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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 1934 for the quarterly period ended June 30, 2002

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

Commission file # 000-28229

CALIPER TECHNOLOGIES CORP.

(Exact name of registrant as specified in its charter)


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

605 FAIRCHILD DRIVE
MOUNTAIN VIEW, CA 94043-2234
(Address and zip code of principal executive offices)

Registrants telephone number, including area code: (650) 623-0700

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 __

COMMON SHARES OUTSTANDING ON JULY 31, 2002: 24,480,101





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED 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                           
|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 SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.45                
|EXHIBIT 10.46                
|EXHIBIT 10.47                
|EXHIBIT 99.1                 



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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, 2002
and December 31, 2001                           |  | 2   
|                              
|                               |  |         |  | Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2002 and 2001 |  | 3   
|                              
|                               |  |         |  | Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001           |  | 4   
|                              
|                               |  |         |  | Notes to Unaudited Condensed Consolidated Financial Statements                                            |  | 5   
|                              
|                               |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                     |  | 10  
|                              
|                               |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 20  
|                              
|PART II  OTHER INFORMATION     |  |        
|                              
|                               |  | Item 1. |  | Legal Proceedings                                                                                         |  | 20  
|                              
|                               |  | Item 2. |  | Changes in Securities and Use of Proceeds                                                                 |  | 20  
|                              
|                               |  | Item 3. |  | Defaults upon Senior Securities                                                                           |  | 20  
|                              
|                               |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                       |  | 20  
|                              
|                               |  | Item 5. |  | Other Information                                                                                         |  | 21  
|                              
|                               |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                          |  | 21  
|                              
|SIGNATURES                     |  |         |  | 23                                                                                                       

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,
|                                           |                                           |   | 2002        |         | 2001        
|                                           |                                           |   |             |         |             
|                                           |                                           |   | (unaudited) |         |              |   |        
|Assets                                     |                                           |   |             |         |              |   |         |        
|Current assets:                            |                                           |   |             |         |              |   |         |        
|                                           | Cash and cash equivalents                 |   | $           | 4,552   |              |   | $       | 10,655  |  
|                                           | Marketable securities                     |   |             | 133,182 |              |   |         | 155,521 |  
|                                           | Accounts receivable                       |   |             | 2,169   |              |   |         | 1,130   |  
|                                           | Accounts receivable  related party       |   |             | 1,348   |              |   |         | 1,179   |  
|                                           | Inventories                               |   |             | 7,126   |              |   |         | 3,411   |  
|                                           | Prepaid expenses and other current assets |   |             | 4,691   |              |   |         | 2,311   |  
|                                           | Investment in Aclara common stock         |   |             | 1,548   |              |   |         | 4,563   |  
|                                           | Other receivable                          |   |             | 29,122  |              |   |         | 26,949  |  
|                                           |                                           |   |             |         |              |   |         |        
|Total current assets                       |                                           |   | 183,738     |         |              |   | 205,719 |        
|Security deposits                          |                                           |   | 3,200       |         |              |   | 3,200   |        
|Property and equipment, net                |                                           |   | 14,003      |         |              |   | 12,581  |        
|Notes receivable from officers             |                                           |   | 335         |         |              |   | 475     |        
|Other assets, net                          |                                           |   | 525         |         |              |   | 568     |        
|                                           |                                           |   |             |         |              |   |         |        
|Total assets                               |                                           | $ | 201,801     |         |              | $ | 222,543 |        
|                                           |                                           |   |             |         |              |   |         |        
|Liabilities and stockholders equity       |                                           |   |             |         |              |   |         |        
|Current liabilities:                       |                                           |   |             |         |              |   |         |        
|                                           | Accounts payable                          |   | $           | 2,222   |              |   | $       | 1,808   |  
|                                           | Accrued compensation                      |   |             | 2,733   |              |   |         | 3,135   |  
|                                           | Other accrued liabilities                 |   |             | 778     |              |   |         | 357     |  
|                                           | Deferred revenue                          |   |             | 1,838   |              |   |         | 3,082   |  
|                                           | Current portion of equipment financing    |   |             | 2,372   |              |   |         | 2,027   |  
|                                           |                                           |   |             |         |              |   |         |        
|Total current liabilities                  |                                           |   | 9,943       |         |              |   | 10,409  |        
|Noncurrent portion of equipment financing  |                                           |   | 3,103       |         |              |   | 3,749   |        
|Deferred revenue                           |                                           |   | 379         |         |              |   | 221     |        
|Other noncurrent liabilities               |                                           |   | 1,838       |         |              |   | 1,600   |        
|Commitments and contingencies              |                                           |   |             |         |              |   |         |        
|                                           | Stockholders equity:                     |   |             |         |              |   |         |         |  
|                                           | Common stock                              |   |             | 24      |              |   |         | 24      |  
|                                           | Additional paid-in capital                |   |             | 252,734 |              |   |         | 251,357 |  
|                                           | Deferred stock compensation               |   |             | (1,401  | )            |   |         | (2,232  | )
|                                           | Accumulated deficit                       |   |             | (65,656 | )            |   |         | (44,602 | )
|                                           | Accumulated other comprehensive income    |   |             | 837     |              |   |         | 2,017   |  
|                                           |                                           |   |             |         |              |   |         |        
|Total stockholders equity                 |                                           |   | 186,538     |         |              |   | 206,564 |        
|                                           |                                           |   |             |         |              |   |         |        
|Total liabilities and stockholders equity |                                           | $ | 201,801     |         |              | $ | 222,543 |        
|                                           |                                           |   |             |         |              |   |         |        

See accompanying notes.

