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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 September 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 NOVEMBER 6, 2002:   24,490,744





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION  
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.48                
|EXHIBIT 10.49                
|EXHIBIT 99.1                 



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CALIPER TECHNOLOGIES CORP.
TABLE OF CONTENTS

|           |  |         |  |                                                                                       |  |                                                                                                                    |  |     
|---------- |  | ------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |         |  |                                                                                       |  |                                                                                                                    |  | Page
|           |  |         |  |                                                                                       |  |                                                                                                                    |  |     
|PART I     |  |         |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                   
|           |  | Item 1. |  | Financial Statements (unaudited)                                                      |  |                                                                                                                   
|           |  |         |  |                                                                                       |  | Condensed Consolidated Balance Sheets as of September 30, 2002
and December 31, 2001                               |  | 2   
|           |  |         |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended    September 30, 2002 and 2001 |  | 3   
|           |  |         |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended    September 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 |  | 11                                                                                                                
|           |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22                                                                                                                
|           |  | Item 4. |  | Controls and Procedures                                                               |  | 22                                                                                                                
|PART II    |  |         |  | OTHER INFORMATION                                                                     |  |                                                                                                                   
|           |  | Item 1. |  | Legal Proceedings                                                                     |  | 22                                                                                                                
|           |  | Item 2. |  | Changes in Securities and Use of Proceeds                                             |  | 23                                                                                                                
|           |  | Item 3. |  | Defaults upon Senior Securities                                                       |  | 23                                                                                                                
|           |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                   |  | 23                                                                                                                
|           |  | Item 5. |  | Other Information                                                                     |  | 23                                                                                                                
|           |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 24                                                                                                                
|SIGNATURES |  | 25     

1



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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

CALIPER TECHNOLOGIES CORP.




CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                       |                                                     |   |               |         |              |   |         |         |  
|------------------------------------------------------ | --------------------------------------------------- | - | ------------- | ------- | ------------ | - | ------- | ------- | -
|                                                       |                                                     |   | September 30, |         | December 31,
|                                                       |                                                     |   | 2002          |         | 2001        
|                                                       |                                                     |   |               |         |             
|                                                       |                                                     |   | (unaudited)   |         |              |   |        
|Assets                                                 |                                                     |   |               |         |              |   |         |        
|Current assets:                                        |                                                     |   |               |         |              |   |         |        
|                                                       | Cash and cash equivalents                           |   | $             | 5,187   |              |   | $       | 10,655  |  
|                                                       | Marketable securities                               |   |               | 121,251 |              |   |         | 155,521 |  
|                                                       | Accounts receivable                                 |   |               | 3,152   |              |   |         | 1,130   |  
|                                                       | Accounts receivable  related party                 |   |               | 1,934   |              |   |         | 1,179   |  
|                                                       | Inventories                                         |   |               | 7,001   |              |   |         | 3,411   |  
|                                                       | Prepaid expenses and other current assets           |   |               | 4,231   |              |   |         | 2,311   |  
|                                                       | Investment in Aclara common stock                   |   |               | 1,350   |              |   |         | 4,563   |  
|                                                       | Other receivable                                    |   |               | 30,100  |              |   |         | 26,949  |  
|                                                       |                                                     |   |               |         |              |   |         |        
|Total current assets                                   |                                                     |   | 174,206       |         |              |   | 205,719 |        
|Security deposits                                      |                                                     |   | 3,064         |         |              |   | 3,200   |        
|Property and equipment, net                            |                                                     |   | 13,625        |         |              |   | 12,581  |        
|Notes receivable from officers                         |                                                     |   | 215           |         |              |   | 475     |        
|Other assets, net                                      |                                                     |   | 510           |         |              |   | 568     |        
|                                                       |                                                     |   |               |         |              |   |         |        
|Total assets                                           |                                                     | $ | 191,620       |         |              | $ | 222,543 |        
|                                                       |                                                     |   |               |         |              |   |         |        
|Liabilities and stockholders equity                   |                                                     |   |               |         |              |   |         |        
|Current liabilities:                                   |                                                     |   |               |         |              |   |         |        
|                                                       | Accounts payable                                    |   | $             | 1,305   |              |   | $       | 1,808   |  
|                                                       | Accrued compensation                                |   |               | 3,409   |              |   |         | 3,135   |  
|                                                       | Other accrued liabilities                           |   |               | 938     |              |   |         | 357     |  
|                                                       | Deferred revenue                                    |   |               | 1,665   |              |   |         | 3,082   |  
|                                                       | Current portion of sale and lease back arrangements |   |               | 2,420   |              |   |         | 2,027   |  
|                                                       |                                                     |   |               |         |              |   |         |        
|Total current liabilities                              |                                                     |   | 9,737         |         |              |   | 10,409  |        
|Noncurrent portion of sale and lease back arrangements |                                                     |   | 2,558         |         |              |   | 3,749   |        
|Deferred revenue                                       |                                                     |   | 325           |         |              |   | 221     |        
|Other noncurrent liabilities                           |                                                     |   | 1,879         |         |              |   | 1,600   |        
|Commitments and contingencies                          |                                                     |   |               |         |              |   |         |        
|Stockholders equity:                                  |                                                     |   |               |         |              |   |         |        
|                                                       | Common stock                                        |   |               | 24      |              |   |         | 24      |  
|                                                       | Additional paid-in capital                          |   |               | 251,628 |              |   |         | 251,357 |  
|                                                       | Deferred stock compensation                         |   |               | (864    | )            |   |         | (2,232  | )
|                                                       | Accumulated deficit                                 |   |               | (75,031 | )            |   |         | (44,602 | )
|                                                       | Accumulated other comprehensive income              |   |               | 1,364   |              |   |         | 2,017   |  
|                                                       |                                                     |   |               |         |              |   |         |        
|Total stockholders equity                             |                                                     |   | 177,121       |         |              |   | 206,564 |        
|                                                       |                                                     |   |               |         |              |   |         |        
|Total liabilities and stockholders equity             |                                                     | $ | 191,620       |         |              | $ | 222,543 |        
|                                                       |                                                     |   |               |         |              |   |         |        

See accompanying notes.

