,044    |              |   | $       | 1,227   |  
|                                                  | Accrued compensation                                                                                             |   |             | 2,131    |              |   |         | 2,458   |  
|                                                  | Other accrued liabilities                                                                                        |   |             | 1,143    |              |   |         | 1,110   |  
|                                                  | Deferred
revenue                                                                                                 |   |             | 1,251    |              |   |         | 874     |  
|                                                  | Current portion of sale-leaseback arrangements                                                                   |   |             | 2,091    |              |   |         | 2,412   |  
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Total current liabilities                         |                                                                                                                  |   | 7,660       |          |              |   | 8,081   |        
|Noncurrent portion of sale-leaseback arrangements |                                                                                                                  |   | 978         |          |              |   | 1,986   |        
|Deferred
revenue                                  |                                                                                                                  |   | 198         |          |              |   | 267     |        
|Other noncurrent liabilities                      |                                                                                                                  |   | 2,041       |          |              |   | 1,986   |        
|Commitments and contingencies                     |                                                                                                                  |   |             |          |              |   |         |        
|Stockholders equity:                             |                                                                                                                  |   |             |          |              |   |         |        
|                                                  | Common
stock                                                                                                     |   |             | 25       |              |   |         | 25      |  
|                                                  | Additional paid-in capital                                                                                       |   |             | 252,972  |              |   |         | 252,219 |  
|                                                  | Deferred stock compensation                                                                                      |   |             | (297     | )            |   |         | (637    | )
|                                                  | Accumulated deficit                                                                                              |   |             | (105,076 | )            |   |         | (85,566 | )
|                                                  | Accumulated other comprehensive income                                                                           |   |             | 1,224    |              |   |         | 1,517   |  
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Total stockholders equity                        |                                                                                                                  |   | 148,848     |          |              |   | 167,558 |        
|                                                  |                                                                                                                  |   |             |          |              |   |         |        
|Total liabilities and stockholders equity        |                                                                                                                  | $ | 159,726     |          |              | $ | 179,878 |        
|                                                  |                                                                                                                  |   |             |          |              |   |         |        

See accompanying notes.

2



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CALIPER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)

|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|------------------------------------------------------------------------------- | ---------------------------------------------------- | - | --------------------------- | ----- | ------------------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                                |                                                      |   | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                                                |                                                      |   |                             |       |                          
|                                                                                |                                                      |   | 2003                        |       | 2002                      |   | 2003    |        | 2002
|                                                                                |                                                      |   |                             |       |                           |   |         |        |     
|Revenue:                                                                        |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |       
|                                                                                | Product revenue                                      |   | $                           | 2,893 |                           |   | $       | 2,431  |      |   | $       | 5,803  |  |   | $       | 5,626  | 
|                                                                                | Product revenue - related party                      |   |                             | 548   |                           |   |         | 2,056  |      |   |         | 1,126  |  |   |         | 3,412  | 
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|                                                                                | Subtotal product revenue                             |   |                             | 3,441 |                           |   |         | 4,487  |      |   |         | 6,929  |  |   |         | 9,038  | 
|                                                                                | License fees and contract revenue                    |   |                             | 2,434 |                           |   |         | 2,378  |      |   |         | 4,550  |  |   |         | 4,504  | 
|                                                                                | Contract revenue - related party                     |   |                             | 3     |                           |   |         | 371    |      |   |         | 11     |  |   |         | 735    | 
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|                                                                                | Subtotal license fees and contract revenue           |   |                             | 2,437 |                           |   |         | 2,749  |      |   |         | 4,561  |  |   |         | 5,239  | 
|Total revenue                                                                   |                                                      |   | 5,878                       |       |                           |   | 7,236   |        |      |   | 11,490  |        |  |   | 14,277  |       
|Costs and expenses:                                                             |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |       
|                                                                                | Cost of product revenue                              |   |                             | 2,402 |                           |   |         | 1,923  |      |   |         | 4,622  |  |   |         | 4,016  | 
|                                                                                | Cost of product revenue - related party              |   |                             | 60    |                           |   |         | 1,403  |      |   |         | 138    |  |   |         | 1,847  | 
|                                                                                | Research and development                             |   |                             | 8,822 |                           |   |         | 11,463 |      |   |         | 18,233 |  |   |         | 22,515 | 
|                                                                                | Selling, general and administrative                  |   |                             | 4,740 |                           |   |         | 4,817  |      |   |         | 9,309  |  |   |         | 9,474  | 
|                                                                                | Amortization of deferred stock compensation, net (1) |   |                             | 152   |                           |   |         | 386    |      |   |         | 340    |  |   |         | 832    | 
|                                                                                | Restructuring charges                                |   |                             | 322   |                           |   |         |       |      |   |         | 322    |  |   |         |       | 
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Total costs and expenses                                                        |                                                      |   | 16,498                      |       |                           |   | 19,992  |        |      |   | 32,964  |        |  |   | 38,684  |       
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Operating loss                                                                  |                                                      |   | (10,620                     | )     |                           |   | (12,756 | )      |      |   | (21,474 | )      |  |   | (24,407 | )     
|Interest income, net                                                            |                                                      |   | 1,077                       |       |                           |   | 1,846   |        |      |   | 1,998   |        |  |   | 4,277   |       
|Other
expense/(income), net                                                     |                                                      |   | 1                           |       |                           |   | (458    | )      |      |   | (34     | )      |  |   | (924    | )     
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Net loss                                                                        |                                                      | $ | (9,542                      | )     |                           | $ | (11,368 | )      |      | $ | (19,510 | )      |  | $ | (21,054 | )     
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Net loss per share, basic and diluted                                           |                                                      | $ | (0.39                       | )     |                           | $ | (0.47   | )      |      | $ | (0.79   | )      |  | $ | (0.87   | )     
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Shares used in computing net loss per share, basic and diluted                  |                                                      |   | 24,840                      |       |                           |   | 24,333  |        |      |   | 24,777  |        |  |   | 24,285  |       
|(1) Amortization of deferred stock compensation, net, relates to the following: |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |       
|Research and development                                                        |                                                      | $ | 40                          |       |                           | $ | 135     |        |      | $ | 88      |        |  | $ | 291     |       
|Selling, general and administrative                                             |                                                      |   | 112                         |       |                           |   | 251     |        |      |   | 252     |        |  |   | 541     |       
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 
|Total                                                                           |                                                      | $ | 152                         |       |                           | $ | 386     |        |      | $ | 340     |        |  | $ | 832     |       
|                                                                                |                                                      |   |                             |       |                           |   |         |        |      |   |         |        |  |   |         |        | 

See accompanying notes.

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CALIPER TECHNOLOGIES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

|                                                                            |                                                  |                                                |         |                  |        |      |         |       |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------- | ------- | ---------------- | ------ | ---- | ------- | ----- | ------ | -
|                                                                            |                                                  |                                                |         | Six Months Ended
|                                                                            |                                                  |                                                |         | June 30,        
|                                                                            |                                                  |                                                |         |                 
|                                                                            |                                                  |                                                |         | 2003             |        | 2002
|                                                                            |                                                  |                                                |         |                  |        |     
|Operating activities                                                        |                                                  |                                                |         |                  |        |      |         |      
|Net loss                                                                    |                                                  | $                                              | (19,510 | )                |        | $    | (21,054 | )    
|Adjustments to reconcile net loss to net cash used in
operating activities: |                                                  |                                                |         |                  |        |      |         |      
|                                                                            | Depreciation and amortization                    |                                                |         | 3,202            |        |      |         | 2,703 |       
|                                                                            | Amortization of deferred stock compensation, net |                                                |         | 340              |        |      |         | 832   |       
|                                                                            | Stock options issued to non-employees            |                                                |         | (2               | )      |      |         | 26    |       
|                                                                            | Changes in operating assets and liabilities:     |                                                |         |                  |        |      |         |       |       
|                                                                            |                                                  | Accounts receivable and other receivable       |         |                  | (2,592 | )    |         |       | (366   | )
|                                                                            |                                                  | Inventories                                    |         |                  | 1,548  |      |         |       | (3,715 | )
|                                                                            |                                                  | Prepaid expenses and other current assets      |         |                  | (679   | )    |         |       | (2,380 | )
|                                                                            |                                                  | Security deposits and other assets             |         |                  | 235    |      |         |       | 43     |  
|                                                                            |                                                  | Notes receivable from
officers                 |         |                  | 37     |      |         |       | 140    |  
|                                                                            |                                                  | Accounts payable and other accrued liabilities |         |                  | (150   | )    |         |       | 834    |  
|                                                                            |                                                  | Accrued compensation                           |         |                  | (327   | )    |         |       | (402   | )
|                                                                            |                                                  | Deferred revenue                               |         |                  | 308    |      |         |       | (1,086 | )
|                                                                            |                                                  | Other noncurrent liabilities                   |         |                  | 55     |      |         |       | 238    |  
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Net cash used in operating activities                                       |                                                  |                                                | (17,535 | )                |        |      | (24,187 | )    
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Investing activities                                                        |                                                  |                                                |         |                  |        |      |         |      
|Purchases of marketable securities                                          |                                                  |                                                | (24,304 | )                |        |      | (93,549 | )    
|Proceeds from sale of marketable securities                                 |                                                  |                                                | 75,080  |                  |        |      | 58,123  |      
|Proceeds from maturities of marketable securities                           |                                                  |                                                | 7,203   |                  |        |      | 56,585  |      
|Purchases of property and equipment                                         |                                                  |                                                | (444    | )                |        |      | (4,125  | )    
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Net cash provided by investing activities                                   |                                                  |                                                | 57,535  |                  |        |      | 17,034  |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Financing activities                                                        |                                                  |                                                |         |                  |        |      |         |      
|Proceeds under sale-leaseback arrangements                                  |                                                  |                                                |        |                  |        |      | 822     |      
|Payments of obligations under sale-leaseback
arrangements                   |                                                  |                                                | (1,328  | )                |        |      | (1,123  | )    
|Proceeds from issuance of common stock                                      |                                                  |                                                | 756     |                  |        |      | 1,351   |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Net cash (used in) provided by financing activities                         |                                                  |                                                | (572    | )                |        |      | 1,050   |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Effect of exchange rate changes on cash                                     |                                                  |                                                | 27      |                  |        |      |        |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Net increase (decrease) in cash and cash equivalents                        |                                                  |                                                | 39,455  |                  |        |      | (6,103  | )    
|Cash and cash equivalents at beginning of period                            |                                                  |                                                | 16,184  |                  |        |      | 10,655  |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Cash and cash equivalents at end of
period                                  |                                                  | $                                              | 55,639  |                  |        | $    | 4,552   |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      
|Supplemental disclosure of cash flow information                            |                                                  |                                                |         |                  |        |      |         |      
|Interest paid                                                               |                                                  | $                                              | 233     |                  |        | $    | 339     |      
|                                                                            |                                                  |                                                |         |                  |        |      |         |      

See accompanying notes.

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CALIPER TECHNOLOGIES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring entries) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended June 30, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003. The condensed
consolidated balance sheet at December 31, 2002 has been derived from audited
financial statements as of that date. For further information, refer to the
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 2002 filed by Caliper Technologies Corp.

