**UNITEDSTATES SECURITIES AND EXCHANGECOMMISSION**

 

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                                                                                                                                                                                                                    | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                               |
| **for  the quarterly period ended March 31, 2008.**                                                                                                                                                                                                 |
| ** **                                                                                                                                                                                                                                               |
| **Or**                                                                                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                               |
| **o**                                                                                                                                                                                                                                                    | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                               |
| **for  the transition period from                     to                   .** |

 

**Commissionfile # 000-28229**

 

**CALIPERLIFE SCIENCES, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**68Elm Street**

**Hopkinton,Massachusetts 01748**

(Address and zipcode of principal executive offices)

 

Registrant’stelephone number, including area code:**(508) 435-9500**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes   x   No   o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes   o   No   x

 

**NUMBEROF SHARES OF COMMON STOCK OUTSTANDING ON April 30, 2008:  47,781,428**

 

 

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**CALIPERLIFE SCIENCES, INC.**

**TABLEOF CONTENTS**

 
| ** **                                                                                               | **Page** |
|----------------------------------------------------------------------------------------------------------|----------|
| PART I    FINANCIAL INFORMATION                                                                | 2        |
|                                                                                                     |     |
| Item 1.  Financial Statements (unaudited)                                                           | 2        |
| Condensed  Consolidated Balance Sheets as of March 31, 2008 and December 31,  2007             | 2        |
| Condensed Consolidated Statements of Operations for  the Three Months Ended March 31, 2008 and 2007 | 3        |
| Condensed Consolidated Statements of Cash Flows for  the Three Months Ended March 31, 2008 and 2007 | 4        |
| Notes to 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                                 | 14       |
|                                                                                                     |     |
| Item 4. Controls and Procedures                                                                     | 15       |
|                                                                                                     |     |
| PART II   OTHER INFORMATION                                                                    | 15       |
|                                                                                                     |     |
| Item  1. Legal Proceedings                                                                               | 15       |
|                                                                                                     |     |
| Item  1A. Risk Factors                                                                                   | 15       |
|                                                                                                     |     |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                | 16       |
|                                                                                                     |     |
| Item 3. Defaults Upon Senior Securities                                                             | 16       |
|                                                                                                     |     |
| Item 4. Submission of Matters to a Vote of  Security Holders                                        | 16       |
|                                                                                                     |     |
| Item 5.  Other Information                                                                          | 16       |
|                                                                                                     |     |
| Item 6.  Exhibits                                                                                   | 17       |
|                                                                                                     |     |
| SIGNATURES                                                                                               | 18       |

 
| EXHIBIT  INDEX                                       | 19     |
|------------------------------------------------------|--------|
|  Ex-31.1  Section 302 Certification of CEO |   |
|  Ex-31.2  Section 302 Certification of CFO |   |
|  Ex-32.1  Section 906 Certification of CEO |   |
|  Ex-32.2  Section 906 Certification of CFO |   |

 

1

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**PART I.FINANCIAL INFORMATION**

 

**CALIPER LIFE SCIENCES, INC.**

 

**CONSOLIDATEDBALANCE SHEETS**

 

**(unaudited, in thousands)**

 

**Item 1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current assets:                                                                                                                                         |       |                         |       |                            |       |
| Cash and cash  equivalents                                                                                                                              |       | $                            | 13,643     |                            | $          | 15,709 |   |
| Marketable  securities                                                                                                                                  |       | 2,587                        |       | 3,246                           |       |
| Accounts receivable,  net                                                                                                                               |       | 26,682                       |       | 30,248                          |       |
| Inventories                                                                                                                                             |       | 23,343                       |       | 19,572                          |       |
| Prepaid expenses  and other current assets                                                                                                              |       | 3,834                        |       | 2,353                           |       |
| Total current  assets                                                                                                                                   |       | 70,089                       |       | 71,128                          |       |
| Property and  equipment, net                                                                                                                            |       | 10,984                       |       | 11,477                          |       |
| Intangible  assets, net                                                                                                                                 |       | 40,335                       |       | 42,862                          |       |
| Goodwill                                                                                                                                                |       | 80,590                       |       | 80,836                          |       |
| Other assets                                                                                                                                            |       | 1,051                        |       | 1,626                           |       |
| Total assets                                                                                                                                            |       | $                            | 203,049    |                            | $          | 207,929 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                           | ** ** | ** **                   | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                   |       |                         |       |                            |       |
| Accounts payable                                                                                                                                        |       | $                            | 10,349     |                            | $          | 8,371 |   |
| Accrued  compensation                                                                                                                                   |       | 7,765                        |       | 6,530                           |       |
| Other accrued  liabilities                                                                                                                              |       | 11,017                       |       | 12,825                          |       |
| Deferred revenue  and customer deposits                                                                                                                 |       | 18,828                       |       | 15,553                          |       |
| Current portion  of accrued restructuring                                                                                                               |       | 1,153                        |       | 2,112                           |       |
| Total current  liabilities                                                                                                                              |       | 49,112                       |       | 45,391                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 329                          |       | 506                             |       |
| Borrowings under  credit facility                                                                                                                       |       | 12,900                       |       | 12,900                          |       |
| Other noncurrent  liabilities                                                                                                                           |       | 6,950                        |       | 6,816                           |       |
| Deferred tax  liability                                                                                                                                 |       | 1,130                        |       | 1,130                           |       |
| Commitments and  contingencies (Note 8)                                                                                                                 |       |                         |       |                            |       |
| Stockholders’  equity:                                                                                                                             |       |                         |       |                            |       |
| Preferred stock,  $0.001 par value; 5,000,000 shares authorized, no shares issued and  outstanding                                                      |       | —                       |       | —                          |       |
| Common stock,  $0.001 par value; 100,000,000 shares authorized, 47,730,786 and 47,678,611  shares issued and outstanding in 2008 and 2007, respectively |       | 48                           |       | 48                              |       |
| Additional  paid-in capital                                                                                                                             |       | 375,569                      |       | 374,629                         |       |
| Accumulated  deficit                                                                                                                                    |       | (244,056                     | )          | (234,120                        | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 1,067                        |       | 629                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 132,628                      |       | 141,186                         |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                            | 203,049    |                            | $          | 207,929 |   |

 

*See accompanying notes.*

 

2

----

 

**CALIPER LIFE SCIENCES, INC.**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 

**(Inthousands, except per share data)**

 