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

|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|------------------------------------------------------------------------------ | ---------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------- | ----- | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                               |                                                      |   | Three Months Ended |        | Nine Months Ended
|                                                                               |                                                      |   | September 30,      |        | September 30,    
|                                                                               |                                                      |   |                    |        |                  
|                                                                               |                                                      |   | 2002               |        | 2001              |   | 2002    |       | 2001
|                                                                               |                                                      |   |                    |        |                   |   |         |       |     
|Revenue:                                                                       |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |       
|                                                                               | Product revenue                                      |   | $                  | 2,253  |                   |   | $       | 1,581 |      |   | $       | 7,879  |  |   | $       | 4,769  | 
|                                                                               | Related
party revenue                                |   |                    | 1,929  |                   |   |         | 2,017 |      |   |         | 6,076  |  |   |         | 2,017  | 
|                                                                               | License fees and contract revenue                    |   |                    | 2,441  |                   |   |         | 3,043 |      |   |         | 6,945  |  |   |         | 14,935 | 
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Total revenue                                                                  |                                                      |   | 6,623              |        |                   |   | 6,641   |       |      |   | 20,900  |        |  |   | 21,721  |       
|Costs and expenses:                                                            |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |       
|                                                                               | Cost of product revenue                              |   |                    | 1,792  |                   |   |         | 893   |      |   |         | 5,808  |  |   |         | 2,857  | 
|                                                                               | Cost of product revenue  related party              |   |                    | 985    |                   |   |         | 1,382 |      |   |         | 2,832  |  |   |         | 1,382  | 
|                                                                               | Research and development                             |   |                    | 10,915 |                   |   |         | 9,985 |      |   |         | 33,430 |  |   |         | 28,358 | 
|                                                                               | Selling, general and administrative                  |   |                    | 4,108  |                   |   |         | 4,327 |      |   |         | 13,582 |  |   |         | 10,692 | 
|                                                                               | Amortization of deferred stock compensation, net (1) |   |                    | (681   | )                 |   |         | 587   |      |   |         | 151    |  |   |         | 2,027  | 
|                                                                               | Restructuring charges                                |   |                    | 261    |                   |   |         |      |      |   |         | 261    |  |   |         |       | 
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Total costs and expenses                                                       |                                                      |   | 17,380             |        |                   |   | 17,174  |       |      |   | 56,064  |        |  |   | 45,316  |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Operating loss                                                                 |                                                      |   | (10,757            | )      |                   |   | (10,533 | )     |      |   | (35,164 | )      |  |   | (23,595 | )     
|Interest income, net                                                           |                                                      |   | 1,382              |        |                   |   | 2,165   |       |      |   | 4,735   |        |  |   | 7,936   |       
|Gain on settlement of litigation                                               |                                                      |   |                   |        |                   |   |        |       |      |   |        |        |  |   | 27,500  |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Net income (loss)                                                              |                                                      | $ | (9,375             | )      |                   | $ | (8,368  | )     |      | $ | (30,429 | )      |  | $ | 11,841  |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Net income (loss) per share, basic                                             |                                                      | $ | (0.38              | )      |                   | $ | (0.35   | )     |      | $ | (1.25   | )      |  | $ | 0.49    |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Shares used in computing net income (loss) per share, basic                    |                                                      |   | 24,482             |        |                   |   | 24,059  |       |      |   | 24,350  |        |  |   | 23,947  |       
|                                                                              
|Net income (loss) per share, diluted                                           |                                                      | $ | (0.38              | )      |                   | $ | (0.35   | )     |      | $ | (1.25   | )      |  | $ | 0.46    |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Shares used in computing net income (loss) per share, diluted                  |                                                      |   | 24,482             |        |                   |   | 24,059  |       |      |   | 24,350  |        |  |   | 25,641  |       
|                                                                              
|(1) Amortization of deferred stock compensation, net relates to the following: |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |       
|Research and development                                                       |                                                      | $ | (664               | )      |                   | $ | 383     |       |      | $ | (373    | )      |  | $ | 885     |       
|Selling, general and administrative                                            |                                                      |   | (17                | )      |                   |   | 204     |       |      |   | 524     |        |  |   | 1,142   |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 
|Total                                                                          |                                                      | $ | (681               | )      |                   | $ | 587     |       |      | $ | 151     |        |  | $ | 2,027   |       
|                                                                               |                                                      |   |                    |        |                   |   |         |       |      |   |         |        |  |   |         |        | 

See accompanying notes.

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

|                                                                                     |                                                               |                                                |          |                   |        |      |          |         |        |  
|------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------------------------------------- | -------- | ----------------- | ------ | ---- | -------- | ------- | ------ | -
|                                                                                     |                                                               |                                                |          | Nine Months Ended
|                                                                                     |                                                               |                                                |          | September 30,    
|                                                                                     |                                                               |                                                |          |                  
|                                                                                     |                                                               |                                                |          | 2002              |        | 2001
|                                                                                     |                                                               |                                                |          |                   |        |     
|Operating activities                                                                 |                                                               |                                                |          |                   |        |      |          |        
|Net income (loss)                                                                    |                                                               | $                                              | (30,429  | )                 |        | $    | 11,841   |        
|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                                 |                                                |          | 4,199             |        |      |          | 2,626   |       
|                                                                                     | Amortization of deferred stock compensation, net              |                                                |          | 151               |        |      |          | 2,027   |       
|                                                                                     | Stock options issued to non-employees                         |                                                |          | 453               |        |      |          | (79     | )     
|                                                                                     | Changes in operating assets and liabilities:                  |                                                |          |                   |        |      |          |         |       
|                                                                                     |                                                               | Accounts receivable and other receivable       |          |                   | (2,715 | )    |          |         | 198    |  
|                                                                                     |                                                               | Inventories                                    |          |                   | (3,590 | )    |          |         | (2,471 | )
|                                                                                     |                                                               | Prepaid expenses and other current assets      |          |                   | (1,920 | )    |          |         | (320   | )
|                                                                                     |                                                               | Security deposits and other assets             |          |                   | 194    |      |          |         | (211   | )
|                                                                                     |                                                               | Notes receivable from officers                 |          |                   | 260    |      |          |         | 140    |  
|                                                                                     |                                                               | Accounts payable and other accrued liabilities |          |                   | 78     |      |          |         | (979   | )
|                                                                                     |                                                               | Accrued compensation                           |          |                   | 274    |      |          |         | 1,003  |  
|                                                                                     |                                                               | Deferred revenue                               |          |                   | (1,313 | )    |          |         | (720   | )
|                                                                                     |                                                               | Other noncurrent liabilities                   |          |                   | 279    |      |          |         | 553    |  
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Net cash used in operating activities                                                |                                                               |                                                | (34,079  | )                 |        |      | (18,892  | )      
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Investing activities                                                                 |                                                               |                                                |          |                   |        |      |          |        
|Purchases of marketable securities                                                   |                                                               |                                                | (126,520 | )                 |        |      | (167,755 | )      
|Proceeds from sale of marketable securities                                          |                                                               |                                                | 89,153   |                   |        |      | 87,326   |        
|Proceeds from maturities of marketable securities                                    |                                                               |                                                | 70,984   |                   |        |      | 72,561   |        
|Purchase of property and equipment                                                   |                                                               |                                                | (5,243   | )                 |        |      | (6,168   | )      
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Net cash provided by (used in) investing activities                                  |                                                               |                                                | 28,374   |                   |        |      | (14,036  | )      
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Financing activities                                                                 |                                                               |                                                |          |                   |        |      |          |        
|Proceeds under sale and lease back arrangements                                      |                                                               |                                                | 822      |                   |        |      | 1,686    |        
|Payments of obligations under sale and leaseback arrangements                        |                                                               |                                                | (1,620   | )                 |        |      | (1,420   | )      
|Proceeds from issuance of common stock                                               |                                                               |                                                | 1,035    |                   |        |      | 1,524    |        
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Net cash provided by financing activities                                            |                                                               |                                                | 237      |                   |        |      | 1,790    |        
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Net increase (decrease) in cash and cash equivalents                                 |                                                               |                                                | (5,468   | )                 |        |      | (31,138  | )      
|Cash and cash equivalents at beginning of period                                     |                                                               |                                                | 10,655   |                   |        |      | 36,294   |        
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Cash and cash equivalents at end of period                                           |                                                               | $                                              | 5,187    |                   |        | $    | 5,156    |        
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Supplemental disclosure of cash flow information                                     |                                                               |                                                |          |                   |        |      |          |        
|Interest paid                                                                        |                                                               | $                                              | 515      |                   |        | $    | 486      |        
|                                                                                     |                                                               |                                                |          |                   |        |      |          |        
|Supplemental disclosure of significant noncash investing activities                  |                                                               |                                                |          |                   |        |      |          |        
|Other receivable                                                                     |                                                               | $                                              |         |                   |        | $    | 26,475   |        
|Investment in common stock                                                           |                                                               |                                                |         |                   |        |      | 5,058    |        
|Other assets                                                                         |                                                               |                                                |         |                   |        |      | 967      |        