PRINCIPLES OF CONSOLIDATION

Calipers condensed consolidated financial statements as of June 30, 2003
include the accounts of Caliper Europe GmbH, Calipers wholly owned subsidiary.
All significant intercompany balances and transactions have been eliminated in
consolidation.

Use of Estimates and Reclassifications

The preparation of financial statements requires management to make
estimates, assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
its estimates, including those related to: investments; inventories; bad
debts; collaborative, royalty and license arrangements; restructuring; income
taxes; and litigation and other contingencies. Caliper bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from those
estimates under different assumptions or conditions.

Certain prior period amounts have been reclassified to conform to the
current period presentation.

REVENUE RECOGNITION

Revenue is earned from Calipers collaboration agreement with Agilent,
Automated Drug Discovery systems, chips and datapoints, Automated Microfluidics
Systems 90, Applications Developer Program, contract revenue for
research and development services, and licensing and royalty
agreements.

Collaboration Agreement

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

Automated Drug Discovery System Products, Automated Microfluidics Systems 90
and Applications Developer Program

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

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

In certain cases, customers will be charged on a datapoint pricing basis
for their usage of chips. A datapoint is generated each time a Caliper
instrument system introduces a sample into a chip through a sipper in order to
perform a particular LabChip assay. Datapoints are these test-results that
Calipers customers record when they use Calipers instruments. Caliper
records datapoint revenues in the period that Calipers customers attain these
datapoints and communicate such use to Caliper. Datapoint rates are
contractually negotiated between Caliper and its customers. Caliper has
contracted for $1.8 million in minimum datapoint fees from Amphora, a related
party, for the twelve-month period ending November 30, 2003. To the extent,
however, that Amphora does not generate the minimum number of datapoints by
November 30, 2003 as contractually called for, Amphora is not obligated to make
any further datapoint payments to Caliper until this minimum number of
datapoints is achieved. Caliper has also contractually negotiated datapoint
fees with four additional customers for 2003. Under minimum datapoint fee
arrangements, datapoint revenues are recorded in the period the minimum
applies. Caliper has no performance obligations with respect to these minimum
fees.

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

Contract Revenue

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

Licensing and Royalty

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

As part of the comprehensive settlement agreement with Aclara Biosciences
entered into on January 7, 2001, Aclara is obligated to pay Caliper a minimum
annual royalty of $2.5 million on licensed product sales in both 2002 and 2003,
offset by quarterly royalty payments due on Aclara licensed instrument or
LabCard product sales. For the three and six months ended June 30, 2003 and
2002, Caliper recognized $625,000 in the three month periods, and $1.25 million
in the six month periods, in minimum royalties on Aclara sales of licensed
instruments and LabCards.

Annual Maintenance Agreements

Caliper does not include with the initial product purchase any element of
a maintenance contract. No upgrades or operational support is included in such
purchases. All the customer is entitled to receive is service in accordance
with Calipers standard warranty, which is to provide replacement of defective
goods. Caliper, to date, has not focused on selling additional maintenance
contracts and has only sold two such contracts regarding early
prototype instruments. These contracts provided access to upgrades to Calipers
product, if and when available, and operational support. In the future,
Caliper expects to offer maintenance agreements to customers for access to
instrument system upgrades and overall instrument maintenance after the
expiration of the one year limited warranty period. Revenue with respect to
these maintenance contracts will be initially deferred and recognized ratably
over the term of the contract.

NET INCOME (LOSS) PER SHARE

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

STOCK-BASED COMPENSATION

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Caliper recognizes employee stock-based compensation under the intrinsic
value method of accounting as prescribed by Accounting Principles Board Opinion
25, Accounting for Stock Issued to Employees and related interpretations.
Accordingly, no compensation expense is recognized in Calipers financial
statements for stock options granted to employees, which had an exercise
price equal to the fair value of the underlying common stock on the date of
grant. The following table illustrates the effect on net loss and loss
per share if Caliper had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123 (in thousands, except per share amounts):

|                    |                                                                                                                  |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |         |       |  
|------------------- | ---------------------------------------------------------------------------------------------------------------- | ----------------- | - | --------------------------- | ----- | ------------------------- | - | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                    |                                                                                                                  |                   |   | Three Months Ended June 30, |       | Six Months Ended June 30,
|                    |                                                                                                                  |                   |   |                             |       |                          
|                    |                                                                                                                  |                   |   | 2003                        |       | 2002                      |   | 2003    |       | 2002
|                    |                                                                                                                  |                   |   |                             |       |                           |   |         |       |     
|Net loss:           |                                                                                                                  |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |        
|                    | As reported                                                                                                      |                   | $ | (9,542                      | )     |                           | $ | (11,368 | )     |      | $ | (19,510 | )     |   | $ | (21,054 | )    
|                    | Add: Stock-based
employee
compensation
expense included in
reported net loss                                     |                   |   | 152                         |       |                           |   | 386     |       |      |   | 340     |       |   |   | 832     |      
|                    | Deduct: Total
stock-based
employee
compensation
expense determined
under fair value
based methods for
all awards |                   |   | (3,179                      | )     |                           |   | (5,991  | )     |      |   | (9,435  | )     |   |   | (11,790 | )    
|                    |                                                                                                                  |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |        
|                    | Pro forma net loss                                                                                               |                   | $ | (12,569                     | )     |                           | $ | (16,973 | )     |      | $ | (28,605 | )     |   | $ | (32,012 | )    
|                    |                                                                                                                  |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |        
|Net loss per share: |                                                                                                                  |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |        
|                    | As reported:                                                                                                     |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |         |      
|                    |                                                                                                                  | Basic and diluted |   | $                           | (0.39 | )                         |   | $       | (0.47 | )    |   | $       | (0.79 | ) |   | $       | (0.87 | )
|                    | Pro forma:                                                                                                       |                   |   |                             |       |                           |   |         |       |      |   |         |       |   |   |         |      
|                    |                                                                                                                  | Basic and diluted |   | $                           | (0.50 | )                         |   | $       | (0.70 | )    |   | $       | (1.15 | ) |   | $       | (1.32 | )

Since options vest over several years and additional option grants are
expected to be made in future years, the pro forma impact on the results of
operations for the three and six months ended June 30, 2003 and 2002,
respectively, is not necessarily representative of the pro forma effects on the
results of operations for future periods.

OPTION EXCHANGE PROGRAM

On October 16, 2002, Caliper announced that its Board of Directors
approved a voluntary stock option exchange program for employees. Under the
exchange program, employees were offered the opportunity to exchange
outstanding stock options with exercise prices of $100 per share or lower for
new stock options to be granted at an exercise price determined on the date the
new stock options were granted. Participating employees received new stock
options in exchange for outstanding stock options at an exchange ratio of
one-for-one. In accordance with the exchange program, on
November 19, 2002, Caliper
cancelled approximately 1.96 million of its outstanding stock options. Caliper
granted new options to purchase approximately 1.96 million shares of its common
stock on May 20, 2003, the first business day that was six months and one day
after the cancellation of the exchanged options. The exercise price per share
of the new options is $3.63, the fair market value of Calipers common stock at
the close of regular trading on May 19, 2003. The new stock options represent
approximately 7.9% of the total shares of Calipers common stock outstanding as
of June 30, 2003, and could have a dilutive impact on Calipers future earnings
per share to the extent that the market price of Calipers common stock exceeds
the exercise price of the new stock options granted on May 20, 2003.

NOTE 2  INVENTORIES

Inventories consist of the following (in thousands):

|                |       |   |          |       |              |   |       |       | 
|--------------- | ----- | - | -------- | ----- | ------------ | - | ----- | ----- | 
|                |       |   | June 30, |       | December 31,
|                |       |   | 2003     |       | 2002        
|                |       |   |          |       |             
|Raw
material    |       | $ | 2,634    |       |              | $ | 3,614 |      
|Work-in-process |       |   | 582      |       |              |   | 1,590 |      
|Finished
goods  |       |   | 1,200    |       |              |   | 760   |      
|                |       |   |          |       |              |   |       |      
|                | Total |   | $        | 4,416 |              |   | $     | 5,964 | 
|                |       |   |          |       |              |   |       |      

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NOTE 3  COMPREHENSIVE LOSS

The components of comprehensive loss for the three and six months ended
June 30, 2003 and 2002 are as follows (in thousands):

|                                         |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |         |  
|---------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                         |  | Three Months Ended |        | Six Months Ended
|                                         |  | June 30,           |        | June 30,        
|                                         |  |                    |        |                 
|                                         |  | 2003               |        | 2002             |  | 2003 |         | 2002
|                                         |  |                    |        |                  |  |      |         |     
|Net
loss                                 |  | $                  | (9,542 | )                |  | $    | (11,368 | )    |  | $ | (19,510 | ) |  | $ | (21,054 | )
|Unrealized gain
(loss) on
securities     |  |                    | (295   | )                |  |      | 440     |      |  |   | (320    | ) |  |   | (1,180  | )
|Foreign currency
translation
adjustments |  |                    | 27     |                  |  |      |        |      |  |   | 27      |   |  |   |        |  
|                                         |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Comprehensive
loss                       |  | $                  | (9,810 | )                |  | $    | (10,928 | )    |  | $ | (19,803 | ) |  | $ | (22,234 | )
|                                         |  |                    |        |                  |  |      |         |      |  |   |         |   |  |   |         |  

NOTE 4  RELATED PARTY

For the quarter ended June 30, 2003, Caliper recognized $551,000 in
related-party revenue consisting of sales of Caliper 250 Drug Discovery system
products, LabChips, and datapoints to Amphora Discovery Corp. Of the $551,000
in total revenue, $450,000 was in minimum datapoint revenues, $58,000 related
to revenue recognized on the deferred gross profits on the sales of 21 Caliper
250 Drug Discovery systems to Amphora and the remaining $43,000 was for
LabChip products and services. For the first six months of 2003, Caliper recognized
$1.1 million in related-party revenue consisting of $900,000 in minimum
datapoint revenues, $116,000 related to revenue recognized on the deferred
gross profits on the sales of 21 Caliper 250 Drug Discovery systems and the
remaining $121,000 for LabChip products and services. Caliper has deferred a
total of $697,000, or 28% of the gross profit, on the 21 drug discovery systems
sold to Amphora through December 31, 2002, which reflects Calipers retained
ownership interest in the products sold to Amphora. No sales of drug discovery
systems to Amphora were recorded in either the quarter or six months ended June
30, 2003. Caliper previously recognized $21,000 of this deferred gross profit
in 2001 and $177,000 in 2002. The remaining $383,000 in deferred gross profit
as of June 30, 2003 will be recognized as revenue ratably through September
2005 as Amphora records depreciation on its Caliper 250 Drug Discovery systems.

In December 2002, Amphora completed a second placement of equity
securities with third-party investors raising additional capital that reduced
Calipers original ownership from 28% to approximately 13%. Calipers gross
profit on sales of Calipers drug discovery systems after December 2002 will be
deferred at the new 13% ownership interest level with no change in Calipers
method of accounting for Amphora.

