Mud loss occurrence is one of the costly problems during drilling operations that can increase the non-productive time if not treated promptly. This study presents a new method for analysis of drilling microchip data, which can help to locate the loss and influx zone(s). An experimental flow loop facility with an inclined test section is developed to study the effect of lost circulation or fluid influx on the circulating temperature profile. The presence of loss/influx zone is simulated using an external clamp to control the peripheral leakage or injection through a joint in the test section. Drilling microchips are dropped in multiple runs to obtain the circulating temperature profiles in the flow conduits with and without lost circulation. Similar tests are conducted in presence of fluid influx. Meanwhile, the transit times of tracers in the pipe and annulus are measured. A tracer tracking algorithm is developed considering slippage between the tracers and fluid to follow the axial location of tracers while circulating in the flow loop. The experimental observations indicate that the tracers are moving slower than the average fluid velocity and mainly travel on the lower side of the inclined annular space. The circulating temperature profiles with and without lost circulation are compared to identify the loss zone. The experimental results further show that the depth of influx can be easily recognized from the calculated temperature gradients. Measured results of drilling microchips in a field trial are analyzed to identify anomalies of temperature gradients near the bottom hole. It is realized that the amplitude of the annular temperature gradient can be evaluated to identify the abnormal changes. Novel results of deployed drilling microchips along with the presented methodology can be used to investigate the lost circulation or fluid influx while drilling. In particular, the amplitude of temperature gradients from the measured data of drilling microchips can be used as a signature to locate the loss and influx zone(s).