**(unaudited)**

 
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                             | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Revenues:                                                              |       |                                             |       |   |   |
| Product revenue                                                        |       | $                                                | 17,665     |   | $ | 15,261 |   |
| Service revenue                                                        |       | 9,008                                            |       | 8,930 |   |
| License fees and  contract revenue                                     |       | 2,614                                            |       | 4,249 |   |
| Total revenue                                                          |       | 29,287                                           |       | 28,440 |   |
| Costs and  expenses:                                                   |       |                                             |       |   |   |
| Cost of product  revenue                                               |       | 11,105                                           |       | 9,967 |   |
| Cost of service  revenue                                               |       | 6,098                                            |       | 5,653 |   |
| Cost of license  revenue                                               |       | 284                                              |       | 442 |   |
| Research and  development                                              |       | 5,532                                            |       | 6,774 |   |
| Selling, general  and administrative                                   |       | 13,932                                           |       | 12,607 |   |
| Amortization of  intangible assets                                     |       | 2,490                                            |       | 2,537 |   |
| Restructuring  charges, net                                            |       | 6                                                |       | 26 |   |
| Total costs and  expenses                                              |       | 39,447                                           |       | 38,006 |   |
| Operating loss                                                         |       | (10,160                                          | )          | (9,566 | ) |
| Interest income  (expense), net                                        |       | (155                                             | )          | 7 |   |
| Other income,  net                                                     |       | 407                                              |       | 13 |   |
| Loss before  income taxes                                              |       | (9,908                                           | )          | (9,546 | ) |
| Provision for  income taxes                                            |       | (28                                              | )          | (51 | ) |
| Net loss                                                               |       | $                                                | (9,936     | ) | $ | (9,597 | ) |
|                                                                   |       |                                             |       |   |   |
| Net loss per  common share, basic and diluted                          |       | $                                                | (0.21      | ) | $ | (0.20 | ) |
| Shares used in  computing net loss per common share, basic and diluted |       | 47,683                                           |       | 46,979 |   |

 

*See accompanying notes.*

 

3

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**CALIPER LIFE SCIENCES, INC.**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

**(unaudited, in thousands)**

 
| ** **                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Operating  activities**                                                 |       |                                                 |       |   |   |
| Net loss                                                                  |       | $                                                    | (9,936     | ) | $ | (9,597 | ) |
| Adjustments to  reconcile net loss to net cash from operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                            |       | 3,452                                                |       | 3.503 |   |
| Stock-based  compensation expense, net                                    |       | 1,010                                                |       | 1,353 |   |
| Non-cash  restructuring charges, net                                      |       | 6                                                    |       | 26 |   |
| Foreign currency  exchange gains                                          |       | (428                                                 | )          | (9 | ) |
| Changes in  operating assets and liabilities:                             |       |                                                 |       |   |   |
| Accounts  receivable                                                      |       | 4,021                                                |       | 6,036 |   |
| Inventories                                                               |       | (3,479                                               | )          | (3,044 | ) |
| Prepaid expenses  and other current assets                                |       | (857                                                 | )          | (1,516 | ) |
| Accounts payable  and other accrued liabilities                           |       | 170                                                  |       | (1,202 | ) |
| Accrued  compensation                                                     |       | 1,049                                                |       | 659 |   |
| Deferred revenue  and customer deposits                                   |       | 3,099                                                |       | 3,387 |   |
| Other noncurrent  liabilities                                             |       | 135                                                  |       | (304 | ) |
| Payments of  accrued restructuring obligations, net                       |       | (998                                                 | )          | (3,223 | ) |
| Net cash from  operating activities                                       |       | (2,756                                               | )          | (3,931 | ) |
|                                                                      |       |                                                 |       |   |   |
| **Investing  activities**                                                 |       |                                                 |       |   |   |
| Purchases of  marketable securities                                       |       | (1,232                                               | )          | (1,648 | ) |
| Proceeds from  sales of marketable securities                             |       | —                                               |       | 257 |   |
| Proceeds from  maturities of marketable securities                        |       | 1,883                                                |       | 3,039 |   |
| Other assets                                                              |       | 9                                                    |       | (358 | ) |
| Purchases of  property and equipment                                      |       | (417                                                 | )          | (370 | ) |
| Net cash from  investing activities                                       |       | 243                                                  |       | 920 |   |
| **Financing  activities**                                                 |       |                                                 |       |   |   |
| Payments of  obligations under sale-leaseback arrangements                |       | —                                               |       | (34 | ) |
| Borrowings under  credit facility                                         |       | 2,000                                                |       | — |   |
| Payments of  credit facility and other obligations                        |       | (2,000                                               | )          | — |   |
| Proceeds from  issuance of common stock                                   |       | 48                                                   |       | 1,311 |   |
| Net cash from  financing activities                                       |       | 48                                                   |       | 1,277 |   |
| Effect of  exchange rates on changes in cash and cash equivalents         |       | 399                                                  |       | 5 |   |
| Net decrease in  cash and cash equivalents                                |       | (2,066                                               | )          | (1,729 | ) |
| Cash and cash  equivalents at beginning of period                         |       | 15,709                                               |       | 11,634 |   |
| Cash and cash  equivalents at end of period                               |       | $                                                    | 13,643     |   | $ | 9,905 |   |

 

*See accompanying notes.*

 

4

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**CALIPER LIFE SCIENCES, INC.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**March 31, 2008**

 

**(Unaudited)**

 

**1. Basis of Presentation and Summary of SignificantAccounting Policies**

 

***Basis of Presentation***

 

Theaccompanying unaudited consolidated financial statements of Caliper LifeSciences, Inc. and its wholly owned subsidiaries (collectively, the “Company”or “Caliper”) have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”) and generallyaccepted accounting principles for interim financial information. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with U.S. generally accepted accounting principles havebeen condensed or omitted pursuant to such rules or regulations. The December 31,2007 consolidated balance sheet has been derived from the Company’s auditedfinancial statements as of that date, but does not include all disclosuresrequired by U.S. generally accepted accounting principles. In the opinion ofmanagement, all adjustments (consisting of normal recurring entries) considerednecessary for a fair presentation have been included. However, these unauditedconsolidated financial statements should be read in conjunction with Caliper’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

Operatingresults for the three months ended March 31, 2008 are not necessarilyindicative of the results that may be expected for the full fiscal year or forany future periods. For example, the Company typically experiences higherrevenue in the fourth quarter of its fiscal year due to spending patterns ofits customers, and may realize significant periodic fluctuations in license andcontract revenue depending on the timing and circumstances of underlyingindividual transactions.

 

Calipercurrently operates in one business segment: the development andcommercialization of life science instruments and related consumables andservices for use in drug discovery and development and other life sciencesresearch.

 

Theaccompanying financial statements assume that Caliper’s cash, cash equivalentsand marketable securities balance at March 31, 2008 and access toavailable capital under its credit facility with a bank (the “Credit Facility”)are sufficient to fund operations through at least December 31, 2008 basedupon its current operating plan. Caliper’s ability to fund its ongoingoperations will depend on many factors, including particularly its ability toincrease product and service sales, control margins and operating costs andmaintain compliance with the covenants of its Credit Facility. As more fullydescribed in Note 7, certain conditions associated with its CreditFacility could have a potentially adverse impact on its ability to fund planned2008 operations and its access to capital under its Credit Facility.

 

***Summary of Significant AccountingPrinciples***

 

Theaccounting policies underlying the accompanying unaudited consolidatedfinancial statements are those set forth in Note 2 to the consolidatedfinancial statements included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007, filed with the SEC. Those policiesare not presented herein, except to the extent that new policies have beenadopted or that the description of existing policies has been meaningfullyupdated.