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

|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |       |        | 
|------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------------- | ------- | --------------------------- | ------ | ------------------------- | ------ | ---- | ----- | ---- | ------- | --- | ------ | - | ------- | ----- | ------ | 
|                                                              |                                                                           |                                                 |         | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                              |                                                                           |                                                 |         |                             |        |                          
|                                                              |                                                                           |                                                 |         | 2002                        |        | 2001                      |        | 2002 |       | 2001
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |     
|Revenue:                                                      |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|                                                              |                                                                           | Product revenue                                 |         | $                           | 2,431  |                           |        | $    | 1,843 |      |         | $   | 5,626  |   |         | $     | 3,188  | 
|                                                              |                                                                           | Related party revenue                           |         |                             | 2,427  |                           |        |      |      |      |         |     | 4,147  |   |         |       |       | 
|                                                              |                                                                           | License fees and contract revenue               |         |                             | 2,378  |                           |        |      | 3,444 |      |         |     | 4,504  |   |         |       | 11,892 | 
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Total revenue                                                 |                                                                           |                                                 | 7,236   |                             |        |                           | 5,287  |      |       |      | 14,277  |     |        |   | 15,080  |      
|Costs and expenses:                                           |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|                                                              |                                                                           | Cost of product revenue                         |         |                             | 1,923  |                           |        |      | 986   |      |         |     | 4,016  |   |         |       | 1,964  | 
|                                                              |                                                                           | Cost of product revenue  related party         |         |                             | 1,403  |                           |        |      |      |      |         |     | 1,847  |   |         |       |       | 
|                                                              |                                                                           | Research and development                        |         |                             | 11,463 |                           |        |      | 9,520 |      |         |     | 22,515 |   |         |       | 18,373 | 
|                                                              |                                                                           | Selling, general and administrative             |         |                             | 4,817  |                           |        |      | 3,175 |      |         |     | 9,474  |   |         |       | 6,365  | 
|                                                              |                                                                           | Amortization of deferred stock compensation (1) |         |                             | 386    |                           |        |      | 672   |      |         |     | 832    |   |         |       | 1,440  | 
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Total costs and expenses                                      |                                                                           |                                                 | 19,992  |                             |        |                           | 14,353 |      |       |      | 38,684  |     |        |   | 28,142  |      
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Operating loss                                                |                                                                           |                                                 | (12,756 | )                           |        |                           | (9,066 | )    |       |      | (24,407 | )   |        |   | (13,062 | )    
|Interest income, net                                          |                                                                           |                                                 | 1,388   |                             |        |                           | 2,871  |      |       |      | 3,353   |     |        |   | 5,771   |      
|Gain on settlement of litigation                              |                                                                           |                                                 |        |                             |        |                           |       |      |       |      |        |     |        |   | 27,500  |      
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Net income (loss)                                             |                                                                           | $                                               | (11,368 | )                           |        | $                         | (6,195 | )    |       | $    | (21,054 | )   |        | $ | 20,209  |      
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Net income (loss) per share, basic                            |                                                                           | $                                               | (0.47   | )                           |        | $                         | (0.26  | )    |       | $    | (0.87   | )   |        | $ | 0.85    |      
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Shares used in computing net income (loss) per share, basic   |                                                                           |                                                 | 24,333  |                             |        |                           | 23,946 |      |       |      | 24,285  |     |        |   | 23,891  |      
|Net income (loss) per share, diluted                          |                                                                           | $                                               | (0.47   | )                           |        | $                         | (0.26  | )    |       | $    | (0.87   | )   |        | $ | 0.79    |      
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|Shares used in computing net income (loss) per share, diluted |                                                                           |                                                 | 24,333  |                             |        |                           | 23,946 |      |       |      | 24,285  |     |        |   | 25,672  |      
|                                                              | (1) Amortization of deferred stock compensation relates
to the following: |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |       |       
|                                                              | Research and development                                                  |                                                 | $       | 251                         |        |                           | $      | 234  |       |      | $       | 541 |        |   | $       | 502   |       
|                                                              | Selling,
general and administrative                                       |                                                 |         | 135                         |        |                           |        | 438  |       |      |         | 291 |        |   |         | 938   |       
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      
|                                                              | Total                                                                     |                                                 | $       | 386                         |        |                           | $      | 672  |       |      | $       | 832 |        |   | $       | 1,440 |       
|                                                              |                                                                           |                                                 |         |                             |        |                           |        |      |       |      |         |     |        |   |         |      

See accompanying notes.

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

|                                                                                     |                                                               |                                                |         |                  |        |      |          |         |        |  
|------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------------------------------------- | ------- | ---------------- | ------ | ---- | -------- | ------- | ------ | -
|                                                                                     |                                                               |                                                |         | Six Months Ended
|                                                                                     |                                                               |                                                |         | June 30,        
|                                                                                     |                                                               |                                                |         |                 
|                                                                                     |                                                               |                                                |         | 2002             |        | 2001
|                                                                                     |                                                               |                                                |         |                  |        |     
|Operating activities                                                                 |                                                               |                                                |         |                  |        |      |          |        
|Net income (loss)                                                                    |                                                               | $                                              | (21,054 | )                |        | $    | 20,209   |        
|Adjustments to reconcile net income (loss) to net cash used in
operating activities: |                                                               |                                                |         |                  |        |      |          |        
|                                                                                     | Gain on settlement of litigation and non-cash license revenue |                                                |         |                 |        |      |          | (32,500 | )     
|                                                                                     | Depreciation and amortization                                 |                                                |         | 2,703            |        |      |          | 1,627   |       
|                                                                                     | Amortization of deferred stock compensation                   |                                                |         | 831              |        |      |          | 1,440   |       
|                                                                                     | Stock options issued to non-employees                         |                                                |         | 26               |        |      |          | (58     | )     
|                                                                                     | Changes in operating assets and liabilities:                  |                                                |         |                  |        |      |          |         |       
|                                                                                     |                                                               | Accounts receivable and other receivable       |         |                  | (366   | )    |          |         | 2,671  |  
|                                                                                     |                                                               | Inventories                                    |         |                  | (3,715 | )    |          |         | (2,786 | )
|                                                                                     |                                                               | Prepaid expenses and other current assets      |         |                  | (2,380 | )    |          |         | (554   | )
|                                                                                     |                                                               | Security deposits and other assets             |         |                  | 43     |      |          |         |       |  
|                                                                                     |                                                               | Notes receivable from officers                 |         |                  | 140    |      |          |         | 140    |  
|                                                                                     |                                                               | Accounts payable and other accrued liabilities |         |                  | 835    |      |          |         | (1,546 | )
|                                                                                     |                                                               | Accrued compensation                           |         |                  | (402   | )    |          |         | 152    |  
|                                                                                     |                                                               | Deferred revenue                               |         |                  | (1,086 | )    |          |         | (2,267 | )
|                                                                                     |                                                               | Other noncurrent liabilities                   |         |                  | 238    |      |          |         | 237    |  
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Net cash used in operating activities                                                |                                                               |                                                | (24,187 | )                |        |      | (13,235  | )      
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Investing activities                                                                 |                                                               |                                                |         |                  |        |      |          |        
|Purchases of marketable securities                                                   |                                                               |                                                | (93,549 | )                |        |      | (134,682 | )      
|Proceeds from sale of marketable securities                                          |                                                               |                                                | 58,123  |                  |        |      | 71,464   |        
|Proceeds from maturities of marketable securities                                    |                                                               |                                                | 56,585  |                  |        |      | 47,176   |        
|Purchase of property and equipment                                                   |                                                               |                                                | (4,125  | )                |        |      | (2,772   | )      
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Net cash provided by (used in) investing activities                                  |                                                               |                                                | 17,034  |                  |        |      | (18,814  | )      
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Financing activities                                                                 |                                                               |                                                |         |                  |        |      |          |        
|Proceeds from equipment financing                                                    |                                                               |                                                | 822     |                  |        |      | 1,318    |        
|Payments of obligations under equipment financing                                    |                                                               |                                                | (1,123  | )                |        |      | (1,137   | )      
|Proceeds from issuance of common stock                                               |                                                               |                                                | 1,351   |                  |        |      | 1,463    |        
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Net cash provided by financing activities                                            |                                                               |                                                | 1,050   |                  |        |      | 1,644    |        
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Net increase (decrease) in cash and cash equivalents                                 |                                                               |                                                | (6,103  | )                |        |      | (30,405  | )      
|Cash and cash equivalents at beginning of period                                     |                                                               |                                                | 10,655  |                  |        |      | 36,294   |        
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Cash and cash equivalents at end of period                                           |                                                               | $                                              | 4,552   |                  |        | $    | 5,889    |        
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Supplemental disclosure of cash flow information                                     |                                                               |                                                |         |                  |        |      |          |        
|Interest paid                                                                        |                                                               | $                                              | 339     |                  |        | $    | 320      |        
|                                                                                     |                                                               |                                                |         |                  |        |      |          |        
|Supplemental disclosure of significant noncash investing
activities                  |                                                               |                                                |         |                  |        |      |          |        
|Other receivable                                                                     |                                                               | $                                              |        |                  |        | $    | 25,955   |        
|Investment in common stock                                                           |                                                               |                                                |        |                  |        |      | 6,984    |        
|Other assets                                                                         |                                                               |                                                |        |                  |        |      | (439     | )      

See accompanying notes.