NOTE 5  WARRANTY EXPENSE

At the time revenue is recognized, Caliper establishes an accrual for
estimated warranty expenses associated with sales, recorded as a component of
cost of revenue. Caliper offers a one-year limited warranty on the automated
drug discovery systems and a 90-day warranty on chips, which is included in the
sales price of many of its products. These warranties are the only post-sale
obligation Caliper has to its customers. Provision is made for estimated
future warranty costs at the time of sale. As the majority of Calipers drug
discovery system parts are purchased from original equipment manufacturers which provide
one-year warranties already on these parts, Caliper has a warranty provision of
$221,000 as of June 30, 2003 based on Calipers repair and warranty claims
history and on the limited service cost to travel to the customer and maintain
Calipers products under warranty. Caliper periodically assesses the adequacy of its recorded
warranty liabilities and adjusts amounts as necessary. Caliper made a
favorable
warranty reserve adjustment in the amount of $66,000 reflected in the settlements and
adjustments during the three months ended June 30, 2003.

Changes in Calipers warranty obligation during the three and six months
ended June 30, 2003 are as follows:

|                                                                   |  |   |          |  
|------------------------------------------------------------------ |  | - | -------- | -
|Balance, December 31, 2002                                         |  | $ | 265,000  |  
|Warranties issued during the first quarter of 2003                 |  |   | 49,000   |  
|Settlements made during the first quarter of 2003                  |  |   | (27,000  | )
|                                                                   |  |   |          |  
|Balance, March 31, 2003                                            |  | $ | 287,000  |  
|Warranties issued during the second quarter of 2003                |  |   | 53,000   |  
|Settlements and adjustments made during the second quarter of
2003 |  |   | (119,000 | )
|                                                                   |  |   |          |  
|Balance, June 30, 2003                                             |  | $ | 221,000  |  
|                                                                   |  |   |          |  

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NOTE 6  SIGNIFICANT CONCENTRATIONS

In the
second quarter of 2003, Agilent, one contract research partner and Aclara represented 42%,
12% and 11%, respectively, of total revenues. In the first six months of 2003,
Agilent and Aclara represented 44% and 11%, respectively, of total revenues.
In the second quarter of 2002, Agilent and Amphora represented 37% and 34%,
respectively, of total revenues. In the first six months of 2002, Agilent and
Amphora represented 33% and 29%, respectively.

Agilent,
one contract research partner and Serono represented 28%, 16% and 14%, respectively, of
Calipers outstanding accounts receivable balance as of June 30, 2003. Amphora
and Agilent represented 38% and 26%, respectively, of Calipers outstanding
accounts receivable balance as of June 30, 2002.

NOTE 7  LITIGATION

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

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

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NOTE 8   RECENT ACCOUNTING PRONOUNCEMENTS

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

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Others. FIN 45 clarifies the guarantors requirements relating
to the guarantors accounting for, and disclosure of, the issuance of certain
types of guarantees and requires the guarantor to recognize at the inception of
a guarantee a liability for the fair value of the guarantee obligation. FIN 45
also requires additional disclosures by a guarantor in its interim and annual
financial statements about the obligation associated with guarantees issued.
The provisions for the initial recognition and measurement of guarantees are
effective on a prospective basis for guarantees that are issued or modified
after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. Caliper has adopted the disclosure requirements for its financial
statements included in this form 10-Q. The accounting profession and regulatory
agencies continue to discuss various provisions of this pronouncement with the
objective of providing additional guidance on its application. These
discussions and the issuance of any new interpretations, once finalized, could
lead to an unanticipated impact on Calipers future financial results.
Therefore, although Caliper currently does not believe these provisions will
have a material effect on its operating results or financial position, Caliper
will continue to evaluate the impact of FIN 45.

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

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

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS 149), Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. This statement amends SFAS 133 to provide clarification on
the financial accounting and reporting of derivative instruments and hedging
activities and requires contracts with similar characteristics to be accounted
for on a comparable basis. Caliper is in the process of assessing the effect of
SFAS 149 and does not expect the adoption of the statement, which will be
effective for contracts entered into or modified after June 30, 2003, to have a
material effect on its financial condition or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 establishes standards
on the classification and measurement of financial instruments with
characteristics of both liabilities and equity. SFAS 150 will become effective
for financial instruments entered into or modified after May 31, 2003. The
adoption of SFAS 150 has not had a material effect on Calipers financial
condition or results of operation

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NOTE 9  RESTRUCTURING ACTIVITIES

On May 6, 2003, due to the continuing broad economic slowdown and reduced
research and development spending by biopharmaceutical companies, we conducted
a reduction in force that resulted in a further downsizing of our employee work
force by 26 people, or approximately 10%. We believed this planned action,
which was independent of the Zymark acquisition, was necessary to better align
Calipers organizational structure with these depressed market conditions and
customer demand. Previously, in September 2002, we had conducted our first
reduction in force that resulted in a downsizing of our employee work force by
28 people that was completed prior to December 31, 2002. The reductions in both
September 2002 and May 2003 were primarily in our research and development
staff where we continue to change the focus of our product development and
technology research to align more with the changing needs of our customers. We
incurred a charge of $322,000 in the second quarter of 2003 for severance
payments and related benefits, with all employee separations completed and
payments distributed by the end of June 2003.

On August 5, 2003, we conducted a reduction in force that will downsize
our workforce by approximately 50 positions, or 9% of the total headcount of
Caliper and the newly acquired Zymark. The reduction is part of ongoing
integration efforts to eliminate redundancies and increasing organizational
efficiencies within our newly combined company. Of the 50 positions, 38% are
occurring in August 2003 with the remainder to take place by the end of
December 2003. While most functional groups were included in this consolidation
effort, the Research and Development organization remained unchanged pending
further strategy and product priority decisions that will be made in the second
half of 2003. As a result of the August 2003 reduction in force, we expect to
incur a restructuring charge of approximately $867,000 by the end of the year.

NOTE 10   SUBSEQUENT EVENTS

On June 9, 2003 we announced a definitive agreement to acquire Zymark
Corporation, a privately held, leading provider of laboratory automation,
liquid handling and robotics solutions to the life sciences, biotechnology and
pharmaceutical industries. We completed this acquisition on July
14, 2003 for approximately $57.0 million in cash and 3.15 million shares of our
common stock with an aggregate value of $16.9 million based on
our closing stock price on the date of acquisition. In the event that Zymark meets specified sales targets, we will
issue an additional 1.575 million shares to the seller as part of the sales
price.

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

This Managements Discussion and Analysis of Financial Condition and
Results of Operations as of June 30, 2003 and for the three and six month
periods ended June 30, 2003 and June 30, 2002 should be read in conjunction
with our financial statements included in this Quarterly Report on Form 10-Q
and Managements Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2002.

The discussion in this report contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. We have attempted to identify these statements by
the use of words such as expect, plan, intend and other similar words
denoting future events. Our actual results could differ materially from those
discussed here. Factors that could cause or contribute to these differences
include those discussed in   Factors Affecting Operating Results below as
well as those discussed elsewhere. The cautionary statements made in this
report should be read as applying to all related forward-looking statements
wherever they appear in this report.

Overview

We are a leader in lab-on-a-chip technologies that miniaturize, integrate
and automate many laboratory processes. We develop, manufacture and sell our
proprietary LabChip systems to pharmaceutical and other companies. We believe
our LabChip systems have the potential to assemble the power, and reduce the
scale, of laboratories full of equipment and people. We utilize two
distribution channels for our products. In some cases, we sell instruments and
chips directly to end users. In other instances we sell products to commercial
partners, who in turn sell these products to end users. From Calipers
inception in July 1995 through September 2001, our operating activities were
primarily devoted to research, development and commercialization of
technologies involving the manipulation of very small amounts of fluid, which
are referred to as microfluidic technologies. During this period our revenues
were principally from contract services and, to a lesser extent, from product
sales. With the introduction of the Caliper 250 Drug Discovery system in
September 2001, we transitioned to a commercial products business from a
technology access model.

Since our inception, we have incurred significant losses and, as of June
30, 2003, we had an accumulated deficit of $105.1 million. Our losses have
resulted principally from costs incurred in research and development,
manufacturing scale-up, and from sales, general and administrative costs
associated with our operations. We expect to continue to incur substantial
research and development, manufacturing scale-up and sales, general and
administrative costs. As a result, we will need to generate significantly
higher revenue to achieve profitability.

During the quarter ended June 30, 2003, total revenue decreased by 19%
largely due to a decline in revenue from Amphora as a result of no Caliper 250
system sales to Amphora in the first six months of 2003 and completion of most
contracted services to Amphora in 2002. In the first 13 months of its
operation, from September 2001 through September 2002, Amphora purchased 21
Caliper 250 drug discovery systems from us in order to create and build their
commercial database. As a result, we do not expect them to buy more than one
Caliper 250 in 2003. Rather, we expect the bulk of their purchases will be for
chips and parts along with contractual datapoint revenue of approximately $750,000 in
the second half of 2003. Additionally, Amphora is not obligated to make any
further datapoint payments to us until they have generated the number of
datapoints, either in 2003 or subsequent years, that Amphora is entitled to as
a result of the following payments they are required to pay us:
a) $1.8 million minimum datapoint payment for the 12 months ending
November 30, 2003; and b) any payment made pursuant to a $2.2 million deferred contingent
obligation through quarterly payments based on Amphoras revenue or commissions
earned by Amphora for marketing assistance. If Amphora generates fewer
datapoints than the number to which they are entitled due to the minimum
payment and any contingent payments made, our future datapoint revenues will be adversely affected to the
extent of this shortfall. In December 2002, Amphora raised additional capital
in a financing that reduced Calipers original ownership from 28% to
approximately 13%. Calipers gross profit on sales of Calipers drug discovery
systems after December 2002 will be deferred at the new 13% ownership interest
level with no change in Calipers method of accounting for Amphora. Prior to
this financing, Caliper deferred 28% of gross profits on sales of Calipers
drug discovery systems. The deferred amount is recognized as revenue as
Amphora records depreciation on its Caliper 250 Drug Discovery systems.

Revenues from sales of the Agilent 2100 Bioanalyzer products increased 5%
in the second quarter and 31% for the first six months of 2003 compared to
their respective periods last year as we continue to experience growth in both
Bioanalyzer instrument placements and chip sales. In future periods, however,
we anticipate a higher percentage of Bioanalyzer products growth to be
generated by chip sales as the market for Bioanalyzer instrument placements
matures.

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To date we have generated a substantial portion of our revenue from a
limited number of sources. During the quarter ended June 30, 2003, Agilent
alone accounted for 42% of our total revenue and 46% of our product revenue,
and Amphora accounted for 9% of our total revenue and 16% of our product
revenue. During the comparable second quarter of 2002, Amphora alone accounted
for 34% of our total revenue and 46% of our product revenue, and Agilent alone
accounted for 37% of our total revenue and 33% of our product revenue. Although
we are seeking to expand our customer base, we cannot provide any assurance
that these efforts will be successful. Additionally, although Amphora is
scheduled to purchase the one remaining Caliper 250 drug discovery instrument
by December 31, 2003 as required under the Amended LabChip Solutions Agreement
with them, we have not as yet received a purchase order for this purchase.
Amphora has no further obligation to purchase instruments from us following
this one remaining instrument. In addition, there can be no assurance that our
customers who participated in our Technology Access Program prior to our
conversion to a commercial products business will continue to buy Caliper
products or services at historical levels, or at all, now that all purchase
obligations by these customers were met as of March 31, 2003.