 

***Fair Values of Assets and Liabilities***

 

InSeptember 2006, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards (SFAS) No. 157, *Fair Value Measurements*(“SFAS No. 157”)*,* effective for financial statements issued for fiscal yearsbeginning after November 15, 2007. SFAS No. 157 replaces multiple existing definitions of fair valuewith a single definition, establishes a consistent framework for measuring fairvalue and expands financial statement disclosures regarding fair valuemeasurements.  SFAS No. 157applies only to fair value measurements that already are required or permittedby other accounting standards and does not require any new fair valuemeasurements.  In February 2008, theFASB issued FASB Staff Position (FSP) No. 157-2 (“FSP No. 157-2”),which delayed until the first quarter of 2009 the effective date of SFAS No. 157for nonfinancial assets and liabilities that are not recognized or disclosed atfair value in the financial statements on a recurring basis.

 

Theadoption of SFAS No. 157 for Caliper’s financial assets and liabilities inthe first quarter of 2008 did not have a material impact on our financialposition or results of operations.  Ournonfinancial assets and liabilities that meet the deferral criteria set forthin FSP No. 157-2 include goodwill, intangible assets and property, plantand equipment.  Caliper does not expectthat the adoption of SFAS No. 157 for these nonfinancial assets andliabilities will have a material impact on its financial position or results ofoperations.

 

Inaccordance with the provisions of SFAS No. 157, Caliper measures fairvalue at the price that would be received to sell an asset or paid to transfera liability in an orderly transaction between market participants at themeasurement date.  The Statementprioritizes the assumption that market participants would use in pricing theasset or liability (the “inputs”) into a three-tier fair value hierarchy.  This fair value hierarchy gives the highestpriority (Level 1) to quoted prices in active markets for identical assets orliabilities and the lowest priority (Level 3) to unobservable inputs in whichlittle or no market data exists, requiring companies to develop their ownassumptions.  Observable inputs that donot meet the criteria of Level 1, and include quoted prices for similar assetsor liabilities in active markets or quoted prices for identical assets and liabilitiesin markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect ourestimates about the assumptions market participants would use in pricing theasset or liability, based on the best information available in thecircumstances.  Valuation techniques forassets and liabilities measured using Level 3 inputs may include methodologiessuch as the market approach, the income approach or the cost approach, and mayuse unobservable inputs such as projections, estimates and management’sinterpretation of current market data. These unobservable inputs are only utilized to the extent thatobservable inputs are not available or cost-effective to obtain.

 

OnMarch 31, 2008, Caliper’s investments were valued in accordance with thefair value hierarchy as follows (in thousands):

 

5

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| ** **                      | ** ** | **Total Fair  Value** | ** ** | **Quoted  Prices in  Active  Markets  (Level 1)** | ** ** | **Observable  Inputs  (Level 2)** | ** ** | **Unobservable  Inputs  (Level 3)** | ** ** |
|---------------------------------|------------|----------------------------|------------|-------------------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------|------------|
| Money market  funds             |       | 3,265                      |       | 3,265                                                       |       | —                                 |       | —                                   |       |
| Commercial paper                |       | 797                        |       | —                                                      |       | 797                                    |       | —                                   |       |
| U.S. corporate  notes and bonds |       | 2,267                      |       | —                                                      |       | 2,267                                  |       | —                                   |       |
| Other                           |       | 132                        |       | 132                                                         |       | —                                 |       | —                                   |       |
| Total                           |       | 6,461                      |       | 3,397                                                       |       | 3,064                                  |       | —                                   |       |

 

Investmentsare generally classified Level 1 or Level 2 because they are valued usingquoted market prices, broker or dealer quotations, market prices received fromindustry standard pricing data providers or alternative pricing sources withreasonable levels of price transparency. Investments in U.S. Treasury Securities and overnight Money marketMutual Funds have been classified as Level 1because these securities are valuebased upon quoted prices in active markets or because the investments areactively traded.

 

***Income Taxes***

 

Caliperaccounts for income taxes in accordance with FAS 109, *Accounting for Income Taxes*, and accountsfor uncertainty in income taxes recognized in financial statements inaccordance with FIN 48,*Accounting forUncertainty in Income Taxes.* FIN 48 prescribes a comprehensive model for the recognition,measurement, and financial statement disclosure of uncertain tax positions.Unrecognized tax benefits are the differences between tax positions taken, orexpected to be taken, in tax returns, and the benefits recognized foraccounting purposes pursuant to FIN 48. Caliper classifies uncertain tax positionsas short-term liabilities within accrued expenses.  During the three month period in each of 2008and 2007, Caliper’s tax provision primarily relates to foreign taxes injurisdictions where its wholly owned subsidiaries are profitable.

 

**2. Inventories**

 

Inventoriesare stated at the lower of cost (determined on a first-in, first-out basis, or “FIFO”)or market. Amounts are relieved from inventory and recognized as a component ofcost of sales on a FIFO basis. Inventories consist of the following (inthousands):

 
| ** **      | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
| Raw material    |       | $                        | 13,079     |                        | $          | 11,228 |   |
| Work-in-process |       | 1,274                    |       | 561                         |       |
| Finished goods  |       | 8,990                    |       | 7,783                       |       |
|            |       | $                        | 23,343     |                        | $          | 19,572 |   |

 

**3. Intangibles**

 

Intangibles,net, consist of the following assets acquired in connection with previousbusiness combinations (in thousands):

 
| ** **                                   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Core  technologies                           |       | $                        | 24,462     |                        | $          | 25,323 |   |
| Developed and  contract technologies         |       | 8,214                    |       | 9,427                       |       |
| Customer  contracts, lists and relationships |       | 4,603                    |       | 5,007                       |       |
| Trade names                                  |       | 2,898                    |       | 2,898                       |       |
| Other  intangibles                           |       | 158                      |       | 207                         |       |
|                                         |       | $                        | 40,335     |                        | $          | 42,862 |   |

 

**4. Warranty Obligations**

 

Caliperprovides for estimated warranty expenses as a component of cost of revenue atthe time product revenue is recognized in accordance with FAS 5,*Accounting for Contingencies,*  and FASB Interpretation No. 45 (FIN 45),*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, including Indirect Guarantees of Indebtedness of Others*.Caliper offers a one-year limited warranty on most products, which is includedin the selling price. Caliper’s standard limited warranty covers repair orreplacement of defective goods, a preventative maintenance visit on certainproducts, and telephone-based technical support. Factors that affect Caliper’swarranty liability include the number of installed units, historical andanticipated rates of warranty claims, and cost per claim. Caliper periodicallyassesses the adequacy of its recorded warranty liabilities and adjusts amountsas necessary.