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CALIPER TECHNOLOGIES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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. 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, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002. 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, 2001
filed by Caliper Technologies Corp.

PRINCIPLES OF CONSOLIDATION

Calipers condensed consolidated financial statements as of June 30, 2002
include the accounts of Caliper Europe GmbH formed on January 22, 2002.
Significant intercompany balances and transactions have been eliminated.

REVENUE RECOGNITION

Revenue is earned
from Calipers collaboration agreement with Agilent, LabChip® High
Throughput Screening Systems, chips and datapoints, Automated Microfluidics
Systems 90, Applications Developer Program, Technology Access Program
agreements, licensing and royalty agreements and government grants.

Collaboration agreement

Revenue from development 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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.

LabChip® High Throughput Screening System, 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. Service revenue is
recognized ratably over the contract service term. Customers are able to
purchase instruments, chips, support services and custom assay solutions
directly from Caliper. In certain cases, they will be charged on a data point pricing basis
for their usage of chips. A data point 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. Caliper offers discounts based on the
volume of products and services purchased. Caliper publishes a catalog of its
commercially available chips and high throughput system products and the prices
for each product configuration. Caliper provides a one-year limited warranty on
the high throughput screening systems and a 90-day warranty on chips for
customers. After the warranty period has expired, customers may purchase annual
maintenance contracts from Caliper that entitles them to continued system
upgrades and operational support. Caliper also provides custom chip design
services to develop new microfluidic applications or expand existing
applications. Caliper has not experienced any instances of return of
instruments, and insignificant instances of return of chips, parts, and other items. Management will continue to analyze
historical returns, current economic trends, and changes in customer demand and
acceptance of Calipers products when evaluating the necessity and or adequacy
in future periods for sales returns and other sales allowances.

Technology access program agreements

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

Product revenue was recognized upon the shipment and transfer of title to
the customer. Subscription fees were recognized ratably over the subscription
period. When payment of the subscription fee was contingent upon reaching a
milestone, revenue was deferred until the milestone was met. Support and
development services revenue were recognized in the periods the costs were
incurred. In December 2001, the last of the agreements with Calipers
Technology Access Program customers was amended and converted into a commercial
agreement. There are no further technology access fees or subscription fees
recognized with products and services purchased by former Technology Access
Program customers after December 2001. Revenue is recognized for all former
Technology Access Program customers upon shipment and transfer of title to the
product to the customer or when the assay development service has been provided
by Caliper. Under the amended agreements with Calipers Technology Access
Program customers, Caliper agreed to convert technology access and subscription
fees still outstanding and available towards the purchase of products and
services that can be utilized by the customer no later than December 2002. As
of June 30, 2002, a total of $158,000 of this revenue was deferred. Caliper
expects to recognize this deferred revenue through the fourth quarter of 2002
as products and services are purchased by Calipers previous Technology Access
Program customers.

Licensing and Royalty

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

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 six months ending June 30, 2002, Caliper
recognized $1.3 million in minimum royalties on Aclara sales of licensed
instruments and LabCards.

Government grants

Calipers grant from the National Institute of Standards and Technology
(NIST) provides for the reimbursement of qualified expenses for research and
development as defined under the terms of the grant agreement. Revenue under
grant agreements is recognized when the related research expenses are incurred.
The NIST grant was a three-year grant that concluded in December 2001.
Caliper recognized a total of $2.0 million under the three-year grant agreement
with $540,000, $750,000, and $710,000 recognized for the years ended December
31, 2001, 2000, and 1999, respectively. For the three and six months
ended June 30, 2001, Caliper recognized NIST grant revenues of
$187,000 and $438,000, respectively.

STOCK-BASED COMPENSATION

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

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

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

|                                                                    |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                    |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                                    |  |                             |        |                          
|                                                                    |  | 2002                        |        | 2001                      |  | 2002 |        | 2001
|                                                                    |  |                             |        |                           |  |      |        |     
|Basic:                                                              |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted-average shares of common stock outstanding                 |  |                             | 24,333 |                           |  |      | 23,960 |      |  |  | 24,287 |   |  |  | 23,907 |  
|Less: weighted-average shares subject to repurchase                 |  |                             |       |                           |  |      | (14    | )    |  |  | (2     | ) |  |  | (16    | )
|                                                                    |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted-average shares used in basic net income (loss) per share   |  |                             | 24,333 |                           |  |      | 23,946 |      |  |  | 24,285 |   |  |  | 23,891 |  
|                                                                    |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|Diluted:                                                            |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted average shares of common stock outstanding                 |  |                             | 24,333 |                           |  |      | 23,960 |      |  |  | 24,287 |   |  |  | 23,907 |  
|Plus: weighted average shares of common stock equivalents           |  |                             |       |                           |  |      |       |      |  |  |       |   |  |  | 1,781  |  
|Less: weighted average shares subject to repurchase                 |  |                             |       |                           |  |      | (14    | )    |  |  | (2     | ) |  |  | (16    | )
|                                                                    |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted average shares used in diluted net income (loss) per share |  |                             | 24,333 |                           |  |      | 23,946 |      |  |  | 24,285 |   |  |  | 25,672 |  
|                                                                    |  |                             |        |                           |  |      |        |      |  |  |        |   |  |  |        |  

NOTE 2  INVENTORIES

Inventories consist of the following (in thousands):

|                |       |   |          |       |              |   |       |       | 
|--------------- | ----- | - | -------- | ----- | ------------ | - | ----- | ----- | 
|                |       |   | June 30, |       | December 31,
|                |       |   | 2002     |       | 2001        
|                |       |   |          |       |             
|Raw material    |       | $ | 3,547    |       |              | $ | 1,952 |      
|Work in process |       |   | 2,838    |       |              |   | 657   |      
|Finished goods  |       |   | 741      |       |              |   | 802   |      
|                |       |   |          |       |              |   |       |      
|                | Total |   | $        | 7,126 |              |   | $     | 3,411 | 
|                |       |   |          |       |              |   |       |      

NOTE 3  COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss) for the three and six months
ended June 30, 2002 and 2001 are as follows (in thousands):

|                                     |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |        | 
|------------------------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | 
|                                     |  | Three Months Ended |         | Six Months Ended
|                                     |  | June 30,           |         | June 30,        
|                                     |  |                    |         |                 
|                                     |  | 2002               |         | 2001             |  | 2002 |        | 2001
|                                     |  |                    |         |                  |  |      |        |     
|Net income (loss)                    |  | $                  | (11,368 | )                |  | $    | (6,195 | )    |  | $ | (21,054 | ) |  | $ | 20,209 | 
|Unrealized gain (loss) on securities |  |                    | 440     |                  |  |      | (464   | )    |  |   | (1,180  | ) |  |   | 433    | 
|                                     |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |        | 
|Comprehensive income (loss)          |  | $                  | (10,928 | )                |  | $    | (6,659 | )    |  | $ | (22,234 | ) |  | $ | 20,642 | 
|                                     |  |                    |         |                  |  |      |        |      |  |   |         |   |  |   |        | 

NOTE 4  RELATED PARTY

For the quarter ended June 30, 2002, Caliper reported $2.4 million in
related party sales of Caliper 250 HTS system products,
LabChips, datapoints and assay development services to Amphora
Discovery Corp. Of the $2.4
million in total sales, $1.5 million related to high throughput screening
system products, of which Caliper deferred 28% of the gross profit, or
$139,000, which reflects Calipers retained ownership interest in the products
sold to Amphora. Since commencement of high throughput screening system
product sales to Amphora in September 2001, Caliper has deferred $600,000 of
the gross profits on these sales. Caliper recognized $21,000 of this deferred
gross profit in 2001 and $69,000 for the six months ended June 30, 2002. The
remaining $510,000 will be recognized as revenue ratably over the next 36
months as Amphora records depreciation on its Caliper 250 HTS systems.