See accompanying notes.

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CALIPER TECHNOLOGIES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 September 30,
2002 include the accounts of Calipers wholly-owned subsidiary, 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, customers 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. Customer purchases of
instruments and chips are delivered under standardized terms of FOB origin
with the customer assuming the risks and rewards of product ownership at the
time of shipping from Calipers warehouse with no return rights or privileges.
Caliper offers discounts based on the volume of products and services
purchased. Caliper publishes a catalog of its commercially available chips and
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 returns 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.

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Technology access program agreements

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 September 30, 2002, a total of $138,000 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 three and nine months ending September 30,
2002, Caliper recognized $625,000 and $1.9 million, respectively, 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 nine months ended
September 30, 2001, Caliper recognized NIST grant revenue of $102,000 and
$540,000, 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

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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.

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

|                                                                    |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                    |  | Three Months Ended |        | Nine Months Ended
|                                                                    |  | September 30,      |        | September 30,    
|                                                                    |  |                    |        |                  
|                                                                    |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                    |  |                    |        |                   |  |      |        |     
|Basic:                                                              |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted-average shares of common stock outstanding                 |  |                    | 24,482 |                   |  |      | 24,068 |      |  |  | 24,352 |   |  |  | 23,961 |  
|Less: weighted-average shares subject to repurchase                 |  |                    |       |                   |  |      | (9     | )    |  |  | (2     | ) |  |  | (14    | )
|                                                                    |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted-average shares used in basic net income (loss)
per share   |  |                    | 24,482 |                   |  |      | 24,059 |      |  |  | 24,350 |   |  |  | 23,947 |  
|                                                                    |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|Diluted:                                                            |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted average shares of common stock outstanding                 |  |                    | 24,482 |                   |  |      | 24,068 |      |  |  | 24,352 |   |  |  | 23,961 |  
|Plus: weighted average shares of common stock equivalents           |  |                    |       |                   |  |      |       |      |  |  |       |   |  |  | 1,694  |  
|Less: weighted average shares subject to repurchase                 |  |                    |       |                   |  |      | (9     | )    |  |  | (2     | ) |  |  | (14    | )
|                                                                    |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  
|Weighted average shares used in diluted net income (loss)
per share |  |                    | 24,482 |                   |  |      | 24,059 |      |  |  | 24,350 |   |  |  | 25,641 |  
|                                                                    |  |                    |        |                   |  |      |        |      |  |  |        |   |  |  |        |  

NOTE 2  INVENTORIES

Inventories consist of the following (in thousands):

|                |       |   |               |       |              |   |       |       | 
|--------------- | ----- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                |       |   | September 30, |       | December 31,
|                |       |   | 2002          |       | 2001        
|                |       |   |               |       |             
|Raw material    |       | $ | 4,241         |       |              | $ | 1,952 |      
|Work in process |       |   | 1,620         |       |              |   | 657   |      
|Finished goods  |       |   | 1,140         |       |              |   | 802   |      
|                |       |   |               |       |              |   |       |      
|                | Total |   | $             | 7,001 |              |   | $     | 3,411 | 
|                |       |   |               |       |              |   |       |      

NOTE 3  COMPREHENSIVE INCOME (LOSS)

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

|                                     |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        | 
|------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | 
|                                     |  | Three Months Ended |        | Nine Months Ended
|                                     |  | September 30,      |        | September 30,    
|                                     |  |                    |        |                  
|                                     |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                     |  |                    |        |                   |  |      |        |     
|Net income (loss)                    |  | $                  | (9,375 | )                 |  | $    | (8,368 | )    |  | $ | (30,429 | ) |  | $ | 11,841 | 
|Unrealized gain (loss) on securities |  |                    | 527    |                   |  |      | 1,576  |      |  |   | (653    | ) |  |   | 2,009  | 
|                                     |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        | 
|Comprehensive income (loss)          |  | $                  | (8,848 | )                 |  | $    | (6,792 | )    |  | $ | (31,082 | ) |  | $ | 13,850 | 
|                                     |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        | 

NOTE 4  RELATED PARTY

For the quarter ended September 30, 2002, Caliper reported $1.9 million in
related party revenue of Caliper 250 HTS system products, LabChips, datapoints
and assay development services to Amphora Discovery Corp. Of the $1.9 million
in total revenue, $1.0 million related to high throughput screening system
products, of which Caliper deferred 28% of the gross profit, or $96,000, which
reflects Calipers retained ownership interest in the products sold to Amphora.
The remaining related party revenue was comprised of $500,000 in minimum
datapoint revenues with minimal associated costs to Caliper with the balance
from chips and assay development services. Since commencement of high
throughput screening system product sales to Amphora in September 2001, Caliper
has deferred $697,000 of the gross profits on these sales. Caliper recognized
$21,000 of this deferred gross profit in 2001 and $119,000 for the nine months
ended September 30, 2002. The remaining $557,000 will be recognized as revenue
ratably over the next 36 months as Amphora records depreciation on its Caliper
250 HTS systems.