Under our collaboration agreement, Agilent funds our research and
development expenditures related to the collaboration, reimburses us for our
costs of supplying chips and reagents to Agilent and pays us a share of the
gross margin earned on all components of LabChip systems they sell. We record
revenue from development and support activities under our collaboration
agreement in the period in which the costs are incurred. We report direct costs
associated with this contract as research and development expense. We recognize
revenue related to the reimbursement of costs for the supply of chips and
reagents to Agilent upon shipment and we recognize the related costs as
components of cost of sales. We recognize as revenue our share of gross margin
on components of the Agilent 2100 Bioanalyzer system sold by Agilent upon
shipment to the end user. Agilent began marketing and sales efforts for the
Agilent 2100 Bioanalyzer in late 1999. Sales of new and innovative
instrumentation such as the Agilent 2100 Bioanalyzer involve a long sales
cycle, requiring customer training and demonstration periods. Sales of the
Agilent 2100 Bioanalyzer products increased 31% in the first six months of 2003
as compared to the same period last year indicating, we believe, a continued
growing market acceptance of this technology. However, in the quarter and six
months ended June 30, 2003, research and development funding from Agilent both
declined 25% as compared to the same periods in 2002 as we have now completed
the development programs related to the Agilent 2100 Bioanalyzer product line.
We anticipate research and development funding from Agilent to decline further
in 2003 as Agilent continues to focus their product development
programs. We expect this decrease will be offset, in part, by
research and development funding from our collaboration with Bio-Rad
Laboratories signed in early June 2003.

In May 2002, we notified Agilent of our election to terminate the
agreement between the companies, effective as of May 8, 2003. However,
pursuant to the agreement certain terms survive this termination. Though the
relationship with Agilent is changing, there will be no impact to the margin
sharing between the two companies until the end of 2004. However, Agilent can
reduce product development funding at any time as they make independent
decisions on their product lines. If we do not enter into a new agreement, then
under the surviving terms of the existing agreement the parties relationship
has changed, including as follows:



| |  |  | we could cease to receive development funding for new products;                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we have granted Agilent a non-exclusive, royalty-bearing license
to use the lab-on-a-chip technologies that we have developed up to May
8, 2003 in order to develop, make and sell products in substantially
the same field that applied during the collaboration;
|
| |  |  | upon request by Agilent, we will also transfer chip manufacturing know-how over a limited period of time; and                                                                                                                                                     
|
| |  |  | we will receive royalties on Agilents sales of systems that employ our patented technologies.                                                                                                                                                                    

Beginning in November 2003, both Caliper and Agilent will have the right
to sell collaboration products, with reciprocal supply arrangements. Given the
success of the Agilent 2100 Bioanalyzer products and the changing relationship
between Caliper and Agilent, we are actively working to expand the number and
scope of our commercial partnerships.

On June 9, 2003 we announced a definitive agreement to acquire Zymark
Corporation, a privately held, leading provider of laboratory automation,
liquid handling and robotics solutions to the life sciences, biotechnology and
pharmaceutical industries. We completed this acquisition on July 14, 2003 and
have already begun to actively integrate our two operations. We
anticipate this acquisition
will allow us to leverage our microfluidic LabChip technology and product
discovery engine with Zymarks proven substantial commercial organization
focused on laboratory automation. We expect the acquisition will result in a
state-of-the-art, comprehensive portfolio of laboratory automation products
with a global commercial infrastructure to provide customers with highly
innovative solutions for accelerating drug discovery and development in the
life sciences, pharmaceutical and biotechnology industries. We acquired Zymark
Corporation for approximately $57.0 million in cash and 3.15 million shares of
our common stock with an aggregate value of $16.9 million based
on our closing stock price on the date of acquisition. In the event that Zymark meets specified sales targets, we
will issue an additional 1.575 million shares to the seller as part of the
sales price.

On May 6, 2003, due to the continuing broad economic slowdown and reduced
research and development spending by biopharmaceutical companies, we conducted
a reduction in force that resulted in a further downsizing of our employee work
force by

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26 people, or approximately 10%. We believed this action, which was
independent of the Zymark acquisition, was necessary to better align Calipers
organizational structure with these depressed market conditions and customer
demand. Previously, in September 2002, we had conducted our first reduction in
force that resulted in a downsizing of our employee work force by 28 people
with an expected annualized savings of $2.0 million. The reductions in both
September 2002 and May 2003 were primarily in our research and development
staff where we continue to change the focus of our product development and
technology research to align more with the changing needs of our customers. We
incurred a charge of $322,000 in the second quarter of 2003 for severance
payments and related benefits, all of which was paid by the end of June 2003.
We expect to realize approximately $2.6 million in annualized savings from this
employee downsizing action in May 2003. Going forward, on a combined basis, we
expect these two actions to generate approximately $4.6 million in annualized
savings.

On August 5, 2003, we announced a reduction in force that will downsize
our workforce by approximately 50 positions, or 9% of our total headcount of
Caliper and the newly acquired Zymark. The reduction is part of ongoing
integration efforts to eliminate redundancies and increasing organizational
efficiencies within our newly combined company. Of the 50 positions, 38% are
occurring in August 2003 with the remainder to take place by the end of
December 2003. While most functional groups were included in this consolidation
effort, the Research and Development organization remained unchanged pending
further strategy and product priority decisions that will be made in the second
half of 2003. Also, upon acquiring Zymark, we moved our corporate headquarters
from Mountain View, California to Zymarks headquarters in Hopkinton,
Massachusetts. While some sales and administrative functions will move to the
new headquarters immediately, other functions will remain at both sites to
facilitate the close of the current fiscal year in December. As a result of the
reduction in force, we expect to incur a restructuring charge of approximately
$867,000 by the end of the year.

Results of Operations

Three and Six Months Ended June 30, 2003 and 2002

Revenue. Total revenue was $5.9 million for the three months ended June
30, 2003, compared to $7.2 million for the three months ended June 30, 2002.
The decline in total revenue was primarily due to an anticipated $1.9 million
decrease in sales to Amphora as well as $221,000 in lower revenue under our
commercial collaboration with Agilent. Offsetting these declines were increases
of $385,000 from sales of our drug discovery products and $354,000 from
increased contract services from our corporate partnerships. For the six months
ended June 30, 2003, total revenue was $11.5 million as compared to $14.3
million in the comparable period last year. The decline in total revenue was
again primarily due to an anticipated $3.0 million decrease in sales to Amphora
with $627,000 in lower sales of our drug discovery products. Offsetting these
declines were increases of $261,000 under our commercial collaboration with
Agilent and $589,000 from increased contract services from our corporate
partnerships.

Product revenue was $3.4 million and $6.9 million, respectively, for the
three and six months ended June 30, 2003, compared to $4.5 million and $9.0
million, respectively, in the same periods of 2002. Product revenue from
unrelated customers increased by $462,000 and $177,000, respectively, in the
three and six months ended June 30, 2003 over the same periods in 2002. For the
quarter ended June 30, 2003, the increases in product revenue from unrelated
parties was due to higher unit sales of our drug discovery products with
datapoint revenues increasing by $166,000 over the same period in 2002. For the
six months ended June 30, 2003, unit sales of our drug discovery products
declined offset by increased datapoint revenue of $282,000 over the same period
in 2002. Additionally, product sales increased 5% and 31%, respectively, in
the three and six months ended June 30, 2003 under our commercial collaboration
with Agilent over the same periods in 2002. Related-party product revenue was
$548,000 and $1.1 million for the three and six months ended June 30, 2003,
compared to $2.1 million and $3.4 million, respectively, in the same periods of
2002. The declines were primarily due to no drug discovery system sales to
Amphora in the first six months of 2003 as compared to three and five system
sales to Amphora in the three and six months ended June 30, 2002, respectively.
Datapoint revenue from Amphora was $450,000 and $900,000 for the three and six
months ended June 30, 2003, respectively, as compared to $500,000 and $1.0
million in the same periods last year. Datapoint revenues from all customers
were approximately 19% of total product revenues for both the three and six
months ending June 30, 2003 and approximately 12% and 13%, respectively, of
total product revenues for the same periods of 2002.

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

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License fees and contract revenues decreased to $2.4 million and $4.6
million for the three and six months ended June 30, 2003, compared to $2.7
million and $5.2 million for the same periods in 2002. These declines were
primarily due to deceases of $368,000 and $724,000, respectively, for the three
and six months ended June 30, 2003, in assay and application development
services to Amphora, as most contracted services were completed in 2002.
Contract fees to unrelated parties were essentially unchanged as the 25%
reduction in research and development services to Agilent for both the three
and six months ended June 30, 2003 were offset by increases in research and
development services funded by our other corporate partnerships. We anticipate
minimal contract revenues from Amphora during the rest of 2003, with research
and development funding from Agilent to also decline significantly as they
further focus their product development programs. Licensing fees were $625,000
and $1.25 million, respectively, in the three and six months ended June 30,
2003 and 2002, both resulting from the licensing of the Ramsey family of
patents to Aclara Biosciences which ends in 2003.

Beginning on July 14, 2003, the date we acquired Zymark, Zymark revenues
are being consolidated with our revenues. Zymark had revenues of $65.4 million
in 2002 and $23.4 million in the first six months of 2003. However, Zymarks
historical revenues are highly seasonal and are not necessarily indicative of Zymarks revenues for the
rest of 2003 and thereafter.

Cost of Product Revenue.Cost of product revenue represents manufacturing
costs incurred in the microfluidic instrument and chip production process,
including component materials, assembly labor and overhead, packaging and
delivery cost. Cost of products sold decreased to $2.5 million and $4.8 million
for the three and six months ended June 30, 2003, respectively, as compared to
$3.3 million and $5.9 million for the same periods last year. The declines were
driven primarily by lower costs resulting from reduced product sales to Amphora
and significantly reduced warranty costs in the second quarter of 2003 compared
to the same period of 2002. Offsetting these declines in part were higher costs
resulting from higher unit sales of our drug discovery products in the quarter
ending June 30, 2003 and higher product sales volumes under our collaboration
with Agilent in both the quarter and six months ending June 30, 2003. Cost of
products sold from related party sales to Amphora was $60,000 and $138,000 for
the three and six months ended June 30, 2003, compared to $1.4 million and $1.8
million for the same periods in 2002. In the second quarter and first six
months of 2003, we had no drug discovery system sales to Amphora, as compared to two and
five system sales to Amphora in the same periods of 2002. Datapoint
revenues, with
their minimal associated costs to us, were 82% and 80%, respectively, of
Amphora product revenues in the second quarter and first six months of 2003 as
compared to only 24% and 29% in the same periods last year. We also had
minimal warranty costs in the cost of related party product revenue during the
three and six months ended June 30, 2003 as compared to $276,000 in warranty
costs in the related party cost of product revenue all incurred in the second
quarter of 2002. As a result, the gross margins on total revenues from Amphora
were 89% and 88% for the three and six months ended June 30, 2003, as compared
to 42% and 55% for the same periods in 2002. Cost of all other products sold
was $2.4 million and $4.6 million for the three six months ended June 30, 2003,
compared to $1.9 million and $4.0 million in the same periods last year. The increases
were driven by higher costs associated with increased unit sales of our drug
discovery products in the quarter ended June 30, 2003 and increased product
volumes of Agilent 2100 products in both the quarter and six months ended June
30, 2003, offset in part by lower costs from reduced sales of drug discovery
systems for the first six months of 2003. Total warranty costs was a
contra-expense of $12,000 in the second quarter of 2003 including a
favorable adjustment
to our warranty reserve of $66,000 in the second quarter reflecting the decline
in warranty claims and costs. Due to the adjustment to our warranty reserve,
our total warranty costs for the six months ended June 30, 2003 were $37,000.
By comparison, total warranty costs were $616,000 in both the three and six
months ended June 30, 2002. Also datapoints, again with their minimal
associated costs to us, were 8% and 7% of unrelated product revenues in the
second quarter and first six months of 2003 as compared to 2% in both the same
periods last year. As a result, gross margins on total revenues from unrelated
customers were 55% for both the three and six months ended June 30, 2003, as
compared to 60% in both the same periods of 2002. Gross margins were adversely
impacted during the first half of 2003 by the ratio of increased collaboration
product sales volume, where the margins are shared with Agilent, as compared to
lower Caliper product volumes with their higher margins to us. Product mix
will continue to affect our future gross margins as we earn a higher return
from our own products sold as opposed to sharing gross margin revenues on
collaboration products with Agilent.