In September 2001, Caliper entered into a LabChip Solutions Agreement that
provided for the ongoing supply of its high throughput screening systems and
chips to Amphora, and for the provision of related services by Caliper to
Amphora. Under this agreement, Amphora agreed to purchase a minimum of eleven
Caliper instruments by December 31, 2001 and at least eleven additional Caliper
HTS instruments in 2002. Amphora has also agreed to purchase datapoints at a
fixed amount of $2 million in the

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first year of the agreement which concludes in September 2002 and a
minimum of $4 million to a maximum based on volume of $6 million in the second
year of the agreement which begins in October 2002.

NOTE 5  LITIGATION

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

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

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

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

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. Based on information currently available to Caliper, Caliper believes that the
claims alleged against Caliper and its officers and directors are without
merit. Caliper intends to defend this case vigorously.

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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 Molecule Devices
IMAP products 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 and an amended answer on June 6,
2002, asserting a counterclaim seeking a
declaratory judgment that the patent is not infringed and is invalid. Caliper
believes the counterclaim to be without merit and filed its answer on
June 7, 2002. The litigation is still at an
early stage, and no trial date has yet been set by the court.

NOTE 6  RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations and No. 142, Goodwill and Other Intangible
Assets. The statements eliminate the pooling-of-interests method of
accounting for business combinations and require that goodwill and certain
intangible assets not be amortized. Instead, these assets will be reviewed for
impairment annually with any related losses recognized in earnings when
incurred. The statements were effective for Caliper as of January 1, 2002 for
any existing goodwill and intangible assets and for business combinations
initiated after June 30, 2001. Caliper has not recorded goodwill and other
intangibles or entered into any business combinations as of June 30, 2002.

In July 2001, the FASB also issued SFAS No. 143, Accounting for Asset
Retirement Obligations and in August 2001, issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 143 establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and is effective for financial statements issued for years beginning
after June 15, 2002. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets, superseding SFAS No. 121
and was effective for Caliper January 1, 2002. The adoption of FASB No. 144 did
not have a material impact on Calipers financial position or results of
operations.

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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, 2002 and for the three and six month
periods ended June 30, 2002 and June 30, 2001 should be read in conjunction
with Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2001.

The discussion in this report contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. 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 entire laboratories full of equipment and people. 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, and first-generation products
such as the Agilent 2100 Bioanalyzer, LabChip kits and our high throughput
screening systems, recruiting personnel, business development, raising capital
and acquiring assets. During this period our revenues were principally from
contract services and, to a lesser extent, from product sales. In September
2001, we initiated a new commercial program for selling our high throughput
screening (HTS) products. This program replaced our fee-based Technology Access
Program with direct sales of instruments, chips, services and custom solutions
to customers based upon a product catalog and established price list. We also
introduced a new instrument platform, the Caliper 250 HTS system, which
includes instruments for assay development and screening, and a menu of chips
that perform standard assays.

Since our inception, we have incurred significant losses and, as of June
30, 2002, we had an accumulated deficit of $65.7 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, 2002, largely due to sales of high
throughput screening systems to Amphora Discovery Corp., a corporation that is
approximately 28% owned by Caliper, a larger portion of our total revenues,
about 62%, was derived from product sales as compared to only about 35% in the
similar quarter last year.

To date we have generated a substantial portion of our revenue from a
limited number of sources. In the second quarter of 2002, Amphora alone
accounted for 34% our total revenue and 46% of our product revenue, and Agilent
Technologies alone accounted for 37% of our total revenue and 33% of our
product revenue. For the six months ending June 30, 2002, Amphora alone
accounted for 23% our total revenue and 38% of our product revenue, and Agilent
alone accounted for 26% of our total revenue and 29% of our product revenue.
During the six months ended June 30, 2001, our licensing of the Ramsey family
of patents to Aclara accounted for 33% of our total revenue, Agilent alone
accounted for 32% of our total revenue and our Technology Access Program
customers collectively accounted for 24% of our revenue. There were no related
party sales during the six months ended June 30, 2001. Although we are seeking
to expand our customer base, we cannot assure you that these efforts will be
successful. Additionally, we anticipate Amphora will purchase the four
remaining Caliper HTS instruments required under the LabChip Solutions
Agreement by September 30, 2002 based on purchase orders already received. Amphora has no further obligation
to purchase instruments from us following these four instruments. In
addition, certain Technology Access Program partners have remaining
purchase obligations that we anticipate will be met over the next
several months. Once such obligations have been met, there can be no
assurance that these partners will continue to buy Caliper products
or services at historical levels, or at all.

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

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development expense. We recognize revenue related to the reimbursement of
costs for the supply of chips and reagents to Agilent upon shipment. We
recognize as revenue our share of gross margin on components of the LabChip
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 increased 57% in the second quarter of 2002 as
compared to the same period last year and 158% during the course of 2001 as
compared to 2000 indicating, we believe, a growing market acceptance of this
technology.

In May 2002, we notified Agilent of our election to terminate the agreement between the companies,
effective as of May 2003. We are currently engaged in negotiations with
Agilent regarding the terms of an ongoing relationship between the parties
beyond May 2003. If we do not enter into a new agreement before that time,
then under the existing agreement the parties relationship would change,
including as follows: we will cease to receive development funding for new
products; we will grant Agilent a non-exclusive license to use the
lab-on-a-chip technologies that we have developed up to that time in order to
develop new products in substantially the same field that applied during the
collaboration; we will also transfer chip manufacturing know-how and receive
royalties on Agilents sales of systems that employ our patented technologies;
and beginning in November 2003, both Caliper and Agilent will have the right to
sell collaboration products, with reciprocal supply arrangements.

In July 2002, due to the broader economic slowdown and reduced research
and development spending by biopharmaceutical companies that we now believe is
affecting Calipers sales to customers, Caliper began a detailed strategic
review in which we are evaluating each of our products and programs for
commercial opportunity, time to market and resource requirements.
This review will serve as the basis of our 2003 budget planning
process, and may be utilized to allocate resources within Caliper in the remaining
months of 2002.