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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 first year of the agreement that concluded 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 that begins in October
2002. Amphora purchased ten of eleven Caliper HTS instruments in the
first nine months of 2002, but has requested to delay the remaining
purchase indefinitely. Amphora has also requested to restructure the minimum obligations
for datapoints that are scheduled to commence on a quarterly basis
beginning in December 2002. Caliper and Amphora have had discussions that may,
if agreement is reached, result in different financial terms for
datapoint purchases in the future.

NOTE 5  RESTRUCTURING ACTIVITIES

Due to the broader economic slowdown and reduced research and development
spending by biopharmaceutical companies that Caliper believed was affecting
Calipers sales to customers, Caliper began in July 2002 a detailed strategic
review in which it evaluated each of its products and programs for commercial
opportunity, time to market and resource requirements. In September 2002, to
better align Calipers organizational structure with these depressed market
conditions and customer demand, we conducted a reduction in force that resulted
in a downsizing of our employee work force by 28 employees, or approximately
ten percent (10%) concluding the third quarter of 2002 with 262 employees. Of
these terminated employees, 75% were in research and development with the
remaining divided equally between manufacturing and administrative functions.
Prior to the date of the financial statements, management with the appropriate
level of authority approved and committed the Company to a plan of termination
that included the benefits terminated employees would receive. In addition,
prior to the date of the financial statements, the termination benefits were
communicated to employees in detail sufficient to enable them to determine the
nature and amounts of their individual severance benefits. As of November 1,
2002, 25 of the employee separations, or approximately 89% were completed.
Caliper recorded a charge of $261,000 for severance and related benefits with a
total remaining accrual for payment in future periods of $244,000 as of
September 30, 2002. We have had no other restructuring charges in prior
periods. Management expects to complete the remaining payments related to this
restructuring activity by December 1, 2002.

NOTE 6  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

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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 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 included in 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. As of September 30, 2002, the receivable was fully accreted to its
face value of $28.2 million with the embedded derivative valued at $2.9 million
and Aclara stock at $1.4 million. Changes in the derivative are inversely
proportional to changes in Aclaras stock price such that the effective value
of the Aclara stock is fixed at $4.3 million, which is the value of the Aclara
stock on the date of the settlement. On October 15, 2002, Caliper received
$32.5 million in cash from Aclara upon delivering the Aclara common stock to Aclara according to the terms of the comprehensive settlement
agreement.

Commencing on June 7, 2001, Caliper and three of its officers and
directors (David V. Milligan, Daniel L. Kisner and James L. Knighton) were
named as defendants in three securities class action lawsuits filed in the
United States District Court for the Southern District of New York. The cases
have been consolidated under the caption In re Caliper Technologies Corp.
Initial Public Offering Securities Litigation, 01 Civ. 5072 (SAS) (GBD).
Similar complaints were filed in the same Court against hundreds of other
public companies that conducted IPOs of their common stock since the late 1990s
(the IPO Lawsuits). On August 8, 2001, the IPO Lawsuits were consolidated
for pretrial purposes before United States Judge Shira Scheindlin of the
Southern District of New York. Together, those cases are denominated In re
Initial Public Offering Securities Litigation, 21 MC 92(SAS). On April 19,
2002, a Consolidated Amended Complaint was filed alleging claims against
Caliper and the individual defendants under Sections 11 and 15 of the
Securities Act of 1933, and under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as well as Rule 10b-5 promulgated thereunder. The
Consolidated Amended Complaint also names certain underwriters of Calipers
December 1999 initial public offering of common stock. The Complaint alleges
that these underwriters charged excessive, undisclosed commissions to investors
and entered into improper agreements with investors relating to aftermarket
transactions. The Complaint seeks an unspecified amount of money damages.
Caliper and the other issuers named as defendants in the IPO Lawsuits moved on
July 15, 2002 to dismiss all claims on multiple grounds. By Stipulation and
Order dated October 9, 2002, the claims against Messrs. Milligan, Kisner and
Knighton were dismissed without prejudice. Based on information currently
available to Caliper, Caliper believes that the claims alleged against Caliper
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.

NOTE 7 STOCK OPTION EXCHANGE OFFER

On October 16, 2002, Caliper commenced a voluntary stock option exchange
program for its employees. Under the program, employees are given the
opportunity to submit for cancellation certain of their outstanding stock
options in a one-for-one exchange for replacement options to be granted on a
day that is at least six months and one day from the date of cancellation of
the submitted options. The exercise price of the replacement options will be
equal to the closing price of Calipers common stock as reported on the Nasdaq
National Market on the grant date of the replacement options, which is expected
to be on or about May 20, 2003. The offer of the option exchange commenced on
October 16, 2002, and is expected to expire on or about November 19, 2002.

NOTE 8 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. Under these pronouncements, the pooling-of-interests method of
accounting for business combinations is eliminated and goodwill and those
intangible assets with indefinite lives are no longer amortized but rather are
tested for impairment at least annually and when events and circumstances
indicate that their fair value has been reduced below carrying value 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 September 30, 2002.

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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.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and provides guidance on classification
and accounting for such assets when held for sale or abandonment. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS 144 did not have a material effect on Calipers financial position or
results of operations.

In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 146 (SFAS 146), Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred
rather than when the exit or disposal plan is approved. SFAS 146 will be
effective for exit or disposal activities that are initiated after December 31,
2002. Caliper does not believe that the adoption of SFAS 146 will have a
material affect on our operating results or financial position.