 

Changesin Caliper’s warranty obligation are as follows (in thousands):

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Balance at  beginning of period      |       | $                                                    | 1,684      |   | $ | 2,223 |   |
| Warranties  issued during the period |       | 114                                                  |       | 596 |   |
| Settlements made  during the period  |       | (342                                                 | )          | (597 | ) |
| Balance at end  of period            |       | $                                                    | 1,456      |   | $ | 2,222 |   |

 

6

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**5. Comprehensive Loss**

 

Comprehensiveloss is as follows (in thousands):

 
| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Net loss                                  |       | $                                                | (9,936     | ) | $ | (9,597 | ) |
| Unrealized gain  on marketable securities |       | (8                                               | )          | (2 | ) |
| Foreign currency  translation gain        |       | 446                                              |       | 9 |   |
| Comprehensive  loss                       |       | $                                                | (9,498     | ) | $ | (9,590 | ) |

 

**6. Restructuring Obligations**

 

Thefollowing table summarizes restructuring obligations as of March 31, 2008and related activity during the three months ended March 31, 2008 (inthousands):

 
| ** **                            | ** ** | **Severance and  Related** | ** ** | **Facilities** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|----------------|------------|-----------|------------|
| Balance,  December 31, 2007      |       | $                               | 9          |           | $          | 2,609     |       | $ | 2,618 |   |
| Adjustments to  estimated obligations |       | —                          |       | (212           | )          | (212      | )          |
| Interest accretion                    |       | —                          |       | 74             |       | 74        |       |
| Payments                              |       | (9                              | )          | (989           | )          | (998      | )          |
| Balance,  March 31, 2008         |       | $                               | —     |           | $          | 1,482     |       | $ | 1,482 |   |

 

Theremaining facility obligations are payable as follows (in thousands):

 
| **Years Ended December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008 (remainder  of fiscal year)            |       | $          | 1,217      |   |
| 2009                                        |       | 355        |       |
| 2010                                        |       | 119        |       |
| Total minimum  payments                     |       | 1,691      |       |
| Less: Amount  representing interest         |       | (209       | )          |
| Present value of  future payments           |       | 1,482      |       |
| Less: Current  portion of obligations       |       | 1,153      |       |
| Non-current  portion of obligations         |       | $          | 329        |   |

 

Included in the aboveobligations is estimated sublease income of $0.5 million in 2008, $0.5 millionin each of 2009 and 2010, and $0.2 million in 2011.

 

Therestructuring obligations reflected above resulted from the following actions.

 

***Prior Facility Closures***

 

Duringthe period from May 2003 through December 2006, Caliper consolidatedcertain facilities, the effects of which were originally reflected and havebeen subsequently adjusted through restructuring charges (credits) in theaccompanying statement of operations. These facility closures were accountedfor in accordance with SFAS No. 146,*Accounting for Costs Associated with Exit or Disposal Activities*,pursuant to which Caliper recorded a liability equal to the fair value of theremaining lease payments as of the cease-use date for each of the closedfacilities. Fair value was determined based upon the discounted present valueof remaining lease rentals (using a discount rate of 5%), for the space nolonger occupied, considering sublease income at each point in time. Theconsolidated facilities included two vacated facilities in Mountain View,California.  These facilities arecurrently 73% sublet through June 30, 2008, which is also the terminationdate of Caliper’s leases.  As of March 31,2008, remaining net lease and operating expense payments of approximately$1.0 million remained on these two facilities.

 

***Xenogen Acquisition***

 

Inconnection with the acquisition of Xenogen Corporation (“Xenogen”), Caliperincurred costs that have been accounted for in accordance with EITF No. 95-3,*Recognition of Liabilities in Connectionwith a Purchase Business Combination*, pursuant to which Caliperrecorded a liability based on a defined exit plan equal to the fair value ofthe facility obligations.

 

In2006, Caliper consolidated Xenogen’s West Coast operations in Alameda,California into a single facility, leaving one facility unoccupied with theintention to sublease any excess space. As of August 9, 2006, which wasthe date of the acquisition of Xenogen, Caliper established a liability of$1.0 million related to this lease obligation. The fair value of the leaseobligation was determined based upon the discounted present value of remaininglease rentals (using a discount rate of 8.75%) for the space no longeroccupied, considering the building’s sublease income potential. The lease termexpires April 30, 2011. During 2008, Caliper has decided tore-occupy the space not under sublease in connection with its consolidation ofits West Coast operations from Mountain View, California to Alameda,California.  On March 31, 2008, inconnection with the 2008 consolidation actions discussed below, Caliperreversed approximately $0.2 million of the restructuring accrual related to theAlameda facility based on the recent plan to re-occupy the space not undersublease and recorded the adjustment to goodwill in the accompanying balancesheet.

 

In2006, Caliper also assumed a $1.0 million obligation related to Xenogen’sSt. Louis, Missouri facility. The facility closure was previously accounted forin accordance with EITF 94-3,*LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (Including Certain Costs Incurred in a Restructuring)*.The fair value of the assumed obligation was determined based upon thediscounted present value of remaining lease rentals (using a discount rate of8.75%) for the space no longer occupied, considering the sublease incomepotential of the property. The lease term expires April 30, 2011.

 

***2008 Consolidation Plan***

 

Inearly 2008, Caliper announced its intentions to consolidate its West Coastbusiness operations to reduce overall facility costs and improve 

 

7

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productivityand effectiveness of its research and development spending.  The consolidation entails vacatingapproximately 37,000 square feet of currently occupied space in Mountain View,California during the third quarter of 2008 and moving approximately 33employees engaged principally in research and development activities fromMountain View, California into Caliper’s facilities in Alameda,California.  The consolidation plan wasinitiated during the first quarter of 2008 and resulted in first quarterseverance and retention charges of approximately $0.4 million in connectionwith the reduction of approximately 13 positions.  These charges are reflected in theaccompanying statement of operations, primarily within research and developmentand general and administrative expenses.

 

**7. Revolving Credit Facility**

 

OnFebruary 15, 2008, Caliper entered into an Amended and Restated Loan andSecurity Agreement (the “Credit Facility”) with a bank, which permits Caliperto borrow up to $25 million in the form of revolving loan advances,including up to $5 million in the form of letters of credit. The CreditFacility amends and restates in its entirety a certain Loan and SecurityAgreement by and among Caliper and the bank dated as of August 9, 2006, asamended. Principal borrowings under the Credit Facility accrue interest at afloating per annum rate equal to the prime rate if Caliper’s unrestricted cashheld at the bank exceeds or is equal to $25 million, or prime plusone-half of one percentage point if Caliper’s unrestricted cash held at thebank is below $25 million. Under the Credit Facility, Caliper is permittedto borrow up to $25 million, provided it maintains unrestricted cash of atleast $25 million with the bank, or is otherwise subject to a borrowingbase limit consisting of up to (a) 80% of eligible accounts receivable, asdefined in the Credit Facility, plus (b) the lesser of 90% of Caliper’sunrestricted cash maintained at the bank or $10 million. The CreditFacility matures on June 30, 2009. The Credit Facility will serve as asource of capital for ongoing operations and working capital needs.

 

TheCredit Facility includes traditional lending and reporting covenants includingthat certain financial covenants applicable to liquidity and earnings are to bemaintained by Caliper and tested as of the last day of each quarter. As of March 31,2008, Caliper was in compliance with the covenants.

 

TheCredit Facility also includes several potential events of default such aspayment default, material adverse change conditions and insolvency conditionsthat could cause interest to be charged at prime plus two percentage points, orin the event of any uncured events of default (including non-compliance withliquidity and earnings financial covenants), could result in the bank’s rightto declare all outstanding obligations immediately due and payable. Should anevent of default occur, and if based on such default the bank were to decide todeclare all outstanding obligations immediately due and payable, Caliper may berequired to significantly reduce its costs and expenses, sell additional equityor debt securities, or restructure portions of its business which could involvethe sale of certain assets. The sale of additional equity or convertible debtsecurities may result in additional dilution to Caliper’s stockholders.Furthermore, additional capital may not be available on terms favorable toCaliper, if at all. In this circumstance, if Caliper could not significantlyreduce its costs and expenses, obtain adequate financing on acceptable termswhen such financing is required or restructure portions of its business,Caliper’s business would be adversely affected.