Research and Development Expenses.Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, intellectual property prosecution, and other
expenses related to the design, development, testing and enhancement of our
products. We expense our research and development costs as they are incurred.
Research and development expenses decreased to $8.8 million and $18.2 million,
respectively, during the three and six months ended June 30, 2003, compared to
$11.5 million and $22.5 million in the same periods of 2002. The decreases of
$2.6 and $4.3 million, respectively, were primarily attributable to lower
salary and related personnel costs resulting from a 33% decline in the number
of research and development personnel as of June 30, 2003 as compared at June
30, 2002 as well as reduced technical services and supplies costs. Of the
decreased costs in the second quarter, $1.5 million was related to salaries and
related benefit costs for research personnel, $658,000 in reduced outside
technical services, $415,000 in lower laboratory supplies costs, and $244,000
in lower facilities costs allocated to research and development, offset in part
by $279,000 increase in fees for intellectual property prosecution. Of the
decreased costs in the first six months of 2003, $2.8 million was related

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to salaries and related benefit costs for research personnel, $1.1 million
in reduced outside technical services, $956,000 in lower laboratory supplies
costs, and $284,000 in lower allocated facilities costs, offset in part by
$572,000 increases in fees for intellectual property prosecution and $313,000
increase in depreciation costs.

Our research and development focus has been on product development in the
areas of new applications, microfluidic instruments with expanded capabilities
and our genomic analysis systems. In the future, we intend to focus our LabChip
technology development efforts on a narrow range of applications based on
customer demand. We also will continue to make investments intended to advance
and refine our manufacturing processes in order to improve the functionality
and reliability of our chips and instruments. We expect to continue our efforts
in these areas of research and development even though the outcomes of these
projects are inherently uncertain. We will also continue to revise our research
and development focus and priorities to match the economic climate and the
research and development spending by biopharmaceutical companies that we
believe will affect the demand for our microfluidic products. We expect
research and development spending to decline in 2003 as compared to 2002 as a
result of our downsizing in September 2002 and in May 2003 and reduced
discretionary spending with our microfluidic research and product development
efforts, offset in part by modest research and development programs by Zymark
mainly in the areas of laboratory automation and robotic systems. We expect
research and development spending to expand in subsequent years based on
customer demand, market conditions, and our commercial growth.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, recruiting expenses,
marketing and product promotional costs, professional fees, and other corporate
expenses including business development and general legal activities. Selling,
general and administrative expenses decreased slightly to $4.7 million and $9.3
million, respectively, in the three and six months ended June 30, 2003,
compared to $4.8 million and $9.5 million in the same periods of 2002. The
decrease in the quarter ended June 30, 2003 was primarily due to lower product
marketing expense of $410,000 and lower legal fees and expenses of $149,000,
offset by higher salaries and related employee expenses of $440,000 as compared
to the same period last year. The decrease in the first six months of 2003 as
compared to the same period of 2002 was primarily due to lower consultant and
outside services costs of $353,000, lower product marketing expense of
$302,000, lower administrative expenses of $209,000 and lower legal expenses of
$128,000, offset by higher salaries and related employee expenses of $766,000.
We expect marketing and product promotion expenses to increase over the next
several years to support the more global commercialization of our products
utilizing the trained sales force and commercial infrastructure the
acquisition of Zymark has brought us. We anticipate general administrative expenses to
increase only as revenue grows but at a lesser rate on a percentage basis.
Offsetting these increases, to the extent the integration of the recently
acquired Zymark Corporation identifies redundancies, selling, general and
administrative expenses and personnel may be reduced to promote greater
efficiencies.

Amortization of Deferred Stock Compensation.Deferred stock compensation
represents the difference, at the date of grant, between the deemed fair value
of our common stock for accounting purposes and the exercise price of options.
This amount is being amortized over the respective vesting periods of the
individual stock options using the graded vesting method. We recorded
amortization of deferred compensation of $152,000 and $340,000, respectively,
for the three and six months ended June 30, 2003, compared to $386,000 and
$832,000 for the same periods of 2002. We expect to record amortization expense
for deferred compensation as follows: $203,000 for the remainder of 2003, and
$94,500 during 2004. The amount of deferred compensation expense to be
recorded in future periods may further decrease if unvested options for which
deferred compensation has been recorded are subsequently canceled.

Interest Income, Net.Interest income, net, consists of income from our
cash and investments offset by expenses related to our financing obligations.
Interest income, net, was $1.1 million and $2.0 million, respectively, for the
three and six months ended June 30, 2003, compared to $1.8 million and $4.3
million for the same periods of 2002. The decrease primarily resulted from
declining interest rate yields and, to a lesser extent, the lower cash, cash
equivalents and marketable securities balances during the second quarter and
six months of 2003 as compared to the same periods in 2002. Partially
offsetting these declines was realized gains of $334,000 generated by the sale
of marketable securities in our investment portfolio. In June 2003, in
anticipation of Calipers purchase of Zymark, we began to convert a portion of
our short-term marketable securities portfolio to cash and cash equivalents,
and the sale of these securities generated this non-recurring gain. Until late
last year, we had a number of investments that were locked in at higher
interest levels. These have now matured, and we have had to reinvest the funds
at more current interest rates that are significantly lower. We expect
interest income, net, to be substantially lower in future periods due to the
use of approximately $57.0 million of cash in July 2003 to acquire Zymark.

Other
Expense/(Income), Net. Other gain of $1,000 for the three months ended
June 30, 2003 was proceeds from sale of surplus materials. Other loss, net, of
$34,000 for the six months ended June 30, 2003 was our loss on disposal of
surplus manufacturing

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equipment no longer needed in our operations, offset by the $1,000 gain on
sale of surplus materials. Other expense of $458,000 and $924,000,
respectively, for the three and six months ended June 30, 2002 represents
mark-to-market change in the fair value of the 900,000 shares of Aclara common
stock we held through October 2002 as part of our litigation settlement with
Aclara. This mark-to-market change in the fair value was subsequently offset in

October 2002 when we exchanged this common stock for full payment from Aclara
in accordance with the litigation settlement.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and marketable securities were $135.5 million
at June 30, 2003 compared to $154.3 million at December 31, 2002. We used cash
of $17.5 million for operations for the six-month period ended June 30, 2003 as
compared to $24.2 million for the comparable period in 2002. Cash used in
operating activities in the six months ended June 30, 2003 consisted primarily
of the net loss of $19.5 million, plus aggregate current asset and liability
changes of $1.6 million, primarily increases in accounts receivable and prepaid
expenses of $3.3 million offset in part by a decrease in inventories of $1.5
million, offset in part by depreciation and amortization expense of $3.2
million. Cash used in the six months ended June 30, 2002 consisted primarily
of the net loss of $21.1 million, changes in operating assets and liabilities
of $6.7 million, offset in part by non-cash charges of $3.5 million related to
amortization of deferred stock compensation and depreciation and amortization
expense. We also have $2.8 million in a market rate account at June 30, 2003
pledged for facilities deposits compared to $3.2 million at June 30, 2002.

Net cash provided by investing activities was $57.5 million for the six
months ended June 30, 2003 as compared to $17.0 million for the comparable
period in 2002. Net cash provided by investing consists primarily of proceeds
from sales and maturities of marketable securities offset by purchases of
marketable securities as well as capital expenditures. We sold a large amount
of our marketable securities in the latter part of June 2003 in order to obtain
the cash we used for the acquisition of Zymark in July 2003. We used $444,000
and $4.1 million for the purchase of property and equipment in the first six
months of 2003 and 2002, respectively.

Net cash used in financing activities was $572,000 for the six months
ended June 30, 2003 as compared to net cash provided by financing activities of
$1.1 million for the comparable period in 2002. Net cash used in financing
activities for the six months ended June 30, 2003 consisted of $1.3 million in
repayments of sale-leaseback arrangements, offset by $756,000 proceeds from
employee stock purchase plan and option exercises. Net proceeds from financing
activities for the same period ended June 30, 2002 consisted of $1.4 million
proceeds from employee stock purchase plan and option exercises and $822,000
proceeds from sale-leaseback arrangements, offset by repayments of
sale-leaseback arrangements of $1.1 million. Separately, on July 14, 2003, we
acquired Zymark Corporation for approximately $57.0 million and the issuance of
3.15 million shares of our common stock with an aggregate value
of $16.9 million based on our closing stock price on the date of
acquisition.