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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 September 30, 2002 and for the three and nine month
periods ended September 30, 2002 and September 30, 2001 should be read in
conjunction with our financial statements included in this Quarterly Report on
Form 10-Q and Managements Discussion and Analysis of Financial Condition and
Results of Operations and our financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 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
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
September 30, 2002, we had an accumulated deficit of $75.0 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 September 30, 2002, largely due to sales of the
Agilent 2100 Bioanalyzer products and high throughput screening systems, chips
and datapoints to unrelated commercial customers, a larger portion of our total
revenue, about 58%, was derived from product sales as compared to only about
54% in the similar quarter last year. Revenues from sales of the Agilent 2100
Bioanalyzer products alone increased 43% over the same quarter last year.
Revenues from Amphora Discovery Corp., a corporation that is approximately 28%
owned by Caliper, declined 4% from the same quarter last year as a result of
fewer high throughput screening system sales offset by increased chip and
datapoints revenues.

To date we have generated a substantial portion of our revenue from a
limited number of sources. In the third quarter of 2002, Amphora alone
accounted for 29% our total revenue and 41% of our product revenue, and Agilent
Technologies alone accounted for 42% of our total revenue and 37% of our
product revenue. For the nine months ending September 30, 2002, Amphora alone
accounted for 29% our total revenue and 39% of our product revenue, and Agilent
alone accounted for 36% of our total revenue and 31% of our product revenue.
During the nine months ended September 30, 2001, our licensing of the Ramsey
family of patents to Aclara accounted for 23% of our total revenue, Agilent
alone accounted for 33% of our total revenue and our Technology Access Program
customers collectively accounted for 25% of our revenue, and product sales to
Amphora accounted for 7% of our revenue. Although we are seeking to expand our
customer base, we cannot assure you that these efforts will be successful.
Additionally, although Amphora is scheduled to purchase the one remaining
Caliper HTS instrument required under the LabChip Solutions Agreement by
December 31, 2002, we have not received a purchase order and Amphora has requested to delay this purchase indefinitely. Amphora has no
further obligation to purchase instruments from us following this one remaining
instrument. Additionally, Amphora has requested to restructure the minimum obligations
for datapoints that are scheduled to commence on a quarterly basis
beginning in December 2002. Caliper and Amphora have had discussions that may,
if agreement is reached, result in different financial terms for
datapoint purchases in the future.

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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 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 Agilent 2100 Bioanalyzer system sold by Agilent upon shipment to the
end user. Agilent began marketing and sales efforts for the Agilent 2100
Bioanalyzer in late 1999. Sales of new and innovative instrumentation such as
the Agilent 2100 Bioanalyzer involve a long sales cycle, requiring customer
training and demonstration periods. Sales of the Agilent 2100 Bioanalyzer
products increased 43% in the third quarter of 2002 as compared to the same period last
year and 158% in 2001 as compared to 2000 indicating, we
believe, a growing market acceptance of this technology. We anticipate, however, research and development funding from
Agilent to decrease by approximately 30% on an annualized basis
beginning November 1, 2002.

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. Given the success of the Agilent 2100 Bioanalyzer
products and the changing relationship between Caliper and Agilent,
we are actively working to expand the number and scope of our
commercial partnerships.

In July 2002, due to the broader economic slowdown and a widely reported reduction in research
and development spending by biopharmaceutical companies that we believed was
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. As a result
of this review, in September 2002, we conducted a reduction in force that
resulted in a downsizing of our employee work force by approximately ten
percent (10%) concluding the third quarter with 262 employees. The reduction
was primarily in our research and development staff where we have changed the
focus of our product development and technology research to align more to the
changing needs of our customers. We recognized a charge of $261,000 in the
third quarter of 2002 for severance payments and related benefits to be paid
before the end of the 2002 calendar year. We expect to realize approximately
$2 million in annualized savings from this employee downsizing action. We plan
to make further expense reductions to better align our discretionary spending
activities with customer sales. The strategic review will also serve as the
basis of our 2003 budget planning process, and continue to be utilized to
allocate resources within Caliper in the remaining months of 2002.

On October 16, 2002, we commenced a voluntary stock option exchange
program for regular employees of the company. This program is seeking to align
employee and stockholder interests while sustaining high levels of employee
performance through what has been a lengthy stagnant economic period. A
considerable number of our option exercise prices are significantly higher than
the current market price of Caliper common stock, and the program is intended
to address this situation. Our board and management believe that this program
will help motivate and retain our employees. Under the program, eligible
employees will have the opportunity to exchange certain unexercised stock
options for new options to be granted at least six months and one day following
the cancellation of the exchanged options. The new options will be exercisable
for an equal number of shares as the exchanged options. The exercise price of
the new options will be equal to the most recent closing share price of Caliper
common stock at the time of the new option grants, which is expected to be on
or about May 20, 2003. The offer of the option exchange commenced on October
16, 2002, and is expected to expire on or about November 19, 2002.

Results of Operations

Three and Nine Months Ended September 30, 2002 and 2001

Revenue. Total revenue was $6.6 million and $20.9 million for the three
and nine months ended September 30, 2002, compared to $6.6 million and $21.7
million for the three and nine months ended September 30, 2001. Although total
revenue was relatively unchanged in the third quarter ended September 30, 2002
compared to the same period in 2001, product revenue increased as a percentage
of total revenue to comprise 58%, or $3.8 million, of total revenue in the third
quarter of 2002 as compared to 54%, or $3.6 million,

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in the same quarter of last year. Of these product revenues, $1.6 million and
$2.0 million, respectively, were from Amphora and are included
in related party revenue. Offsetting these increases was a decline in revenue
from contract services
of $602,000. The decline in contract revenue in the third quarter of 2002 as
compared to the same period last year was a result of our conversion from a
fee-based technology access program model to a commercial high throughput
screening products business. For the nine months ended September 30, 2002,
total revenue decreased by $821,000 from the comparable nine month period last
year principally from anticipated declines in contract revenues from our former
Technology Access Program customers in the amount of $4.2 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 and from our collaboration with Agilent. Caliper only began selling
products and services to Amphora in September 2001.

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

Product revenue from unrelated customers was $2.3 million and $7.9 million
for the three and nine months ended September 30, 2002, compared to $1.6
million and $4.8 million in the same periods in 2001. The increase of $672,000
in the third quarter of 2002 product revenue over the same period last year was primarily
driven by a 43% product volume growth under our commercial collaboration with
Agilent, with product sales to our other commercial customers increasing
$239,000. The increase of $3.1 million in product revenue from unrelated
customers for the first nine months of 2002 over the similar period last year
was driven by a 50% product volume growth under our collaboration with Agilent,
and a $1.8 million increase in product sales to our other commercial customers.
Related party revenue, all from Amphora, consisted of $1.6
million and $5.0 million in product revenue and $355,000 and
$1.0 million in assay development services in the three and nine
months ending September 30, 2002, respectively, as compared to $2.0 million all in product revenue in the same
periods last year. Datapoint revenues were approximately 18% and 14% of total
product revenues for the three and nine months ended
September 30, 2002,
respectively, the significant majority for both periods coming from Amphora.
There were no corresponding datapoint revenues in the same
three and nine month periods last year.