Results of Operations

Three and Six Months Ended June 30, 2002 and 2001

Revenue. Total revenue was $7.2 million and $14.3 million for the three
and six months ended June 30, 2002, respectively, compared to $5.3 million and
$15.1 million for the three and six months ended June 30, 2001. The major
component of the $1.9 million increase in the second quarter ended June 30,
2002 compared to the same period in 2001 was $2.4 million in sales of our high
throughput screening systems and services to a related party, Amphora Discovery
Corp., in the second quarter of 2002 for which there were no comparable
revenues in the second quarter of 2001. This amount, plus increased sales of
$605,000 under our commercial collaboration with Agilent and $625,000 in
licensing fees received in the second quarter of 2002 for which no comparable
fees were received in the second quarter of 2001, were offset in part by a
decrease in contract revenue resulting from our conversion from a fee-based
technology access program model to a commercial high throughput screening
products business. For the six months ended June 30, 2002, total revenues
decreased by $803,000 as compared to the similar six month period last year
principally from anticipated declines in contract revenues from our former
Technology Access Program customers in the amount of $3.2 million and the
initial $5.0 million in licensing fees that was part of a litigation settlement
with Aclara BioSciences included in last years first quarter total revenues,
offset by increases in product sales to commercial customers, Amphora Discovery
Corp. and from our collaboration with Agilent.

Total product sales were $4.5 million and $9.0 million for the three and
six months ended June 30, 2002, respectively compared to $1.8 million and $3.2
million for the same three and six month period ended June 30, 2001. Related
party sales, all to Amphora Discovery Corp., were $2.4 million and $4.1 million
for the three and six months ended June 30, 2002, respectively, resulting
primarily from sales of the Caliper 250 HTS system instrument, chips,
datapoints and, to a lesser extent, contract assay development services. There
were no related party revenues for the corresponding periods of 2001. Product
revenue from unrelated customers was $2.4 million and $5.6 million for the
three and six months ended June 30, 2002, respectively, compared to $1.8
million and $3.2 million in the same periods in 2001. The increase of $600,000
in second quarter product revenues over the same period last year was primarily
driven by a 68% product volume growth under our commercial collaboration with
Agilent, with product sales to our other commercial customers relatively
unchanged. The increase of $2.4 million in product revenues from unrelated
customers for the first six months of 2002 over the similar period last year
was driven by a 54% product volume growth under our collaboration
with Agilent, and a $1.5 million increase in product sales to our other commercial
customers. Datapoint revenues were approximately 13% of total product
revenues, the significant majority coming from Amphora Discovery Corp., for both the three and six
months ended June 30, 2002 with no corresponding revenues in the same periods
last year.

License fees and contract revenues decreased to $2.4 million and $4.5
million for the three and six months ended June 30, 2002, respectively,
compared to $3.4 million and $11.9 million for the same periods in 2001 due to
the anticipated declines in our Technology Access Program contract revenue and
licensing fees. As a result of our conversion from a fee-based technology
access program model to a commercial high throughput screening products
business, Technology Access Program contract revenues declined $1.7 million in
the second quarter of 2002 and $3.2 for the first six months of 2002 as
compared to the same periods of 2001. Licensing fees were $625,000 in the
second quarter of 2002 as compared to no similar revenues in the same period
last year. For the six months ending June 30, 2002, licensing fees were $1.3
million as compared to $5.0 million in the same six-month period last year.

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All licensing fees are from the licensing of the Ramsey family of patents to
Aclara with the initial licensing fee of $5.0 million occurring in the first
quarter of 2001 and $1.3 million from the minimum royalties on Aclara sales of
licensed instruments and LabCards for the first six months of 2002.

Cost of Product Revenues.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 was $1.4 million and $1.8 million for
the related party sales to Amphora Discovery Corp. for the three and six months
ended June 30, 2002, respectively. Profit margins were impacted during the
second quarter of 2002 from the added volume discounts earned by Amphora due to
their higher instrument purchases in the period. The profit margins on product
sales to Amphora will vary due to the volume of products purchased and the
corresponding commercial volume discounts earned. Cost of all other products
sold was $1.9 million and $4.0 million for the three and six months ended June
30, 2002, respectively, compared to $986,000 and $2.0 million in the same
periods of 2001. During the quarter ended June 30 2002, due to inconsistent
performance, we replaced at our cost a major component in the Caliper 250 HTS
systems previously sold to customers as required under our product warranty
provisions. This component replacement increased our cost of product
revenue by approximately $565,000 during the quarter, of which
$273,000 was for replacements on Amphora owned 250 HTS systems, $211,000
for replacements on 250 HTS systems owned by our other unrelated
customers and the remainder for replacements of 250 HTS systems on hand.
Although warranty costs are common in our business and affect our profit
margins quarterly, we do not anticipate major component replacements such as
those that occurred in the second quarter to continue in the future. Also,
product mix will affect future profit margins as we earn a higher return from
our own products sold as opposed to sharing gross margin revenues on
collaboration products with Agilent Technologies.

Research and Development Expenses.Research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for chip development, material costs
for prototype and test units, legal expenses resulting from intellectual
property prosecution, and 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 were
$11.5 million and $22.5 million for the three and six months ended June 30,
2002, respectively, compared to $9.5 million and $18.4 million for the same
periods of 2001. The increase of $2.0 million during the three months ended
June 30, 2002 compared to the same period in 2001 was primarily attributable to
continued growth of research and development activities, including $1.4 million
related to increased personnel and services to support our expanded next
generation high throughput system and microfluidic chip development, partner
collaboration and initial product launches and $371,000 due to expansion in
research facilities and activities. The increase of $4.1 million during the six
months ended June 30, 2002 compared to the same period in 2001 resulted from
$3.2 million related to increased personnel and services to support our
expanded next generation high throughput system and microfluidic chip
development, partner collaboration and initial product launches as a result of
a 38% increase in headcount from June 30, 2001, and the remaining increase is
due to expansion in research facilities and activities including supplies
required for testing and building prototypes.

Our research and development focus has been on product development in the
areas of new applications, microfluidic instruments with expanded capabilities,
our LibraryCard system and high throughput genomic systems. We intend to
continue developing a broader range of applications for our LabChip
technology. We 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 risks of being successful are significant and we
may not even be able to develop the necessary technology to achieve the
advancements we currently envision. We expect research and development spending
to continue to increase over the next several years as we expand our research
and product development efforts although at a lesser rate than our revenue
growth rate.

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 were $4.8 million and $9.5 million for the
three and six months ended June 30, 2002, respectively, compared to $3.2
million and $6.4 million for the same periods of 2001. The increase of $1.6
million during the three months ended June 30, 2002 compared to the same period
in 2001 resulted from $721,000 in expanded product promotion, sales force
detailing and marketing research efforts, $447,000 related to compensation
primarily for increased sales force personnel, and the remaining balance due to
overall expansion in our operations and facilities. The increase of $3.1
million during the six months ended June 30, 2002 compared to the same period
in 2001 resulted from $1.2 million in expanded product promotion, sales force
detailing and marketing

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research efforts, $475,000 in compensation again primarily related to
increased sales force personnel which was the primary driver of a 36% increase
in selling and administrative headcount from June 30, 2001, $614,000 for legal
fees related to expanded patent registration and commercial initiatives and the
remaining balance due to overall expansion in our operations and facilities. We
expect selling and administrative expenses to continue to increase over the
next several years to support our growing business activities and the
commercialization of our products.

Amortization of Deferred Stock Compensation.Deferred stock compensation
represents the difference between the deemed fair value of our common stock for
accounting purposes and the exercise price of options at the date of grant.
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 $386,000 and $832,000, respectively,
for the three and six months ended June 30, 2002, compared to $672,000 and $1.4
million for the same periods of 2001. We expect to record amortization expense
for deferred compensation as follows: $608,000 for the remainder of 2002,
$670,000 during 2003 and $122,000 during 2004. The amount of deferred
compensation expense to be recorded in future periods may decrease if unvested
options for which deferred compensation has been recorded are subsequently
canceled.