The following are contractual commitments at June 30, 2003 associated with
debt and lease obligations (in thousands):

|                                                  |            |                                            |   |                |        |                |        |                   |       | 
|------------------------------------------------- | ---------- | ------------------------------------------ | - | -------------- | ------ | -------------- | ------ | ----------------- | ----- | 
|                                                  |            |                                            |   |                |        |                |        | Obligations Under
|                                                  |            |                                            |   | Operating      |        | Sale-Leaseback
|                                                  |            |                                            |   | Leases         |        | Arrangements  
|                                                  |            |                                            |   |                |        |               
|                                                  |            |                                            |   | (In thousands)
|12-month periods ending June 30:                  |            |                                            |   |                |        |                |        |                  
|                                                  | 2004       |                                            | $ | 5,394          |        |                | $      | 2,326             |      
|                                                  | 2005       |                                            |   | 5,525          |        |                |        | 1,005             |      
|                                                  | 2006       |                                            |   | 5,628          |        |                |        | 26                |      
|                                                  | 2007       |                                            |   | 5,785          |        |                |        |                  |      
|                                                  | Thereafter |                                            |   | 6,902          |        |                |        |                  |      
|                                                  |            |                                            |   |                |        |                |        |                  
|                                                  |            | Total minimum lease and principal payments |   | $              | 29,234 |                |        |                   | 3,357 | 
|                                                  |            |                                            |   |                |        |                |        |                  
|Amount representing interest                      |            |                                            |   |                |        |                | (288   | )                
|                                                  |            |                                            |   |                |        |                |        |                  
|Present value of future payments                  |            |                                            |   |                |        |                | 3,069  |                  
|Current portion of sale-leaseback arrangements    |            |                                            |   |                |        |                | (2,091 | )                
|                                                  |            |                                            |   |                |        |                |        |                  
|Noncurrent portion of sale-leaseback arrangements |            |                                            |   |                |        | $              | 978    |                  
|                                                  |            |                                            |   |                |        |                |        |                  

As of June 30, 2003, we have a non-cancelable purchase commitment in the
amount of approximately $440,000 with our foreign supplier of our proprietary
glass stock used in the manufacture of certain types of our chips. We also have
minimum royalty obligations under separate license agreements with UT-Battelle,
LLC and the Trustees of the University of Pennsylvania. Royalty obligations to
UT-Battelle were $25,000 in the second quarter of 2003 and are expected to
exceed the required minimum royalty amount of $53,000 for 2003 and through the
remainder of the license. We also had sublicensing royalty obligations to
UT-Battelle for

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a portion of our Aclara licensing revenue. UT-Battelle royalty and
sublicensing royalty accruals were $43,000 and $250,000, respectively, as of
June 30, 2003. We anticipate that during years 2004 through the remainder of
the license with the Trustees of the University of Pennsylvania that the
minimum royalty obligation under this license will exceed the earned royalty
obligation. The minimum royalty obligation under this license was $15,000 each
in the first and second quarter of 2003, and the royalty amount under this
license is not expected to exceed the required minimum royalty for 2003 as well
as is never expected to exceed $200,000 per year thereafter.

Our capital requirements depend on numerous factors including market
acceptance of our products, the resources we devote to developing and
supporting our products, acquisitions and other factors. We expect to devote
substantial capital resources to continue our research and development efforts,
to expand our support and product development activities, and for other general
corporate activities. Based on our long term strategic plan, we believe that
our current cash balances, together with the revenue to be derived from our
commercial partners and from the commercial sales of our microfluidic products
and services will be sufficient to fund our operations at least through the
year 2004. Our future capital requirements will depend on many factors,
including, among others;

     continued market acceptance of our microfluidic products;

     continued scientific progress in our microfluidic research and product development programs;

     the magnitude and scope of our research and product development programs;

     our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;

     the time and costs involved in expanding and maintaining our manufacturing facilities;

     the
costs involved to integrate Zymark and Calipers operations;

     the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;

     the potential need to develop, acquire or license new technologies and products; and

     other factors not within our control.

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

FACTORS AFFECTING OPERATING RESULTS

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

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



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

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

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

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

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

We currently have several assays in development including assays that
measure many important activities of cells and proteins. We are developing line
extensions that are particularly well suited for the evaluation of kinases, one
of the largest focus areas of drug discovery efforts today. We are creating new
tools to make it easier for our customers to develop their own custom assays in
a microfluidic format. We are also developing kinase profiling and selectivity
screening kits. If we are not able to complete the development of these
applications and tools, or if we experience difficulties or delays, we may lose
our current customers and may not be able to obtain new customers.

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

Our business is highly competitive and our growth is dependent upon market
growth and our ability to enhance our existing products and introduce new
products on a timely basis. One of the ways we may address the need to develop
new products is through acquisitions of complementary businesses and
technologies, such as our acquisition of Zymark Corporation. From time to time,
we consider and evaluate potential business combinations both involving our
acquisition of another company and transactions involving the sale of Caliper
through, among other things, a possible merger or consolidation of our business
into that of another entity. Acquisitions involve numerous risks, including the
following:



| |  |  | difficulties in integration of the operations, technologies, and products of the acquired companies;                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the risk of diverting managements attention from normal daily operations of the business;                                                                    
|
| |  |  | accounting consequences, including changes in purchased research and
development expenses, resulting in variability in our quarterly
earnings;                
|
| |  |  | potential difficulties in completing projects associated with
purchased in-process research and development;                                                  
|
| |  |  | risks of entering markets in which we have no or limited direct prior
experience and where competitors in these markets have stronger market
positions;       
|
| |  |  | the potential loss of key employees of the acquired company;                                                                                                  
|
| |  |  | the assumption of known and potentially unknown liabilities of the acquired company;                                                                          
|
| |  |  | we may find that the acquired company or assets do not further our
business strategy or that we paid more than what the company or assets
are worth;          
|
| |  |  | we may have product liability associated with the sale of the acquired companys products;                                                                    
|
| |  |  | we may have difficulty maintaining uniform standards, controls, procedures and policies;                                                                      
|
| |  |  | our relationship with current and new employees and clients could be impaired;                                                                                
|
| |  |  | the acquisition may result in litigation from terminated employees or
third parties who believe a claim against us would be valuable to
pursue;               
|
| |  |  | our due diligence process may fail to identify significant issues
with product quality, product architecture and legal contingencies,
among other matters; and
|
| |  |  | insufficient revenues to offset increased expenses associated with acquisitions.                                                                              

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Acquisitions may also cause us to:



| |  |  | issue common stock that would dilute our current stockholders percentage ownership;                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | record goodwill and non-amortizable intangible assets that will be
subject to impairment testing and potential periodic impairment charges;
|
| |  |  | incur amortization expenses related to certain intangible assets; or                                                                       
|
| |  |  | incur large and immediate write-offs.                                                                                                      

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

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

We have experienced significant operating losses each year since our
inception and expect to incur substantial additional operating losses for at
least the next two years, primarily as a result of a current sluggish economic
climate, dampened research spending for many companies affecting our product
sales and expected continuing expenses for manufacturing capabilities, research
and product development costs and general and administrative costs. We may
never achieve profitability. As of June 30, 2003, we had an accumulated deficit
of approximately $105.1 million. Our losses have resulted principally from
costs incurred in research and development, product marketing and from general
and administrative costs associated with our operations. These costs have
exceeded our interest income and revenue which, to date, have been generated
principally from product sales, collaborative research and development
agreements, technology access fees, cash and investment balances and, to a
lesser extent, government grants.

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

Our quarterly operating results have fluctuated significantly in the past
and we expect they will fluctuate in the future as a result of many factors,
some of which are outside of our control. For example, our revenues have varied
dramatically as a result of new customers joining our Technology Access
Program, the subsequent switching to a commercial products business from a
technology access model and product shipments. It is possible that in some
future quarter or quarters, our operating results will be below the
expectations of securities analysts or investors. In this event, the market
price of our common stock may fall abruptly and significantly. Because our
revenue and operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance.

Zymark has experienced variations in the amount of time it takes it to
sell its products. The timing of capital equipment purchases by customers is
expected to continue to be uneven and difficult to predict. Several of
Zymarks products represent major capital purchases for customers with the
price of Zymark products ranging up to $2.0 million. Accordingly, customers
may take several months to evaluate Zymark products. In addition, a
significant portion of Zymarks revenues is typically derived from sales of a
small number of relatively high-priced products. Purchases are generally made
by purchase orders and not long-term contracts. Delays in receipt of
anticipated orders for higher-priced products could lead to substantial
variability from quarter to quarter. Furthermore, Zymark has historically
received purchase orders and shipped a significant portion of each quarters
product orders near the end of the quarter. If that pattern continues, even
short delays in the receipt of orders or shipment of products at the end of a
quarter could result in shipment during the next quarter, which could have a
material adverse effect on results of operations for that quarter.

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

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

Historically, we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue and, if we were
to lose any one of these, our revenue would decrease substantially. For the six
months ended June 30, 2003, Agilent alone represented 44% of total revenues,
and Aclara, Amphora and one other customer collectively accounted for 29% of
total revenues. For the year ended December 31, 2002, Agilent represented 39%
of total revenues and Amphora accounted for 24% of total revenues with three
other customers combined representing 25% of total revenues. Our commercial
relationship with Agilent is currently in flux, as we have terminated our
agreement with them and so are operating only under the surviving portions of
that agreement. Although we anticipate that future sales of the Agilent 2100
Bioanalyzer system will further expand our revenue base, we expect that we will
continue to rely on a few customers and on Agilent for the majority of our
revenues from our micro-fluidic technologies. However, we acquired Zymark in
July 2003, thereby acquiring new customers, which has allowed us to expand our
customer base.

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

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

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

Agilent manufactured, marketed and distributed the Agilent 2100
Bioanalyzer under an agreement we entered into in May 1998, which agreement
terminated in May 2003. Our revenues from the Agilent 2100 Bioanalyzer products
will depend on Agilent continuing to develop, manufacture and market these
products successfully and also depends significantly on Agilents continued
performance despite the termination of this agreement. Although we believe that
Agilent is financially motivated to continue to sell the Agilent 2100
Bioanalyzer under the terms of the agreement that govern following termination
of the agreement, there can be no assurance that they will continue to sell the
Agilent 2100 Bioanalyzer. Sales of innovative instrumentation such as the
Agilent 2100 Bioanalyzer involve a long sales cycle, requiring customer
training and demonstration periods. Although sales of the Agilent 2100
Bioanalyzer continue to increase through the first half of 2003, we cannot
predict whether this trend will continue at its current pace, if at all. If
Agilent experiences manufacturing or distribution difficulties, does not
actively market the Agilent 2100 Bioanalyzer, our future revenue from the
Agilent 2100 Bioanalyzer may not be material. We also anticipate research and
development funding from Agilent to continue to further decline from the levels
we have already experienced in the first six months of 2003 through the
remainder of the year. Agilent can reduce product development funding at any
time as they make independent decisions on their product lines. If we do not
negotiate a new agreement with Agilent, we could cease to receive development
funding from Agilent for new products. Furthermore, the revenue we receive
from Agilent for existing collaboration products may grow more slowly or
decline.

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

Amphora, which is independently managed and funded, has a significant
on-going relationship with Caliper. After Amphoras December 2002 completion
of a second private placement of securities with third party investors, our
ownership in Amphora was reduced to approximately 13% from 28% on a fully
diluted basis. Over time we expect that our ownership in Amphora will be
further diluted, as we have no plans to make any future equity investments in
Amphora. Due to the reduction in our percentage ownership of Amphora, we now
have the right to appoint only one member to Amphoras board. Amphora is
currently our largest automated drug discovery customer representing 10% of our
total revenue for the first six months in 2003. As a development stage
company, there can be no assurances that Amphora will become commercially
successful or that in the near term its business strategy will not change. If
Amphora reduces its purchases of products and services or stops using our drug
discovery systems, we could experience a significant decline in revenues. In
connection with the completion of Amphoras December 2002 financing, Caliper
and Amphora agreed to a renegotiation of Amphoras obligations under the
LabChip Solutions Agreement. Under the renegotiated agreement, the companies
agreed to restructure the $4 million minimum datapoint payment for 2003 as
follows: Amphora agreed to purchase a minimum of $1.8 million of datapoints
during the second year of the agreement beginning in December 2002 and over
time to make up to $2.2 million of deferred payments to Caliper. These deferred
payments are contingent upon Amphoras future revenue generation, datapoint
production and other conditions and can be satisfied by Amphora under three
methods: i) quarterly payments to Caliper based on Amphoras revenues; ii)
commissions earned by Amphora as they provide certain marketing assistance to
Caliper for Calipers instruments; and iii) additional datapoint payments if
Amphora exceeds the certain minimum datapoint levels. Amphora will not be
obligated to make any further datapoint payments to Caliper until it has
generated the number of datapoints, either in 2003 or subsequent years, that
Amphora is entitled to based upon a) the payment of the $1.8 million minimum
required payment for the 12 month period ending
November 30, 2003; and b) any payments pursuant to the $2.2 million deferred
contingent obligation through quarterly payments based on Amphoras revenue or
commissions earned by Amphora for marketing assistance. If Amphora generates
fewer datapoints than entitled due to the minimum payment and any
contingent payments made, future datapoint revenues will be adversely
affected to the extent of this shortfall. We also agreed to defer to December
31, 2003 Amphoras obligation to purchase the one remaining Caliper 250
instrument of the 11 originally scheduled to be purchased by Amphora before
December 31, 2002. In consideration for our agreement to this restructuring,
Amphora issued to Caliper 2.5 million shares of Amphora preferred stock. We
ascribed a nominal value of $25,000 to these shares as Amphora is a privately
held research and development company.