License fees and contract revenues decreased to $2.4 million and $6.9
million for the three and nine months ended September 30, 2002, compared to
$3.0 million and $14.9 million for the same periods in 2001 due to the
previously 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 $1.3
million in the third quarter of 2002 and $4.5 for the first nine months of 2002
as compared to the same periods of 2001. Licensing fees were $625,000 in the
third quarter of 2002 as compared to no similar revenues in the same period
last year. For the nine months ending September 30, 2002, licensing fees were
$1.9 million as compared to $5.0 million in the same period last year. 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 $1.9 million from the minimum royalties on Aclara sales of licensed
instruments and LabCards for the first nine 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 $985,000 and $2.8 million for the
related party sales to Amphora for the three and nine months
ended September 30, 2002, compared to $1.4 million for each of the same periods
in 2001. As a result, profit margins for product sales to Amphora were 37% and
43% for the three and nine months ended September 30, 2002, respectively, as
compared to 31% for each of the same periods in 2001. Profit margins were
positively impacted during the three and nine months ended September 30, 2002 by datapoint
revenue of $500,000 and $1.5 million, respectively, offset by the added volume
discounts earned by Amphora due to their higher instrument purchases in the
periods. Profit margins, by comparison, were lower for the three and nine months
ended September 30, 2001 as Amphora first began purchasing instruments in
September 2001 with no datapoint revenue recognized until the fourth quarter of
2001. The profit margins on product sales to Amphora have varied due to the
volume of products purchased with their corresponding commercial volume
discounts earned and due to datapoint revenue that has minimal associated costs
to Caliper. Cost of all other products sold was $1.8 million and $5.8 million
for the three and nine months ended September 30, 2002, compared to $893,000
and $2.9 million in the same periods of 2001, respectively. As a result, profit
margins for product sales to unrelated customers were 20% and 26% for the three
and nine months ended September 30, 2002, respectively, as compared to 56% and
40% for each of the same periods in 2001. Profit margins were adversely
impacted during the three and nine months ended September 30, 2002 by the 43%
and 50% increased volume, respectively, of collaboration product sales with
their corresponding lower profit margin as compared to Caliper product sales.
Profit margins were also adversely impacted during the three and nine months
ended September 30, 2002 by component replacement under our product warranty
provisions of $198,000 and $627,000, respectively, primarily on 250 HTS systems
and to a lesser extent on Automated Microfluidics Systems 90 systems. As we
only began to commercially market our products in September 2001, there were no
warranty costs in the comparable three and nine months ended September 30,
2001. Although warranty costs are common in our business and affect our profit
margins quarterly, we do not anticipate component replacements such as those
that occurred through the first nine months of 2002 to continue at these levels
indefinitely. Also, product

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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
$10.9 million and $33.4 million for the three and nine months ended September
30, 2002, respectively, compared to $10.0 million and $28.4 million for the
same periods of 2001. The increase of $930,000 during the three months ended
September 30, 2002 compared to the same period in 2001 was primarily
attributable to continued growth of research and development activities,
including $875,000 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, $173,000
increase in fees for intellectual property prosecution and $454,000 due to
expansion in research facilities and activities offset by $354,000 in reduced
consultant fees and $161,000 reduced spending on technical supplies required
for building and testing prototypes. The increase of $5.0 million during the
nine months ended September 30, 2002 compared to the same period in 2001
resulted from $3.7 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, $391,000
increased spending on technical supplies for prototypes and new product
development, and $1.9 million due to expansion in research facilities and
activities offset by $763,000 in reduced consultant fees and $195,000 in
reduced fees for intellectual property prosecution. In September 2002, as a
part of a strategic review of our research programs, we conducted a reduction
in force that resulted in a downsizing of our employee work force by
approximately ten percent (10%) of which approximately 75% were in our research
and development function. We expect to realize approximately $2 million in
annualized savings from this downsizing with the majority of the savings in the
research and development area.

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
develop a more focused range of applications than previously for our LabChip
technology to be based on customer demand. 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 will also continue to revise our research and development focus
and priorities to match the economic climate and research and development
spending by biopharmaceutical companies that we believed will affect the demand
for our microfluidic applications and instruments. We expect research and
development spending to decline over the next year as a result of our
downsizing and reduced discretionary spending with our research and product
development efforts only expanding in subsequent years based on customer demand
and market conditions.

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 $4.1 million and $13.6 million for the
three and nine months ended September 30, 2002, respectively, compared to $4.3
million and $10.7 million for the same periods of 2001. The decrease of
$200,000 during the three months ended September 30, 2002 compared to the same
period in 2001 resulted from $165,000 in reduced legal fees related to patent
registrations and commercial activities, $204,000 in reduced consultant and
temporary services and $146,000 reduced administrative costs offset by $326,000
related to compensation primarily for increased sales force personnel, and the
remaining balance due to overall reduction in our facilities costs. The
increase of $2.9 million during the nine months ended September 30, 2002
compared to the same period in 2001 resulted from $1.0 million in expanded
product promotion, sales force detailing, launch of our European sales office
and marketing research efforts, $896,000 in compensation again primarily
related to increased sales force personnel which was the primary driver of a
41% increase in selling and administrative headcount from September 30, 2001,
$700,000 for legal fees related to expanded patent registration and commercial
initiatives and $838,000 in increased administrative costs offset by $507,000
in reduced consultant and temporary services. We expect marketing and product
promotion expenses to increase modestly over the next several years to support
the growing commercialization of our products with general administrative
expenses expanding only as revenue grows but at a lesser rate on a percentage
basis.

Amortization of Deferred Stock Compensation.Deferred stock compensation
represents the difference, at the date of grant, between the deemed fair value
of our common stock for accounting purposes and the exercise price of options.
This amount is being amortized over the respective vesting periods of the
individual stock options using the graded vesting method. We recorded
amortization of deferred compensation of $330,000 and $1.2 million,
respectively, for the three and nine months ended September 30,

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2002, compared to $587,000 and $2.0 million for the same periods of 2001.
Offsetting this deferred stock compensation, we recognized a gain of $1.0
million in the three and nine months ended September 30, 2002 on the reversal
of stock compensation expense recognized in previous periods resulting from the
10% reduction in force and other employee terminations. We expect to record
amortization expense for deferred compensation as follows: $227,000 for the
remainder of 2002, $542,500 during 2003 and $94,500 during 2004. The amount of
deferred compensation expense to be recorded in future periods may further
decrease if unvested options for which deferred compensation has been recorded
are subsequently canceled.