Interest Income, Net.Interest income, net consists of income from our
cash and investments offset by expenses related to our financing obligations.
Interest income, net was $1.4 million and $3.4 million for the three and six
months ended June 30, 2002, respectively, compared to $2.9 million and $5.8
million for the same periods of 2001. The decrease primarily resulted from a
lower cash, cash equivalents and marketable securities balances during the
second quarter of 2002 as compared to the same period in 2001 and, to a lesser
extent, the declining interest rate yields in the first six months of 2002 as
compared to last year.

Gain on Settlement of Litigation.The litigation settlement was $27.5
million for the six months ended June 30, 2001, resulting from the
comprehensive settlement agreement with Aclara for the dismissal of all suits
and countersuits between the two companies, which occurred in January 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and marketable securities were $137.7 million
at June 30, 2002 compared to $166.2 million at December 31, 2001. We used cash
of $24.2 million for operations for the six-month period ended June 30, 2002 as
compared to $13.2 million for the comparable period in 2001. 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
$3.2 million in a market rate account at June 30, 2002 pledged for facilities
deposits compared to $3.0 million at June 30, 2001.

As of June 30, 2002, we have a committed capital resource of $32.5 million
as a result of a litigation settlement. As a component of the settlement
agreement, Aclara has effectively guaranteed the value of the Aclara common
stock to be $32.5 million at the time of our sale of the stock, provided that
the sale occurs in the period from 18 months to 24 months from the effective
date of the settlement agreement. Aclara has entered into a fully-funded $32.5
million standby letter of credit in favor of us to secure its performance under
this potential obligation.

Net cash provided by investing activities was $17.0 million for the six
months ended June 30, 2002 as compared to net cash used in investing activities
of $18.8 million for the comparable period in 2001. Net cash provided by (used
in) investing consists primarily of purchases of marketable securities as well
as capital expenditures offset by proceeds from sales and maturities of
marketable securities.

Net cash provided by financing activities was $1.1 million for the six
months ended June 30, 2002 as compared to $1.6 million for the comparable
period in 2001. Net proceeds from financing activities for the six months
ended June 30, 2002 consisted of $822,000 from equipment financing and $1.4
million primarily from the employee stock purchase plan and employee stock
option exercises, offset by repayments of equipment financing arrangements of
$1.1 million. Net proceeds from financing activities for the six months

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ended June 30, 2001 consisted of $1.3 million from equipment financing and
$1.5 million from the employee stock purchase plan and employee stock option
exercises, offset by repayments of equipment financing arrangements of $1.1
million.

Our capital requirements depend on numerous factors including market
acceptance of our products, the resources we devote to developing and
supporting our products, and other factors. We expect to devote substantial
capital resources to continue our research and development efforts, to expand
our support and product development activities, and for other general corporate
activities. We also have commitments to Amphora, a related party, to produce
and deliver eleven high throughput systems in 2002, which we anticipate to be
completed in September 2002. Based on our long term strategic plan, we believe
that our current cash balances, together with the revenue to be derived from
our collaboration with Agilent and the commercial sales of our microfluidic
products and services will be sufficient to fund our operations at least
through the year 2003. Actual capital expenditures could vary considerably,
however, depending on opportunities that arise over the course of the 2002 and
2003 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. Additional financing may not be
available on terms acceptable to us or at all. The sale of additional equity or
convertible debt securities may result in additional dilution to our
stockholders or force delays in research and product development activities.

FACTORS AFFECTING OPERATING RESULTS

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

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



| |  |  | our ability to demonstrate the advantages and potential economic
value of our LabChip systems over alternative well-established
technologies and products
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to market our high throughput systems                                                                                                        
|
| |  |  | the extent of Agilents efforts to market the Agilent 2100 Bioanalyzer                                                                                   

Because the products comprising our LabChip and HTS systems have been in operation
for a limited period of time, their accuracy, reliability, ease of use and
commercial value have not been fully established. If the initial Agilent 2100
Bioanalyzer customers or our high throughput system customers do not approve of
our initial LabChip and HTS systems because these systems fail to generate the
quantities and quality of data they expect, are too difficult or costly to use,
or are otherwise deficient, market acceptance of these LabChip and HTS systems would
suffer and further sales may be limited. We cannot assure you that these
customers efforts to put our LabChip and HTS systems into use will continue or will be
expeditious or effective. Potential customers for our high throughput systems
may also wait for indications from our initial high throughput system customers
that our high throughput systems work effectively and generate substantial
benefits. Further, non-acceptance by the market of our initial LabChip and HTS systems
could undermine not only those systems but subsequent LabChip and HTS systems as well.

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

We intend to develop LabChip and HTS systems with increasingly high throughput
capabilities and develop a broad range of applications for our LabChip
technology. If we are unable to do so, our LabChip and HTS 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.

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We must continue to develop applications for our high throughput
systems.We currently have several assays in development, including a
lipid-modulating assay, an enabling assay to screen targets that cannot be done
in an HTS lab today; an on-chip eletrophoretic assay that should further reduce
reagent usage for targets such as kinases; a twelve sipper chip which
should increase throughput of the off-chip electrophoresis assay; and a calcium flux assay for
G-protein coupled receptors (GPCRs), which will be our first cell-based assay.
In addition to these assays in late-stage development, we are creating a
cell-based ion channel assay. If we are not able to complete the development of
these applications, or if we experience difficulties or delays, we may lose our
current customers and may not be able to obtain new customers.

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

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

Other than in 2001, we have experienced significant operating losses each
year since our inception and expect to incur substantial additional operating
losses for at least the next two years, primarily as a result of expected
increases in expenses for manufacturing capabilities, research and product
development costs and general and administrative costs. We may not achieve
profitability in future years. For example, we experienced net losses of
approximately $3.0 million in 1998, $14.4 million in 1999 and $13.3 million in
2000 with only a profit of $3.8 million earned in 2001. Without our litigation
settlement and reimbursement of $27.5 million in 2001, we would have also had a
net loss in 2001. In the first six months of 2002, we have experienced a loss
of $21.1 million. As of June 30, 2002, we had an accumulated deficit of
approximately $65.7 million. Our losses have resulted principally from costs
incurred in research and development and from general and administrative costs
associated with our operations. These costs have exceeded our litigation
settlement and reimbursement, interest income and revenue which, to date, have
been generated principally from collaborative research and development
agreements, technology access fees, cash and investment balances and, to a
lesser extent, product sales and government grants.

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

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

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

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

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

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

Amphora, which is independently managed and funded, has a
significant on-going relationship with Caliper. Caliper currently has a 28% ownership interest
in Amphora and has the right to appoint two representatives to its
board. Amphora is currently Calipers largest HTS customer. As a development stage company, there can be
no assurances that Amphora will become commercially successful or that over time its business strategy will
not change. If Amphora stops using Calipers HTS systems, we could experience a significant decline in revenues.

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.