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

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

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

Third parties may assert infringement or other intellectual property
claims against us. We may have to pay substantial damages, including treble
damages, for past infringement if it is ultimately determined that our products
infringe a third partys proprietary rights. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if these claims are without
merit, defending a lawsuit takes significant time, may be expensive and may
divert management attention from other business concerns. We are aware of
third-party patents that may relate to our technology or potential products. We
have also been notified that a third party has attempted to provoke an
interference with one issued U.S. patent that we have exclusively licensed to
determine the priority of inventions. Any public announcements related to
litigation or interference proceedings initiated or threatened against us could
cause our stock price to decline. In 2001, we settled intellectual property
litigation with Aclara concerning one family of Aclara patents. However, Aclara
could assert other patent infringement claims against us in the future in
alternative dispute resolution proceedings established under our settlement
agreement.

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

We rely on patents to protect a large part of our intellectual property
and our competitive position, especially in our microfluidics business. In order to protect or enforce our patent rights,
we may initiate patent litigation against third parties, such as the patent
infringement suit against Molecular Devices Corporation as described under
Part II  Item 1. Legal Proceedings. These lawsuits could be expensive, take
significant time, and could divert managements attention from other business
concerns. They would put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not issuing. We may
also provoke these third parties to assert claims against us. Patent law
relating to the scope of claims in the technology fields in which we operate is
still evolving and, consequently, patent positions in our industry are
generally uncertain. We cannot assure you that we will prevail in any of these
suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these results to be negative, it could cause our stock price to decline.

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

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

Agilent may compete with us now that our collaboration has terminated, which
could reduce the potential revenue from our independent product sales.

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Under the terms of our agreement with Agilent, which we terminated
effective in May 2003, we granted to Agilent a non-exclusive, royalty-bearing
license to our LabChip technologies existing as of the termination date for
Agilent to develop, make and sell products in the field of the collaboration.
Consequently, there is the possibility that we may experience competition from
Agilent in the future, which would reduce our ability to sell products
independently or through other commercial partners.

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

Although Agilent manufactures the Agilent 2100 Bioanalyzer, we manufacture
the chips used in this instrument and also currently manufacture instruments
and sipper chips for our drug discovery systems. We currently have limited
manufacturing capacity for our LabChip and automated drug discovery system
products and experience variability in manufacturing yields for chips and
automated drug discovery products. If we fail to deliver chips and automated
drug discovery products in a timely manner, our relationships with our
customers could be seriously harmed, and revenue would decline. We currently
have one manufacturing location in Mountain View, California, and Zymark has one
manufacturing location located in Hopkinton, Massachusetts. The actual number
of chips we are able to sell or use depends in part upon the manufacturing
yields for these chips. We have only recently begun to manufacture significant
numbers of sipper chips and are continuing to develop our manufacturing
procedures for these chips. In order to offer sipper chips with more than four
capillaries for drug discovery applications, we will need to continue to
achieve consistently high yields in this process. We have experienced
difficulties in manufacturing both our chips and instruments. We cannot assure
you that manufacturing or quality problems will not arise as we attempt to
scale-up our production of chips or that we can scale-up manufacturing in a
timely manner or at commercially reasonable costs. If we are unable to
consistently manufacture sipper chips or chips for the Agilent 2100 Bioanalyzer
on a timely basis because of these or other factors, our product sales will
decline. We are currently manufacturing drug discovery instruments in-house and
in limited volumes. If demand for our drug discovery instruments increases
significantly, we will either need to expand our in-house manufacturing
capabilities or outsource to other manufacturers. Our ability to scale-up
manufacturing may be compromised by uncertainty regarding the volume of chips
for the Agilent 2100 Bioanalyzer that we will need to supply to Agilent in the
future. As our exclusive collaboration with Agilent terminated in May 2003
pursuant to the notice we delivered to Agilent, Agilent now has the option to
manufacture chips itself rather than continue to receive its supply of chips
from Caliper. Accordingly, we face uncertainty regarding future demand for
these chips from our manufacturing operations.

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

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

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

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

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

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

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

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

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

Risks Related to Owning Our Common Stock

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

Our stock has been trading on the Nasdaq National Market only since
mid-December 1999. We initially offered our common stock to the public at
$16.00 per share. Since then our stock price has been extremely volatile and
has ranged, through August 8, 2003, from a high of approximately $202.00 per
share on March 2, 2000 to a low of $2.71 per share both on January 28, 2003 and
February 6, 2003. Our stock price may drop substantially following an
investment in our common stock. We expect that our stock price will remain
volatile as a result of a number of factors, including:



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

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

We have been sued, and are at risk of future securities class action litigation

In the Spring and Summer of 2001, class action lawsuits were filed against
certain leading investment banks and over 300 companies that did public
offerings during the prior several years, including lawsuits against Caliper
and certain of its officers and directors as described under Part II  Item
1. Legal Proceedings. This and other securities litigation could result in
potential liability, cause us to incur litigation costs and divert managements
attention and resources, any of which could harm our business. In addition,
announcements of future lawsuits of this or some other nature, and
announcements of events occurring during the course of the current and any
future lawsuits, could cause our stock price to drop.

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

As of December 31, 2002, our directors, entities affiliated with our
directors, our executive officers and principal stockholders beneficially own,
in the aggregate approximately 31% of our outstanding common stock.
Additionally, as a result of the Zymark Corporation acquisition on July 14,
2003, the Berwind Company LLC, a Delaware limited liability company owns approximately 11% of our outstanding common stock. These stockholders as a
group are able to substantially influence the management and affairs of Caliper
and, if acting together, would be able to influence most matters requiring the
approval by our stockholders, including the

24



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election of directors, any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate
transaction. The concentration of ownership may also delay or prevent a change
of control of Caliper at a premium price if these stockholders oppose it.

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

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




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

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

Our equipment sale-leaseback financings, amounting to $3.1 million as of
June 30, 2003, are all at fixed rates and, therefore, have minimal exposure to
changes in interest rates. We have operated primarily in the United States and
substantially all sales to date have been made in U.S. dollars. Accordingly, we
have not had any material exposure to foreign currency rate fluctuations.

Our primary investment objective is to preserve principal while at the
same time maximizing yields without significantly increasing risk. Our
portfolio includes money markets funds, commercial paper, medium-term notes,
corporate notes, government securities, asset-backed securities, and corporate
bonds. The diversity of our portfolio helps us to achieve our investment
objective. As of June 30, 2003, approximately 37% of our investment portfolio
is composed of investments with original maturities of one year or less and
approximately 36% of our investment portfolio matures less than 90 days from
the date of purchase.

The following table presents the amounts of our cash equivalents and
investments that may be subject to interest rate risk and the average interest
rates as of June 30, 2003 by year of maturity (dollars in thousands):

|                                          |               |                       |        |        |      |      |        |        |      |       |        |        |      |   |         |        |      |  
|----------------------------------------- | ------------- | --------------------- | ------ | ------ | ---- | ---- | ------ | ------ | ---- | ----- | ------ | ------ | ---- | - | ------- | ------ | ---- | -
|                                          |               |                       |        | 2003   |      | 2004 |        | 2005   |      | Total
|                                          |               |                       |        |        |      |      |        |        |      |      
|Cash and money market funds:              |               |                       |        |        |      |      |        |        |      |       |        |        |      |   |         |       
|                                          | Fixed rate    |                       | $      | 55,639 |      |      |        |       |      |       |        |       |      |   | $       | 55,639 |     
|                                          |               | Average interest rate |        |        | 1.01 | %    |        |        |     |       |        |        |     |   |         |        | 1.01 | %
|Available for sale marketable securities: |               |                       |        |        |      |      |        |        |      |       |        |        |      |   |         |       
|                                          | Fixed rate    |                       | $      | 5,679  |      |      | $      | 44,790 |      |       | $      | 24,839 |      |   | $       | 75,308 |     
|                                          |               | Average interest rate |        |        | 4.66 | %    |        |        | 4.22 | %     |        |        | 5.15 | % |         |        | 4.50 | %
|                                          | Variable rate |                       |        |       |      |      | $      | 3,278  |      |       | $      | 1,253  |      |   | $       | 4,531  |     
|                                          |               | Average interest rate |        |        |     |      |        |        | 1.45 | %     |        |        | 1.30 | % |         |        | 1.41 | %
|Total securities                          |               | $                     | 61,318 |        |      | $    | 48,068 |        |      | $     | 26,092 |        |      | $ | 135,478 |       
|                                          |               | Average interest rate |        |        | 1.34 | %    |        |        | 4.04 | %     |        |        | 4.91 | % |         |        | 2.93 | %

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

|                             |            |                       |   |        |      |      |  |      |   |       |  |   |   |  |   |        |      |  
|---------------------------- | ---------- | --------------------- | - | ------ | ---- | ---- |  | ---- | - | ----- |  | - | - |  | - | ------ | ---- | -
|                             |            |                       |   | 2003   |      | 2004 |  | 2005 |   | Total
|                             |            |                       |   |        |      |      |  |      |   |      
|Cash and money market funds: |            |                       |   |        |      |      |  |      |   |       |  |   |   |  |   |       
|                             | Fixed rate |                       | $ | 16,184 |      |      |  |     |   |       |  |  |   |  | $ | 16,184 |     
|                             |            | Average interest rate |   |        | 1.29 | %    |  |      |  |       |  |   |  |  |   |        | 1.29 | %

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|                                          |               |                       |        |        |      |      |        |        |      |       |        |        |      |   |         |         |      |  
|----------------------------------------- | ------------- | --------------------- | ------ | ------ | ---- | ---- | ------ | ------ | ---- | ----- | ------ | ------ | ---- | - | ------- | ------- | ---- | -
|                                          |               |                       |        | 2003   |      | 2004 |        | 2005   |      | Total
|                                          |               |                       |        |        |      |      |        |        |      |      
|Available for sale marketable securities: |               |                       |        |        |      |      |        |        |      |       |        |        |      |   |         |        
|                                          | Fixed rate    |                       | $      | 40,397 |      |      | $      | 55,299 |      |       | $      | 19,611 |      |   | $       | 115,307 |     
|                                          |               | Average interest rate |        |        | 3.88 | %    |        |        | 4.47 | %     |        |        | 4.85 | % |         |         | 4.32 | %
|                                          | Variable rate |                       | $      | 7,308  |      |      | $      | 6,249  |      |       | $      | 7,758  |      |   | $       | 21,315  |     
|                                          |               | Average interest rate |        |        | 1.70 | %    |        |        | 1.92 | %     |        |        | 1.68 | % |         |         | 1.76 | %
|Total securities                          |               | $                     | 63,889 |        |      | $    | 61,548 |        |      | $     | 27,369 |        |      | $ | 152,806 |        
|                                          |               | Average interest rate |        |        | 2.97 | %    |        |        | 4.21 | %     |        |        | 3.92 | % |         |         | 3.63 | %

Total securities at December 31, 2001 were $166.2 million with average
interest rates ranging between 4.45% and 6.18%.