Restructuring Charges.Restructuring charges represent the severance and
related benefits to be paid to terminate employees as a result of the companys
reduction in force conducted in September 2002. We decreased our employee
headcount by 28 employees, or approximately 10 percent (10%) concluding the
third quarter of 2002 with 262 employees. Of these terminated employees, 75%
were in research and development with the remaining divided equally between the
manufacturing and administrative functions. As of November 1, 2002, 25 of the
employee separations, or approximately 89% were completed. We recorded a
charge of $261,000 for this reduction with a total remaining accrual for
payment in future periods of $244,000 as of September 30, 2002. Management
expects to complete the remaining payments related to this restructuring
activity by December 1, 2002. We had no restructuring charges in prior
periods.

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 $4.7 million for the three and nine
months ended September 30, 2002, respectively, compared to $2.2 million and
$7.9 million for the same periods of 2001. The decreases primarily resulted
from lower cash, cash equivalents and marketable securities balances during the
2002 periods as compared to the same periods in 2001 and, to a lesser extent,
the declining interest rate yields in 2002 as compared to last year.

Gain on Settlement of Litigation.The litigation settlement of $27.5
million for the nine months ended September 30, 2001, resulted 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 $126.4 million
at September 30, 2002 compared to $166.2 million at December 31, 2001. Of these
amounts, at September 30, 2002 and December 31, 2001, $3.1 million was in a
market rate account pledged for facilities deposits. We used cash of $34.1
million for operations for the nine-month period ended September 30, 2002 as
compared to $18.9 million for the comparable period in 2001. Cash used in
operating activities in the nine months ended September 30, 2002 consisted
primarily of the net loss of $30.4 million, changes in operating assets and
liabilities of $8.5 million, primarily increases in accounts receivable,
inventories and prepaid expenses offset in part by non-cash charges of $4.4
million related to amortization of deferred stock compensation and depreciation
and amortization expense.

As of September 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. On October 15, 2002, we received
$32.5 million in cash from Aclara upon delivering the Aclara common stock to Aclara under the terms of the comprehensive settlement agreement.

Net cash provided by investing activities was $28.4 million for the nine
months ended September 30, 2002 as compared to net cash used in investing
activities of $14.0 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. We used $5.2 million and $6.2 million for
the purchase of property and equipment in the first nine months of 2002 and
2001, respectively.

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The following are contractual commitments at September 30, 2002 associated with
debt and lease obligations (in thousands):

|                                                      |            |  |                                            |       |                |        |                   |       |  |       | 
|----------------------------------------------------- | ---------- |  | ------------------------------------------ | ----- | -------------- | ------ | ----------------- | ----- |  | ----- | 
|                                                      |            |  |                                            |       |                |        | Obligations Under
|                                                      |            |  |                                            |       | Operating      |        | Sale-Leaseback   
|                                                      |            |  |                                            |       | Leases         |        | Arrangements     
|                                                      |            |  |                                            |       |                |        |                  
|                                                      |            |  |                                            |       | (In thousands)
|12-month
periods ending September 30:                 |            |  |                                            |       |                |        |                   |      
|                                                      | 2003       |  |                                            | 5,169 |                |        |                   | 2,420 | 
|                                                      | 2004       |  |                                            | 5,326 |                |        |                   | 348   | 
|                                                      | 2005       |  |                                            | 5,489 |                |        |                   | 1,532 | 
|                                                      | 2006       |  |                                            | 5,659 |                |        |                   | 678   | 
|                                                      | Thereafter |  |                                            | 9,795 |                |        |                   |      | 
|                                                      |            |  |                                            |       |                |        |                   |       |  |       | 
|                                                      |            |  | Total
minimum lease and principal payments |       | $              | 31,438 |                   |       |  | 4,978 | 
|                                                      |            |  |                                            |       |                |        |                   |       |  |       | 
|Amount
representing interest                          |            |  |                                            |       |                |        |                  |      
|                                                      |            |  |                                            |       |                |        |                   |       |  |       | 
|Present
value of future payments                      |            |  |                                            |       |                |        | 4,978             |      
|Current
portion of sale and leaseback arrangements    |            |  |                                            |       |                |        | (2,420            | )    
|                                                      |            |  |                                            |       |                |        |                   |       |  |       | 
|Noncurrent
portion of sale and leaseback arrangements |            |  |                                            |       |                | $      | 2,558             |      

Net cash provided by financing activities was $237,000 for the nine months
ended September 30, 2002 as compared to $1.8 million for the comparable period
in 2001. Net proceeds from financing activities for the nine months ended
September 30, 2002 consisted of $822,000 from sale and lease back arrangements
and $1.0 million primarily from the employee stock purchase plan and employee
stock option exercises, offset by repayments of sale and lease back
arrangements of $1.6 million. Net proceeds from financing activities for the
nine months ended September 30, 2001 consisted of $1.7 million from sale and
lease back arrangements and $1.5 million from the employee stock purchase plan
and employee stock option exercises, offset by repayments of sale and lease
back arrangements of $1.4 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. Based on our long term
strategic plan updated in the third quarter of 2002, 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 high throughput systems may not achieve market acceptance, which could
cause our revenue to grow slowly or decline.

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



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

Because the products comprising our high throughput systems have been in
operation for a limited period of time, their accuracy, reliability, ease of
use and commercial value have not been fully established. If the first customers do
not approve of our initial high throughput 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

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acceptance of these high throughput systems would suffer and further sales
may be limited. We cannot assure you that these customers efforts to put our
high throughput systems into use will continue or will be expeditious or
effective. Potential customers for our 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 high throughput systems could
undermine not only those systems but subsequent high throughput systems as
well.

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

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

We must continue to develop applications for our 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 assays; and a calcium flux assay for
G-protein coupled receptors (GPCRs), which will be our first cell-based 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.

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 representing 29% of
our total revenue for the nine months ending September 30, 2002. As a
development stage company, there can be no assurances that Amphora will become
commercially successful or that in the near term its business strategy will not
change. If Amphora reduces purchasing products and service or stops using
Calipers HTS systems, we could experience a significant decline
in revenues. Additionally, although Amphora is scheduled to purchase
the one remaining Caliper HTS instrument required under the LabChip
Solutions Agreement by December 31, 2002, we have not received a
purchase order and Amphora has requested to delay this purchase
indefinitely. Amphora has no further obligation to purchase
instruments from us following this one remaining instrument.
Additionally, Amphora has requested to restructure the minimum
obligations for datapoints that are scheduled to commence on a
quarterly basis beginning in December 2002. Caliper and Amphora have had
discussions that may, if agreement is reached, result in different
financial terms for datapoint purchases in the future.