 

**8. Commitments and Contingencies**

 

Asof March 31, 2008, future minimum payments under operating leases(excluding idled facilities accounted for within accrued restructuring in theaccompanying balance sheet) were as follows (in thousands):

 
| **Years ending December 31:** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2008 (remainder  of fiscal year)             |       | $          | 6,750      |   |
| 2009                                         |       | 8,008      |       |
| 2010                                         |       | 5,652      |       |
| 2011                                         |       | 4,696      |       |
| 2012                                         |       | 4,255      |       |
| Thereafter                                   |       | 7,218      |       |
| Total minimum  lease payments                |       | $          | 36,578     |   |

 

DuringMarch 2008, Caliper amended the lease on its LabChip manufacturingfacility to extend the lease term through November 2013.  Annual payments under the lease areapproximately $1.8 million.

 

**9. Legal Proceedings**

 

Commencingon 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 inthree securities class action lawsuits filed in the United States DistrictCourt for the Southern District of New York. The cases have been consolidatedunder the caption, In re Caliper Technologies Corp. Initial Public OfferingSecurities Litigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were filedagainst approximately 300 other public companies that conducted initial publicofferings of their common stock during the late 1990s (the “IPO Lawsuits”). On August 8,2001, the IPO Lawsuits were consolidated for pretrial purposes before UnitedStates Judge Shira Scheindlin of the Southern District of New York. Together, thosecases are denominated In re Initial Public Offering Securities Litigation, 21MC 92(SAS). On April 19, 2002, a Consolidated Amended Complaint was filedalleging claims against Caliper and the individual defendants underSections 11 and 15 of the Securities Act of 1933, and underSections 10(b) and 20(a) of the Securities Exchange Act of 1934,as well as Rule 10b-5 promulgated thereunder. The Consolidated AmendedComplaint also names certain underwriters of Caliper’s December 1999initial public offering of common stock as defendants. The Complaint allegesthat these underwriters charged excessive, undisclosed commissions to investorsand entered into improper agreements with investors relating to aftermarkettransactions. 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 datedOctober 9, 2002, the claims against Messrs. Milligan, Kisner andKnighton were dismissed without prejudice. On February 19, 2003, the Courtgranted Caliper’s motion to dismiss all claims against it. Plaintiffs were notgiven the right to replead the claims against Caliper. The time to appeal thedismissal has not yet expired. On December 5, 2006 the Court of Appealsfor the Second Circuit issued an opinion reversing Judge Scheindlin’s priorcertification of the plaintiff classes in several “focus” cases pending beforeher as part of the consolidated IPO Lawsuits. As a result of this ruling, on June 25,2007, Judge Scheindlin issued an order terminating the settlement that hadpreviously been agreed to among the plaintiffs, the issuers and their insurers.The parties in the “focus” cases have briefed plaintiffs’ motion seekingcertification of a new class of plaintiffs. The final resolution of thislitigation is not expected to have a material impact on Caliper.

 

8

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Caliperhad been engaged in litigation in New York State Supreme Court with Young &Partners LLC (“Young”), an investment banking firm that was engaged by Caliperbetween August 2004 and September 2005, regarding whether Caliperowed a fee to Young for Caliper’s acquisition of Xenogen Corporation, whichclosed in August 2006. The lawsuit was filed by Young in October 2006.In this suit, Young sought payment of the fee that it believed it was owed,approximately $1.1 million, plus accrued interest, and payment of attorneys’fees. A two-day bench trial regarding this dispute was held on February 7and 8, 2008. On the basis of these proceedings, Caliper recorded an accrual asof December 31, 2007 based on its estimate of the probable loss exposure.Caliper and Young entered into a settlement agreement with respect to thislitigation on March 28, 2008, in which Caliper agreed to pay Young $1.4million in settlement of Young’s claims.

 

Fromtime to time Caliper is involved in litigation arising out of claims in thenormal course of business, and when a probable loss contingency arises, recordsa loss provision based upon actual or possible claims and assessments. Theamount of possible claim recorded is determined on the basis of the amount ofthe actual claim, when the amount is both probable and the amount of the claimcan be reasonably estimated. If a loss is deemed probable, but the range ofpotential loss is wide, Caliper records a loss provision based upon the low endestimate of the probable range and may adjust that estimate in future periodsas more information becomes available. Litigation loss provisions, when made,are reflected within general and administrative expenses in the Statement ofOperations and are included within accrued legal expenses in the accompanyingbalance sheet. Based on the information presently available, managementbelieves that there are no outstanding claims or actions pending or threatenedagainst Caliper, the ultimate resolution of which will have a material adverseeffect on our financial position, liquidity or results of operations, althoughthe results of litigation are inherently uncertain, and adverse outcomes arepossible.

 

**10. Stock-Based Compensation, Options and Restricted StockActivity and Net Loss per Weighted Average Common Share Outstanding**

 

***Stock-Based Compensation***

 

Caliperaccounts for stock-based compensation in accordance with Statement of FinancialAccounting Standard No. 123R, *Share-BasedPayment* (“SFAS 123R”), which requires all share-based payments,including grants of stock options, to be recognized in the income statement asan operating expense, based on their fair values. Caliper estimates the fairvalue of each option award on the date of grant using a Black-Scholes-Mertonbased option-pricing model.

 

Stock-basedcompensation expense is included within costs and expenses as follows (inthousands):

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Cost of product  revenue             |       | $                                                | 81         |   | $ | 128 |   |
| Cost of service  revenue             |       | 21                                               |       | 43 |   |
| Research and  development            |       | 93                                               |       | 254 |   |
| Selling, general  and administrative |       | 815                                              |       | 928 |   |
| Total                                |       | $                                                | 1,010      |   | $ | 1,353 |   |

 

OnMarch 31, 2008, Caliper had five share-based compensation plans (the “Plans”),which are described within Note 13 to the consolidated financialstatements included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2007.