ITEM 4. CONTROLS AND PROCEDURES

We evaluated our disclosure controls and procedures and our internal
controls and procedures for financial reporting as of June 30, 2003. This
evaluation was done under the supervision and with the participation of
management, including our chief executive officer and our chief financial
officer.

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

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

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

There were no changes in our internal controls over financial reporting
during the quarter ended June 30, 2003 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

Limitations on the Effectiveness of Controls.Our management,
including our chief executive and chief financial officer, does not expect that
our disclosure controls or our internal controls will prevent all error and all
fraud. A control system can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within Caliper have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can

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be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control systems may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.




PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

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

On April 16, 2002, Caliper filed a lawsuit against Molecular Devices
Corporation in the United States District Court for the Northern District of
California. In that case, Caliper Technologies Corp. v. Molecular Devices
Corporation, No. C-02-1837 (N.D. Cal.), Caliper asserts that Molecular Devices
Corp.s IMAP and Reagent Assay Kits willfully infringe one or more claims of
U.S. Patent No. 6,287,774, which Caliper owns. Calipers complaint seeks both
injunctive relief precluding further infringement of the patent and damages.
The answer to the complaint was filed on May 8, 2002 and asserts a counterclaim
seeking a declaratory judgment that the patent is not infringed and is invalid.
Caliper believes the counterclaim to be without merit. In late 2002, Caliper
successfully moved the court to add a newly-issued patent, U.S. Patent No.
6,472,141 to the lawsuit, alleging that the same accused devices infringe one
or more of the claims of that patent. The answer to Calipers first amended
complaint was filed on December 17, 2002, and asserts a counterclaim seeking a
declaratory judgment that both Caliper patents are invalid, unenforceable and
not infringed. Caliper believes the amended counterclaim to be without merit.
On January 28, 2003, Caliper filed a motion for preliminary injunction, which
was scheduled to be heard in May 2003, but deferred by the court pending a
patent claim construction hearing. The claim construction hearing occurred at
the end of June 2003, but no ruling has yet to be issued. Discovery is
underway, and no trial date has been set by the Court.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



| |  | None.
| |  | -----




ITEM 3. DEFAULTS UPON SENIOR SECURITIES



| |  | None.
| |  | -----

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

Our 2003 Annual Meeting of Stockholders was held on June 30, 2003, at 2:00
p.m. local time at Calipers facilities at 605 Fairchild Drive, Mountain
View, California. There were present at the meeting, in person or represented
by proxy, the holders of 20,105,673 shares of Common Stock. The matters voted
on at the meeting and the votes cast are as follows:



|(a) |  | As listed below, all of the nominees for Class I Directors were elected at the meeting.
|--- |  | ---------------------------------------------------------------------------------------

|                        |  |                |            |                |  |                  |           |  |  |  |   | 
|----------------------- |  | -------------- | ---------- | -------------- |  | ---------------- | --------- |  |  |  | - | 
|                        |  | NO. OF COMMON  |            | NO. OF COMMON  |  | NO. OF COMMON   
|NAME OF NOMINEE         |  | VOTES IN FAVOR |            | VOTES WITHHELD |  | VOTES ABSTAINING
|                        |  |                |            |                |  |                 
|Anthony B. Evnin, Ph.D. |  |                | 18,216,403 |                |  |                  | 1,889,270 |  |  |  | 0 | 
|Michael R. Knapp, Ph.D. |  |                | 18,242,334 |                |  |                  | 1,863,339 |  |  |  | 0 | 
|Robert T. Nelsen        |  |                | 17,537,444 |                |  |                  | 2,568,229 |  |  |  | 0 | 



|    |  | Drs. Robert C. Bishop and David V. Milligan will continue in office as directors in the class of directors to be elected at
our 2004 Annual Meeting of Stockholders. Dr. Daniel L. Kisner and Mr. Regis P. McKenna will continue in office directors in
the class of directors to be elected at our 2005 Annual Meeting of Stockholders.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The appointment of Ernst & Young LLP as our independent accountants for the fiscal year ending December 31, 2003 was ratified.
There were 19,622,905 shares of Common Stock voting in favor, 446,035 shares of Common Stock voting against, 36,733 shares of
Common Stock abstaining with zero Broker non-votes.                        




ITEM 5. OTHER INFORMATION

On June 9, 2003 we announced a definitive agreement to acquire Zymark
Corporation, a privately held, leading provider of laboratory automation,
liquid handling and robotics solutions to the life sciences, biotechnology and
pharmaceutical industries. We successfully completed this acquisition on July
14, 2003 for approximately $57.0 million and 3.15 million shares of our common
stock with an aggregate value of $16.9 million based on our
closing stock price on the date of acquisition.

Effective with the completion of the acquisition of Zymark on July 14,
2003, E. Kevin Hrusovsky became the President and Chief Executive Officer of
Caliper and was appointed to the Board of Directors. Additionally, Michael R.
Knapp was appointed Chief Technical Officer of Caliper and resigned from the
Board of Directors.

On August 5, 2003, as part of the integration process resulting from the
acquisition of Zymark, we conducted a reduction in force that resulted in a
further downsizing of our employee work force by approximately 50 people, or 9%
of the total workforce. While most functional groups were included in the
consolidation effort, the Research and Development organization will remain
unchanged pending strategy and product priority decisions that will be made in
the second half of 2003. Previously, in September 2002 and May 2003, we had
conducted reductions in force that resulted in a downsizing of our employee
work force by 28 and 26 people, respectively. The reduction in both September
2002 and May 2003 were independent of the Zymark acquisition and were primarily
in our research and development staff where we had changed the focus of our
product development and technology research to align more with the changing
needs of our customers. We expect to recognize a charge of approximately
$867,000 for severance payments and related benefits all of which we anticipate
to pay by the end of December 2003.

Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934,
as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible
for listing the non-audit services approved by our Audit Committee to be
performed by Ernst & Young LLP, our independent auditor. Non-audit services are
defined as services other than those provided in connection with an audit or a
review of our financial statements. In June 2003 our Audit Committee approved
non-audit services performed by Ernst & Young LLP for $167,000 in connection
with the acquisition of Zymark. The only other non-audit services approved by
our Audit Committee to be performed by Ernst & Young LLP are the preparation of
tax returns, and tax advice in preparing for and in connection with such
filings.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------

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|        |  |                                                                                                                                                        |  |  |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit |  |                                                                                                                                                        |  |  |  | 
|Number  |  | Description of document                                                                                                                                |  |  |  | 
|        |  |                                                                                                                                                        |  |  |  | 
|3.1(1)  |  | Amended and Restated Certificate of Incorporation of Caliper.                                                                                         
|        |  |                                                                                                                                                       
|3.2(2)  |  | Certificate of Designation Of Series A Junior Participating Preferred Stock.                                                                          
|        |  |                                                                                                                                                       
|3.3     |  | Restated Bylaws of Caliper.                                                                                                                           
|        |  |                                                                                                                                                       
|10.55   |  | Collaboration Agreement, dated June 4, 2003, between Caliper and Bio-Rad Laboratories, Inc.                                                           
|        |  |                                                                                                                                                       
|10.56   |  | Key Employee Agreement, dated July 14, 2003, between Caliper and E. Kevin Hrusovsky                                                                   
|        |  |                                                                                                                                                       
|31.1    |  | Certification of Chief Executive Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.                            
|        |  |                                                                                                                                                       
|31.2    |  | Certification of Chief Financial Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended                             
|        |  |                                                                                                                                                       
|32.1    |  | Certification of Chief Executive Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
|        |  |                                                                                                                                                       
|32.2    |  | Certification of Chief Financial Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.



|(1) |  | Previously filed as Exhibit 3.3 to our Registration Statement on Form
S-1, Registration No. 333-88827, and incorporated by reference herein.                                                         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed
December 19, 2001, and incorporated by reference herein.                                                                        
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                  
|   
|    |  | On May 6, 2003, Caliper filed a Current Report on Form 8-K announcing
under Item 9 that it was furnishing pursuant to Item 12 of Form 8-K its
financial results for the first quarter of fiscal 2003.
|   
|    |  | On June 11, 2003, Caliper filed a Current Report on Form 8-K announcing
under Item 5 the signing of a definitive agreement to acquire Zymark
Corporation.                                            

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SIGNATURES

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

|                |                           |                            |                                                                                   | 
|--------------- | ------------------------- | -------------------------- | --------------------------------------------------------------------------------- | 
|                | CALIPER TECHNOLOGIES CORP
|                |                           |                            |                                                                                   | 
|August 14, 2003 | By:                       | /s/ JAMES L. KNIGHTON     
|                |                           |                            | James L. Knighton                                                                
|                |                           |                            | Chief Operating Officer and Chief Financial Officer                              
|                |                           |                            |                                                                                   | 
|                | By:                       | /s/ ANTHONY T. HENDRICKSON
|                |                           |                            | Anthony T. Hendrickson                                                           
|                |                           |                            | Vice President, Finance and Corporate Controller and Principal Accounting Officer

30



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EXHIBIT INDEX

|       |  |                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1) |  | Amended and Restated Certificate of Incorporation of Caliper.                                                                                         
|       |  |                                                                                                                                                       
|3.2(2) |  | Certificate of Designation Of Series A Junior Participating Preferred Stock.                                                                          
|       |  |                                                                                                                                                       
|3.3    |  | Restated Bylaws of Caliper.                                                                                                                           
|       |  |                                                                                                                                                       
|10.55  |  | Collaboration Agreement, dated June 4, 2003, between Caliper and Bio-Rad Laboratories, Inc.                                                           
|       |  |                                                                                                                                                       
|10.56  |  | Key Employee Agreement, dated July 14, 2003, between Caliper and E. Kevin Hrusovsky                                                                   
|       |  |                                                                                                                                                       
|31.1   |  | Certification of Chief Executive Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.                            
|       |  |                                                                                                                                                       
|31.2   |  | Certification of Chief Financial Officer Required Under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended                             
|       |  |                                                                                                                                                       
|32.1   |  | Certification of Chief Executive Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
|       |  |                                                                                                                                                       
|32.2   |  | Certification of Chief Financial Officer Required Under Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.



|(1) |  | Previously filed as Exhibit 3.3 to our Registration Statement on Form
S-1, Registration No. 333-88827, and incorporated by reference herein.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed
December 19, 2001, and incorporated by reference herein.