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 of $23.7 million in 2001. In the first nine months of 2002, we
experienced a loss of $30.4 million. As of September 30, 2002, we had an
accumulated deficit of approximately $75.0 million. Our losses have resulted
principally from costs incurred in research and development and from selling,
general and administrative costs associated with our operations. These costs
have exceeded our interest income and revenue which, to date, have been
generated principally from 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.

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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. 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.

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

Third parties may assert infringement or other intellectual property
claims against us, such as the Aclara litigation that was settled and is
described under Note 6 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 6 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

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

Agilent manufactures, markets and distributes the Agilent 2100 Bioanalyzer
under an agreement we entered into in May 1998. 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 2002, we cannot predict whether this trend will
continue at its current pace, if at all. If Agilent experiences manufacturing
or distribution difficulties, does not actively market the Agilent 2100
Bioanalyzer, our future revenue
from the Agilent 2100 Bioanalyzer may not be material. We also anticipate research and development funding from Agilent
to decrease by approximately 30% on an annualized basis beginning
November 1, 2002. In addition, we have
notified Agilent of our election to terminate 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 high throughput 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 increases significantly, 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

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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.

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
nine months ended September 30, 2002, Agilent, Amphora and two commercial
customers accounted for 79% 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. 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. Additionally, if Amphora
should not become commercially successful in the near term, they may reduce or
stop using our HTS products, chips and assay development services that would
significantly contribute to a decline in our revenue.

Our Technology Access Program agreements have terminated or are in their final
contract year.

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

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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. The
equipment sale and lease back line previously in place expired in July 2002 and
was not renewed or replaced. 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.

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 November 10, 2002, from a high of approximately $202.00 per
share on March 2, 2000 to a low of $3.36 per share on October 16, 2002. Our
stock price

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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 6 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 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.




ITEM 4. CONTROLS AND PROCEDURES

As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of the Companys management, including
the CEO and the CFO, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that evaluation, the
Companys management, including the CEO and CFO, concluded that the Companys
disclosure controls and procedures were effective as of September 30, 2002.
There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls subsequent to
September 30, 2002.




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

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public offering of common stock. The Complaint alleges that these
underwriters charged excessive, undisclosed commissions to investors and
entered into improper agreements with investors relating to aftermarket
transactions. The Complaint seeks an unspecified amount of money damages.
Caliper and the other issuers named as defendants in the IPO Lawsuits moved on
July 15, 2002 to dismiss all claims on multiple grounds. By Stipulation and
Order dated October 9, 2002, the claims against Messrs. Milligan, Kisner and
Knighton were dismissed without prejudice. Based on information currently
available to Caliper, Caliper believes that the claims alleged against Caliper
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

Not Applicable.




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 L. Kisner
became our Chairman of the Board, replacing Dr. David V. Milligan in this
capacity, and Dr. Milligan became our Vice Chairman of the Board. On September
10, 2002, Dr. Michael R. Knapp was elected a member of the Board of Directors
to serve until the next annual meeting of stockholders to be held in 2003.

On August 16, 2002, Dr. Knapp paid Caliper in cash the outstanding balance
on the promissory note held by the company associated with Dr. Knapps purchase
of a residence in July 1999. Caliper has a loan outstanding with Dr. Kisner
with a balance due of $215,000 as of September 30, 2002.

On October 15, 2002, we received $32.5 million in cash from Aclara
BioSciences upon delivering 900,000 shares of Aclara common stock to
Aclara in accordance with the terms of the comprehensive settlement agreement
between the companies.

On October 16, 2002, we commenced a voluntary stock option exchange
program for regular employees of the company. As considerable number of our
option exercise prices are significantly higher than the current market price
of Caliper common stock, our board and management believe that this program
will help motivate and retain our employees. Under the program, eligible
employees will have the opportunity to exchange certain unexercised stock
options for new options to be granted at least six months and one day following
the cancellation of the exchanged options. The new options will be exercisable
for an equal number of shares as the exchanged options. The exercise price of
the new options will be equal to the most recent closing share price of Caliper
common stock at the time of the new option grants, which is expected to be on
or about May 20, 2003. The offer of the option exchange commenced on October
16, 2002, and is expected to expire on or about November 18, 2002.

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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.                                                                                                    
|       
|       
|       
|       
|10.48   |  | Key Employee Agreement, dated July 1, 2002, between Caliper and Dr. Daniel Kisner                                     
|       
|       
|       
|       
|10.49   |  | Separation Agreement, dated July 29, 2002, between Caliper and J. Wallace Parce                                       
|       
|       
|       
|       
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002



|(1) |  | Previously filed as Exhibit 3.3 to our Registration Statement on Form
S-1, Registration No. 333-88827.
|--- |  | ------------------------------------------------------------------------------------------------------
|   
|(2) |  | Previously filed as Exhibit 3.4 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
September 30, 2002.             

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SIGNATURES

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



| | CALIPER TECHNOLOGIES CORP.
| | --------------------------

|                  |  |     |  |                                                                                 
|----------------- |  | --- |  | --------------------------------------------------------------------------------
|                 
|November 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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Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

I, Michael R. Knapp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Caliper Technologies
Corp.;

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

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

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

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

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

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

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

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

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

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

Date: November 14, 2002

/s/  MICHAEL R. KNAPP
Michael R. Knapp, Chief Executive Officer
(Principal Executive Officer)

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Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

I, James L. Knighton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Caliper Technologies
Corp.;

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

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

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

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

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

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

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

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

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

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

Date: November 14, 2002

/s/  JAMES L. KNIGHTON
James L. Knighton, President and Chief Financial Officer
(Principal Financial Officer)

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##### Table of Contents






EXHIBIT INDEX

|       |  |                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------
|3.1(1) |  | Amended and Restated Certificate of Incorporation of Caliper.                                                         
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|3.2(2) |  | Bylaws of Caliper.                                                                                                    
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|10.48  |  | Key Employee Agreement, dated July 1, 2002, between Caliper and Dr. Daniel Kisner                                     
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|10.49  |  | Separation Agreement, dated July 29, 2002, between Caliper and J. Wallace Parce                                       
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|99.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002



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

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