 

Thefair value of each option award issued under Caliper’s equity plans isestimated on the date of grant using a Black-Scholes-Merton based optionpricing model that uses the assumptions noted in the following table. Expectedvolatilities are based on historical volatility of Caliper’s stock. Theexpected term of the options is based on Caliper’s historical option exercisedata taking into consideration the exercise patterns of the option holdersduring the option’s life. The risk-free interest rate is based on the U.S.Treasury yield curve in effect on the date of the grant.

 
| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Expected  volatility (%)     |       | 42.5                                                 |       | 40 |   |
| Risk-free  interest rate (%) |       | 2.3                                                  |       | 4.5 |   |
| Expected term  (years)       |       | 4.2                                                  |       | 4.2 |   |
| Expected  dividend yield (%) |       | —                                               |       | — |   |

 

***Options and Restricted Stock Activity***

 

Asummary of stock option and restricted stock activity under the Plans as of March 31,2008, and changes during the three months then ended is as follows:

 
| **Stock Options**                 | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                          | ** ** | **(in thousands)**             | ** ** |
|                                   |       |       |       |                                   |       |                                                |       |                                |       |
| Outstanding at  December 31, 2007 |       | 7,159,848  |       | $                                      | 5.69       |                                                |       |                                |       |   |
| Granted                                |       | 986,250    |       | 4.09                                   |       |                                                |       |                                |       |
| Exercised                              |       | (14,446    | )          | 3.29                                   |       |                                                |       |                                |       |
| Canceled                               |       | (64,896    | )          | 5.84                                   |       |                                                |       |                                |       |
| Outstanding at  March 31, 2008    |       | 8,066,756  |       | $                                      | 5.50       |                                                | 5.46       |                                | $          | 1,487 |   |
| Exercisable at  March 31, 2008    |       | 4,989,230  |       | $                                      | 5.64       |                                                | 5.05       |                                | $          | 1,487 |   |
| Unvested at  March 31, 2008       |       | 3,077,526  |       | $                                      | 5.27       |                                                | 6.13       |                                | $          | — |   |

 

9

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| **Restricted Stock Units**                  | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Market  per Share  Value** | ** ** |
|-------------------------------------------------------|------------|------------|------------|---------------------------------------------------------------------------------|------------|
| Outstanding and  non-vested at December 31, 2007 |       | 646,641    |       | $                                                                               | 5.99       |   |
| Granted                                               |       | 294,500    |       | 4.09                                                                            |       |
| Vested                                                |       | (81,390    | )          | 6.04                                                                            |       |
| Unvested  repurchases                                 |       | (4,947     | )          | 6.15                                                                            |       |
| Outstanding and  non-vested at March 31, 2008    |       | 834,804    |       | 5.26                                                                            |       |
|                                                       |            |            |            |                                                                                 |            |  |

 

Duringthe three months ended March 31, 2008, Caliper granted its employees986,250 options at a weighted average grant date fair value of $1.51 per shareusing a Black-Scholes-Merton based option pricing model. The total intrinsicvalue of options exercised during the three months ended March 31, 2008was approximately $23,000. The total fair value of restricted stock that vestedduring the three months ended March 31, 2008 was approximately $492,000.

 

Asof March 31, 2008, there was $8.6 million of total unrecognizedcompensation cost related to unvested stock-based compensation arrangementsgranted under the Plans. That cost is expected to be recognized over aweighted-average remaining service (vesting) period of approximately2.8 years.

 

***Common Shares Outstanding***

 

Duringthe three months ended March 31, 2008, Caliper issued 67,175 shares ofcommon stock as a result of stock purchases under Caliper’s employee stockpurchase plan, stock option exercises and vesting of restricted stock.

 

***Net Loss per Weighted Average Common ShareOutstanding***

 

Basicnet loss per share is calculated based upon net loss divided by theweighted-average number of common shares outstanding during the period. Thecalculation of diluted net loss per share excludes common stock equivalentsconsisting of stock options, unvested restricted stock, unvested restrictedstock units and warrants (calculated using the treasury stock method) whichwould have an anti-dilutive effect.

 

Theweighted average number of shares used to compute both basic and diluted netloss per share consists of the following (in thousands):

 
| ** **                                                                                                                                               | ** ** | **Three Months Ended  March 31, 2008,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                                               | ** ** | **2008**                                                    | ** ** | **2007** | ** ** |
| Basic and diluted                                                                                                                                        |       | 47,683                                                      |       | 46,979 |   |
| Anti-dilutive  common stock equivalents excluded from calculation of diluted net loss per  share (prior to the application of the treasury stock method) |       | 14,955                                                      |       | 13,857 |   |

 

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**Item2.    Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

*ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations as of March 31, 2008 and for the three months ended March 31,2008 should be read in conjunction with our financial statements included inthis Quarterly Report on Form 10-Q and Management’s Discussion andAnalysis of Financial Condition and Results of Operations and our financialstatements included in our Annual Report on Form 10-K for the year ended December 31,2007.*

 

*Thediscussion in this report contains forward-looking statements that involverisks and uncertainties, such as statements of our plans, objectives,expectations and intentions. Our actual results could differ materially fromthose discussed here. Factors that could cause or contribute to thesedifferences include those discussed under the caption “Risk Factors” below, aswell as those discussed elsewhere. The cautionary statements made in thisreport should be read as applying to all related forward-looking statementswherever they appear in this report.*

 

**ExecutiveSummary**

 

***Business***

 

Caliper develops andsells innovative and enabling products and services to the life sciencesresearch community, a customer base that includes pharmaceutical andbiotechnology companies, and government and other not-for-profit researchinstitutions. We believe our integrated systems, consisting of instruments,software and reagents, our laboratory automation technologies and our assay anddiscovery services enable researchers to better understand the basis fordisease and more effectively discover safe and effective drugs. Our strategy isto transform drug discovery and development by offering technologies andservices that ultimately enhance the ability to predict the effects that newdrug candidates will have on humans. Our offerings leverage our extensiveportfolio of molecular imaging, microfluidics, automation and liquid handlingtechnologies, and scientific applications expertise to address key limitationsin the drug discovery and development process—namely, the complex and costlyprocess to conceive of and bring a new drug to market.

 

We have multiple channelsof distribution for our products: direct to customers, indirect through ourinternational network of distributors, through partnership channels under ourCaliper Driven program and through joint marketing agreements. Through ourdirect and indirect channels, we sell products, services and complete systemsolutions, developed by us, to end customers. Our Caliper Driven program iscore to our business strategy and complementary to our direct sales anddistribution network activities, as it enables us to extend the commercialpotential of our LabChip and advanced liquid handling technologies into newindustries and new applications with experienced commercial partners. We alsoutilize joint marketing agreements to enable others to market and distributeour products. By using direct and indirect distribution, and out-licensing ourtechnology under our Caliper Driven program, we seek to maximize penetration ofour products and technologies into the marketplace and position Caliper as aleader in the life sciences tools market.

 

***General Overview***

 

During the three monthsended March 31, 2008, our revenues increased to $29.3 million, from$28.4 million for the same period in 2007. Our operating loss was $10.2 million compared to $9.6 million in thefirst quarter of 2007.  The increasedoperating loss reflected the impact of lower overall gross margin as a resultof a significant year over year shift in the composition of revenues, whichincreased by $2.5 million, or 10%, at the combined product and service lines,and decreased by $1.6 million, or 38%, on the license fee and contract revenueline.  This overall mix shift was in linewith our expectation of growing our products and services in the low doubledigits over the course of 2008, and offsetting approximately $10.0 million ofnon-recurring license and contract revenue achieved in 2007.

 

Our business consists ofimaging, microfluidics, automation and services product families.  Product and service revenue growth reflectedstrong results within our optical imaging and automation product families, includinggrowth of 26% and 20%, respectively.  OurDiscovery Alliances and Services (CDAS) group had lower than anticipatedrevenues during the first quarter due to delays with two major contracts, theeffects of which are expected to be made up over the remainder of 2008.

 

Combined product andservice margins were even with the first quarter of 2007 at 35.5%, but wereslightly lower than expected as a result of higher product revenue in relationto service revenue and a mix of product revenue which was geared toward highercost and lower margin systems.