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Third parties may assert infringement or other intellectual property
claims against us, such as the Aclara litigation that was settled and is
described under Note 5 of Part I  Item 1. Financial Statements. We may have
to pay substantial damages, including treble damages, for past infringement if
it is ultimately determined that our products infringe a third partys
proprietary rights. Further, we may be prohibited from selling our products
before we obtain a license, which, if available at all, may require us to pay
substantial royalties. Even if these claims are without merit, defending a
lawsuit takes significant time, may be expensive and may divert management
attention from other business concerns. We are aware of third-party patents
that may relate to our technology or potential products. We have also been
notified that third parties have attempted to provoke an interference with one
issued U.S. patent that we have exclusively licensed to determine the priority
of inventions. Any public announcements related to litigation or interference
proceedings initiated or threatened against us could cause our stock price to
decline. We 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. If we are found to be
infringing any valid patent claims asserted by Aclara in alternative dispute
resolution proceedings, 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.

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

We rely on patents to protect a large part of our intellectual property
and our competitive position. In order to protect or enforce our patent rights,
we may initiate patent litigation against third parties, such as the patent
infringement suit against Aclara that was settled, and our recent patent
infringement suit against Molecular Devices Corporation, that are described
under Note 5 of Part I  Item 1. Financial Statements. These lawsuits could
be expensive, take significant time, and could divert managements attention
from other business concerns. They would put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at risk of not
issuing. We may also provoke these third parties to assert claims against us.
Patent law relating to the scope of claims in the technology fields in which we
operate is still evolving and, consequently, patent positions in our industry
are generally uncertain. We cannot assure you that we will prevail in any of
these suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these results to be negative, it could cause our stock to decline.

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

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

We rely heavily on Agilent to manufacture, market and distribute the Agilent
2100 Bioanalyzer. If Agilent fails to perform under our agreement or
successfully commercialize our collaborative products, our revenue from the
Agilent 2100 Bioanalyzer may not be material and we may lose the development
funding we currently receive from Agilent.

Agilent manufactures, markets and distributes the Agilent 2100 Bioanalyzer
under an agreement we entered into in May 1998. We also rely on Agilent for
significant financial and technical contributions in the development of
products covered by the agreement. Our ability to develop, manufacture and
market these products successfully depends significantly on Agilents
performance under this agreement. Sales of new and innovative instrumentation
such as the Agilent 2100 Bioanalyzer involve a long sales cycle, requiring
customer training and demonstration periods. Although sales of the Agilent 2100
Bioanalyzer increased in 2001, 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, or does not otherwise perform under this agreement, our revenue
from the Agilent 2100 Bioanalyzer may not be material. In addition, we have
notified Agilent of our election to terminate

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the agreement between the companies as of May 2003, and Agilent may
terminate the agreement at their discretion at any time. If we do not
negotiate a new agreement with Agilent and the collaboration terminates in May
2003 as provided under the current agreement, we would 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.

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

Under the terms of our agreement with Agilent, if they, or we, terminate
our agreement after May 2003, we will grant to Agilent a non-exclusive license
to our LabChip technologies as then developed for use in the research products
field. Consequently, there is the possibility that we may experience
competition from Agilent after May 2003, which would reduce our ability to sell
products independently or through other commercial partners. We notified
Agilent in May 2002 of our election to terminate the agreement between the companies as of May 2003. This will
trigger the license grant described above and the attendant risks of
competition unless we negotiate a different agreement with Agilent in the
interim.

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

Although Agilent manufactures the Agilent 2100 Bioanalyzer, we manufacture
the chips used in this instrument and also currently manufacture instruments
and sipper chips for our high throughput systems. We currently have limited
manufacturing capacity for our LabChip and HTS system products and experience
variability in manufacturing yields for chips and high throughput
screening products. If we fail to deliver chips and
high throughput screening products in a timely manner, our relationships with
our customers could be seriously harmed, and revenue would decline. We
currently have one manufacturing location in Mountain View, California. The
actual number of chips we are able to sell or use depends in part upon the
manufacturing yields for these chips. We have only recently begun to
manufacture significant numbers of sipper chips and are continuing to develop
our manufacturing procedures for these chips. In order to offer sipper chips
with more than four capillaries for high throughput 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 high throughput instruments in-house
and in limited volumes. If demand for our high throughput instruments
significantly increases, we will either need to expand our in-house manufacturing
capabilities or outsource to Agilent or 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. If our exclusive collaboration with Agilent terminates
in May 2003 pursuant to the notice we have delivered to Agilent, then Agilent
will have the option to manufacture chips itself rather than continue to
receive its supply of chips from Caliper. We are currently engaged in
negotiations with Agilent on this and other topics, but until such an agreement
is reached or we learn Agilents intentions regarding chip manufacture, we will
face uncertainty regarding future demand for these chips from our manufacturing
operations.

We are dependent on a sole-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 sole-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.

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

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

Historically we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue and, if we were
to lose any one of these, our revenue would decrease substantially. For the six
months ended June 30, 2002, Agilent, Amphora and one commercial customer
accounted for 72% of our total revenue. Agilent, our Technology Access Program
customers, Amphora and our initial licensing of the Ramsey family of patents to
Aclara in connection with our litigation settlement with them, accounted for
93% of our total revenue for the year ended December 31, 2001. Agilent and
three customers accounted for 90% of total revenue for the year ended December
31, 2000. Agilent and four customers accounted for 88% of total revenue in
1999. We have notified Agilent of our election to terminate the agreement between the companies as of May 2003. If
we do not negotiate a new agreement with Agilent and the collaboration
terminates in May 2003 as provided under the current agreement, we would 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 if Agilent stops purchasing chips from Caliper or
reduces its efforts to commercialize collaboration products.

We have reached the final contract year for some of our Technology Access Program agreements.

The third and final year of our Technology Access Program agreement with
Amgen began on January 1, 2001 and was amended for a fourth year in December
2001. In addition, the third and final year of our Technology Access Program
agreement with Eli Lilly ended on August 12, 2002. Caliper is currently
negotiating with Eli Lilly regarding the possibility of extending the amount of
time during which Eli Lilly may use the remaining amounts under the agreement
to purchase our HTS products or assay development services. Although we believe
that these customers will continue to use LabChip products and services, we may
not be able to derive significant revenue from them in the future.

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 2003. However,
we premise this expectation on our current operating plan, which may change as
a result of many factors. Consequently, we may need additional funding sooner
than anticipated. Our inability to raise capital would seriously harm our
business and product development efforts. In addition, we may choose to raise
additional capital due to market conditions or strategic considerations even if
we believe we have sufficient funds for our current or future operating plans.
To the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities could result in
dilution to our stockholders.

We currently have no credit facility or committed sources of capital other
than an equipment lease line with $980,000 unused and available as of June 30,
2002. To the extent operating and capital resources are insufficient to meet
future requirements, we will have to raise additional funds to continue the
development and commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are not available on
attractive terms, we may be required to curtail operations significantly or to
obtain funds by entering into financing, supply or collaboration agreements on
unattractive terms.

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

We are highly dependent on the principal members of our management and
scientific staff. The loss of services of any of these persons could seriously
harm our product development and commercialization efforts. In addition,
research, product development and commercialization will require additional
skilled personnel in areas such as chemistry and biology, software engineering
and electronic engineering. Our business is located in Silicon Valley,
California, where demand for personnel with these skills is extremely high and
is likely to remain high. 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.