 

Our total operatingexpenses of $19.5 million were even with the first quarter of 2008, butreflected severance costs of $0.6 million related to cost-cutting initiativesand an incremental year on year unfavorable change of approximately $0.3million in legal expenses related to litigations which were settled near theend of the quarter.

 

We recently concluded twodisputes involving litigation, including a settlement with AntiCancer, where we**expanded and clarified our imaging intellectual property insupport of our licensing and imaging system business.  In addition, we initiated a plan toconsolidate our West Coast R&D operations and have taken steps to reducegeneral and administrative costs to improve our operating expense productivity.

 

Looking beyond the firstquarter, our revenue outlook for the second quarter of 2008 is $33.0 to $36.0million, including combined product and service growth in the high singledigits to low double-digits, and our revenue outlook for the full year 2008 remains$132.0 to $138.0 million.

 

**CriticalAccounting Estimates**

 

The critical accountingpolicies that we believe impact significant judgments and estimates used in thepreparation of our consolidated financial statements presented in this reportare described in our Management’s Discussion and Analysis of FinancialCondition and Results of Operations, and in the Notes to the ConsolidatedFinancial Statements, each included in our Annual Report on Form 10-K forthe fiscal year ended December 31, 2007.

 

**Resultsof Operations for the Three Months Ended March 31, 2008**

 

Operating results for thethree months ended March 31, 2008 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2008. Forexample, we typically experience higher revenues in the fourth quarter of ourfiscal year as a result of the capital 

 

11

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spendingpatterns of our customers.  During thethree months ended March 31, 2008, the effect on revenues related toforeign exchange resulted in a 3% favorable impact compared to the prior year.

 
| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**            | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product revenue                    |       | $                                                | 17,665     |   | $ | 15,261 |   | $ | 2,404 |   | 16 | % |
| Service revenue                    |       | 9,008                                            |       | 8,930 |   | 78 |   | 1 | % |
| License fees and  contract revenue |       | 2,614                                            |       | 4,249 |   | (1,635 | ) | (38 | )% |
| Total Revenues                     |       | $                                                | 29,287     |   | $ | 28,440 |   | $ | 847 |   | 3 | % |

 

*Product Revenue.    *Product revenue increased during the three months ended March 31,2008 compared to the same quarter in 2007 due primarily to a $1.3 million, or20%, increase, in sales of liquid handling and automation products and a $1.3million, or 26%, increase in sales of optical imaging products.  All other product lines decreased byapproximately $0.2 million, or 4% compared to the first quarter of 2007.  Sales of liquid handling and automationproducts were driven primarily by increased demand for Staccato systems, whichare used in screening and other high throughput applications, as well ascontinued growth in unit placements of the Zephyr liquid handler, which wasintroduced in 2007. Demand for Staccato systems was strong outside of theUnited States, and was aided by reduced competition and the ACES (Automation,Consulting, Engineering and Services) rebranding of our systems integrationgroup.  Optical imaging product salesincreased as a result of increased unit sales of IVIS Spectrum, our high-endimaging instrument.   In addition, we hadan 8% increase in overall imaging unit placements in comparison to the first quarterof 2007.  During the first quarter of2008, overall microfluidic product sales decreased by approximately $0.2million compared to the first quarter of 2007. This decrease was caused mainly by a reduction in datapoint sales to oneof our customers that is experiencing financial difficulties, and the phasingout of the more expensive LabChip 3000 instrument in favor of the newer andlower priced EZ Reader instruments, which were introduced in 2007.  We believe we will realize a continuingsteady increase in demand for EZ Reader instruments and associated consumableProfilerPro assay kits which we expect will eventually offset the decliningLabChip 3000 revenues.  Notwithstandingthe above mentioned loss of datapoint revenues, sales of chips and reagentconsumables increased by approximately $0.4 million compared to the firstquarter of 2007 due to our broader installed base.

 

*Service Revenue.*    Overallservice revenue increased slightly during the three months ended March 31,2008 compared to the same period in 2007. Service revenue was adversely affected by a delay in the start of 2008services to be provided under a large multi-year phenotyping project awarded toour Caliper Discovery Alliances and Services (CDAS) unit in 2007.  This delay resulted in $0.9 million indecreased revenues compared to the first quarter of 2007, which was the finalcontract period of the predecessor agreement to this latest contractrenewal.  Offsetting this, however, weexperienced a $0.5 million increase in service contract and billable revenueassociated with our optical imaging product lines and a $0.3 million increasein in vitro drug discovery services performed by CDAS.  We expect to realize an increase in revenuesfrom CDAS’s phenotyping services over the remainder of 2008 as work ensues onthe above-mentioned phenotyping project and we continue to build new businessbased upon our phenotyping service capabilities.

 

*License Fees and Contract Revenue.*    Licensefees and contract revenue decreased during the three months ended March 31,2008 compared to the same period in 2007 primarily as a result of ananticipated $1.4 million decrease in one-time microfluidics patent portfoliorelated license revenue and a decrease in contract research collaborationrevenue of approximately $1.2 million due to projects completed in 2007within our collaboration business channel. These amounts were offset by a $1.0 million increase in end user imaginglicense fees realized during the first quarter in comparison to the firstquarter of 2007.  This increase resultedprimarily from a $0.6 million deferred revenue adjustment in 2007 related tothe Xenogen acquisition as well as an increase in commercial placements ofimaging systems over the prior twelve months.

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)** | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                                | 11,105     |   | $ | 9,967 |   | $ | 1,138 |   | 11 | % |
| Service                 |       | 6,098                                            |       | 5,653 |   | 445 |   | 8 | % |
| License and  contract   |       | 284                                              |       | 442 |   | (158 | ) | (36 | )% |
| Total Costs             |       | $                                                | 17,487     |   | $ | 16,062 |   | $ | 1,425 |   | 9 | % |

 

*Cost of Product Revenue.*    Costof product revenue increased during the three months ended March 31, 2008primarily as a result of the overall increase in product sales, but also to alesser extent due to the revenue shift described above involving Staccato saleswhich incorporate a higher cost of materials due primarily to greater thirdparty material content.  Overallmanufacturing spending involving labor and overhead associated with productsales decreased by approximately $0.1 million during the first quarter of 2008in comparison to the first quarter of 2007.

 

*Cost of Service Revenue.*    Costof service revenue increased during the three months ended March 31, 2008compared to 2007 primarily due to labor and other costs associated withinstrument services, and to a lesser extent as a result of variable spending onproject materials associated with the increase in in vitro CDAS service revenuein comparison to the first quarter of 2007.

 

*Cost of License Revenue.*    Costof license revenue decreased during the three months ended March 31, 2008compared to the same period in 2007 as a result of sublicense royalties due inthe 2007 period to certain third parties for in-licensed patenttechnologies.  These license fees werenon-recurring in 2008.

 

*Gross Margins.*    Grossmargin on product revenue was 37.1% for 2008, as compared to 34.7% in2007.  This was a result of the greaterleverage of fixed costs over a higher sales volume, partially offset by an increasein material costs driven by the product mix influence resulting from sales ofhigher cost systems, including Staccato and Spectrum instruments describedabove. Gross margin on service revenue was 32.3% for 2008 and 36.7% for 2007,resulting from the decrease of $0.9 million in CDAS revenues during the threemonths ended March 31, 2008.