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

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



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

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

Risks Related to Owning Our Common Stock

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

Our stock has been trading on the Nasdaq National Market only since
mid-December 1999. We initially offered our common stock to the public at
$16.00 per share. Since then our stock price has been extremely volatile and
has ranged, through August 10, 2002, from a high of approximately $202.00 per
share on March 2, 2000 to a low of $3.64 per share on August 5, 2002. Our stock
price may drop substantially following an investment in our common stock. We
expect that our stock price will remain volatile as a result of a number of
factors, including:



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

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 Note 5 of Part I
 Item 1. Financial Statements. This and other securities litigation could
result in potential liability, cause us to incur litigation costs and divert
managements attention and resources, any of which could harm our business. In
addition, announcements of future lawsuits of this or some other nature, and
announcements of events occurring during the course of the current and any
future lawsuits, could cause our stock price to drop.

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

Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are

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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

There have been no material changes to the quantitative and qualitative
disclosures on market risk from the Annual Report on Form 10-K for the year
ended December 31, 2001 filed by Caliper Technologies Corp.




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. Based on information currently available to Caliper, Caliper believes that the
claims alleged against Caliper and its officers and directors are without
merit. Caliper intends to defend this case vigorously

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 Molecule Devices
IMAP  products 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 and an amended answer on June 6,
2002 asserting a counterclaim seeking a
declaratory judgment that the patent is not infringed and is invalid. Caliper
believes the counterclaim to be without merit and filed its answer on
June 7, 2002. The litigation is still at an
early stage, and no trial date has yet been set by the court.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.




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

Our Annual Meeting of Stockholders was held on June 12, 2002. Proxies for
the meeting were solicited pursuant to Regulation 14A. At the meeting,
managements nominees for directors were submitted to our stockholders for
election, and a proposal to ratify the amendment to the 1999 Non-Employee
Directors Stock Option Plan and a proposal to ratify the selection of Ernst &
Young LLP as independent auditors of Caliper for its fiscal year ending
December 31, 2002 were submitted to our stockholders for approval.

Managements nominees for director, Daniel L. Kisner, M.D., and Regis P.
McKenna were elected by the following vote:

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|                       |  |                  |            |  |  |          |  |  |            |  |  | 
|---------------------- |  | ---------------- | ---------- |  |  | -------- |  |  | ---------- |  |  | 
|Daniel L. Kisner, M.D. |  | Regis P. McKenna
|For:                   |  |                  | 17,068,760 |  |  | For:     |  |  | 17,566,605 | 
|Withhold:              |  |                  | 878,974    |  |  | Withhold |  |  | 381,129    | 

Anthony B. Evnin, Ph.D, Robert C. Bishop, Ph.D., David V. Milligan, Ph.D., and
Robert T. Nelsen also continued to serve as directors after the annual meeting.
Anthony B. Evnin, Ph.D , and Robert T. Nelsen will continue to serve as
directors until the Annual Meeting of Stockholders to be held in 2003. Robert
C. Bishop, Ph.D., and David V. Milligan, Ph.D., will continue to serve as
directors until the Annual Meeting of Stockholders to be held in 2004. Daniel
L. Kisner, M.D., and Regis P. McKenna will continue to serve as directors until
the Annual Meeting of Stockholders to be held in 2005

The proposal to ratify the amendment to the 1999 Non-Employee Directors Stock
Option Plan to increase the number of shares for annual grants to our
non-employee directors was approved by the following vote:

|         |  |  |            | 
|-------- |  |  | ---------- | 
|For:     |  |  | 16,139,201 | 
|Against: |  |  | 1,733,326  | 
|Abstain: |  |  | 75,207     | 

The proposal to ratify the selection of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2002 was approved by the
following vote:

|         |  |  |            | 
|-------- |  |  | ---------- | 
|For:     |  |  | 17,773,308 | 
|Against: |  |  | 127,148    | 
|Abstain: |  |  | 47,278     | 




ITEM 5. OTHER INFORMATION

In July 2002, Dr. Michael R. Knapp, formerly our Vice President of Corporate
Development, became our Chief Executive Officer, replacing Dr. Daniel Kisner in
this capacity. Mr. James L. Knighton, our Chief Financial Officer, also became
our President and Chief Operating Officer. Dr. Daniel Kisner became our
Chairman of the Board, replacing Dr. David Milligan in this capacity, and Dr.
Milligan became our Vice Chairman of the Board.

We expect that, following a period of several months of Dr. Knapp and Mr.
Knighton serving in their new capacities, our Board of Directors will elect
each of Dr. Knapp and Mr. Knighton as members of the Board.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



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

|        |  |                                                                                  
|------- |  | ---------------------------------------------------------------------------------
|Exhibit |  |                                                                                  
|Number  |  | Description of document                                                          
|        |  |                                                                                  
|3.1(1)  |  | Amended and Restated Certificate of Incorporation of Caliper.                    
|3.2(2)  |  | Bylaws of Caliper.                                                               
|4.1     |  | Reference is made to Exhibits 3.1 and 3.2.                                       
|4.2(3)  |  | Specimen Stock Certificate.                                                      
|10.45   |  | Offer Letter, dated April 24, 2002, between Caliper and Bruce E. MacMillan       
|10.46   |  | Key Employee Agreement, dated July 1, 2002, between Caliper and Michael R. Knapp 
|10.47   |  | Key Employee Agreement, dated July 1, 2002, between Caliper and James L. Knighton
|99.1    |  | Certificate of Chief Executive Officer and Chief Financial Officer               



---

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

21



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##### Table of Contents



|(2) |  | Previously filed as Exhibit 3.4 to our Registration Statement on Form
S-1, Registration No. 333-88827.              
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(3) |  | Previously filed as the like-numbered Exhibit to our Registration
Statement on Form S-1, Registration No. 333-88827.
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K                                                                                                 
|   
|   
|   
|   
|    |  | We did not file a Current Report on Form 8-K during the quarter ended June 30, 2002.                                

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##### Table of Contents






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, 2002 | By:                                                                              | /s/ JAMES L. KNIGHTON
|                |                                                                                 
|                | James L. Knighton
President, Chief Operating Officer
and Chief Financial Officer

| |                                                                              |                           
| | ---------------------------------------------------------------------------- | --------------------------
| | By:                                                                          | /s/ ANTHONY T. HENDRICKSON
| |                                                                             
| | Anthony T. Hendrickson
Corporate Controller and
Principal Accounting Officer

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##### Table of Contents






EXHIBIT INDEX

|       |  |                                                                                  
|------ |  | ---------------------------------------------------------------------------------
|3.1(1) |  | Amended and Restated Certificate of Incorporation of Caliper.                    
|3.2(2) |  | Bylaws of Caliper.                                                               
|4.1    |  | Reference is made to Exhibits 3.1 and 3.2.                                       
|4.2(3) |  | Specimen Stock Certificate.                                                      
|10.45  |  | Offer Letter, dated April 24, 2002, between Caliper and Bruce E. MacMillan       
|10.46  |  | Key Employee Agreement, dated July 1, 2002, between Caliper and Michael R. Knapp 
|10.47  |  | Key Employee Agreement, dated July 1, 2002, between Caliper and James L. Knighton
|99.1   |  | Certificate of Chief Executive Officer and Chief Financial Officer               



---

|(1) |  | Previously filed as Exhibit 3.3 to our Registration Statement on Form S-1, Registration No. 333-88827.              
|--- |  | --------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1, Registration No. 333-88827.              
|   
|   
|   
|   
|(3) |  | Previously filed as the like-numbered Exhibit to our Registration Statement on Form S-1, Registration No. 333-88827.

24