 

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***Expenses***

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**              | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Research and  development            |       | $                                                | 5,532      |   | $ | 6,774 |   | $ | (1,242 | ) | (18 | )% |
| Selling, general  and administrative |       | 13,932                                           |       | 12,607 |   | 1,325 |   | 11 | % |
| Amortization of  intangible assets   |       | 2,490                                            |       | 2,537 |   | (47 | ) | (2 | )% |
| Restructuring  charges, net          |       | 6                                                |       | 26 |   | (20 | ) | (77 | ) |
|                                      |            |                                                  |            |  |  |  |  |  |  |  |  |  |

 

*Researchand Development Expenses.*    Research and development spending decreased by$1.2 million during the three months ended March 31, 2008 as comparedto the same period in 2007.  This was dueprimarily to reduced spending related to microfluidic collaboration projectsthat ended in 2007 as well as reduced spending in the area of automation.  The decrease consisted of a number of changesin spending, including a $0.7 million reduction in labor-related costs,$0.3 million in reduced material and operating supplies, $0.3 milliondecrease in facility and information technology allocations that are drivenbased on headcount and square footage which have been reduced in 2008, and a$0.3 million reduction in all other costs. Offsetting these decreases was a $0.4 million severance charge relatedto our plan to consolidate the research and development activities of our WestCoast operations.

 

In addition to the firstquarter charge, we estimate total additional costs associated with the WestCoast consolidation to be approximately $3.1 million.  The following are the major categories of theadditional costs expected to be incurred: (1) approximately $0.4 million in employee severance and retentioncosts spread evenly over the remainder of the fiscal year; and (2) approximately$2.7 million in facility abandonment charges in the third quarter.  We estimate that ongoing facility cashoutflow, primarily rent payments net of sublease income, will be spread overthe 5.6 years remaining on our Mountain View, California lease.  This facility closure will be accounted forin accordance with SFAS No. 146,**pursuantto which we will record a liability equal to the fair value of the remaininglease payments, net of expected sublease payments, as of the cease-use date.

 

Based on preliminaryfinancial data for the first fiscal quarter ended March 31, 2008, weexpect this initiative to result in annual cost savings of approximately $3.3million, including annual facility costs of $1.5 million and headcount savingsof $1.8 million once fully implemented, and we expect to incur total costs ofapproximately $3.7 million in fiscal year 2008 to achieve these savings.  The major elements of this recentconsolidation plan are expected to be completed on or prior to September 30,2008.

 

*Selling,General and Administrative Expenses.*     Selling, general andadministrative expenses increased by $1.3 million during the three monthsended March 31, 2008 compared to the same period in 2007 primarily due toan increased investment in selling and marketing personnel of $0.7 million, anincrease of $0.3 million for litigation costs incurred related to two legalmatters that were resolved within the period, severance costs of $0.2 millionand all other costs of $0.1 million. During the three months ended March 31, 2008, we incurred $1.2million of legal costs which included certain litigation costs for the mattersinvolving AntiCancer and Young & Partners which are discussed withinNotes to the Consolidated Financial Statements, included in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2007.  We expect quarterly spending with respect tolitigation matters to decrease by $0.5 million or greater in future quartersassuming no new material litigation or other threatened actions arise.

 

*Amortizationof Intangible Assets.*    The amortization of intangible assets for thethree months ended March 31, 2008 relates to assets acquired in ourprevious business combinations. Amortization is computed based upon theestimated timing of the undiscounted cash flows used to value each respectiveasset over the estimated useful life of the particular intangible asset, orusing the straight-line method over the estimated useful life of the intangibleasset when the pattern of cash flows is not necessarily reflective of the trueconsumption rate of the particular intangible asset.

 

*RestructuringCharges.*    Weincurred restructuring charges in 2008 and 2007 related to acquisition andintegration activities that are more fully discussed in Note 6 to theaccompanying financial statements. Restructuring charges during the three monthperiods ending March 31, 2008 and 2007 relate to accretion of interest onfacilities, net of sub-lease income and adjustments to the operating expenseassumptions on certain facilities.

 

***Interest and Other Income (Expense), Net***

 
| ** **                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**         | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest income  (expense), net |       | $                                                | (155       | ) | $ | 7 |   | $ | (162 | ) | (2,314 | )% |
| Other income,  net              |       | 407                                              |       | 13 |   | 394 |   | 3,031 | % |
|                                 |            |                                                  |            |  |  |  |  |  |  |  |  |  |

 

*InterestIncome (Expense), Net.*    Interest income (expense), net, decreasedduring the three months ended March 31, 2008 compared to the same periodin 2007, primarily due to lower balances of cash, cash equivalents andmarketable securities.  In addition,interest expense was $0.3 million in 2008, compared to $0.2 million in 2007related to the increased outstanding borrowing under our credit facility.

 

*OtherIncome, Net.*    Otherincome, net, increased on a three month basis compared to 2007 due totransaction gains on foreign denominated accounts receivable due to weakeningof the dollar in comparison primarily to the Euro and the Yen. During the threemonths ended March 31, 2008, we incurred foreign currency transactiongains of approximately $0.4 million, compared to no impact (gain or loss)for the same period in 2007.

 

**Liquidityand Capital Resources**

 

As of March 31,2008, we had $16.2 million in cash, cash equivalents and marketablesecurities, as compared to $19.0 million as of December 31, 2007.

 

As noted in Note 7of the Notes to Consolidated Financial Statements, on February 15, 2008,we entered into an Amended and Restated Loan and Security Agreement (CreditFacility) with a bank, which permits us to borrow up to $25 million in theform of revolving loan advances, including up to $5 million in the form ofletters of credit. The Credit Facility amends and restates in its entirety aprevious Loan and Security Agreement between us and the bank dated as of August 9,2006, as amended. Principal borrowings under the Credit Facility accrueinterest at a floating per annum rate equal to the prime rate if ourunrestricted cash held at the bank exceeds or is equal to $25 million, orprime plus one-half of 

 

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onepercentage point if our unrestricted cash held at the bank is below$25 million. Under the Credit Facility, we are permitted to borrow up to$25 million, provided we maintain unrestricted cash of at least$25 million with the bank. Otherwise our ability to borrow under theCredit Facility is subject to a borrowing base limit consisting of up to (a) 80%of eligible accounts receivable, as defined in the Credit Facility, plus (b) thelesser of 90% of our unrestricted cash maintained at the bank or$10 million. The Credit Facility matures on June 30, 2009. The CreditFacility will serve as a source of capital for ongoing operations and workingcapital needs.

 

TheCredit Facility includes traditional lending and reporting covenants includingthat certain financial covenants applicable to liquidity and earnings are to bemaintained by us and tested as of the last day of each quarter.  TheCredit Facility also includes several potential events of default such aspayment default, material adverse change conditions and insolvency conditionsthat could cause interest to be charged at prime plus two percentage points, orin the event of any uncured events of default (including non-compliance withliquidity and earnings financial covenants), could result in the bank’s rightto declare all outstanding obligations immediately due and payable. Should anevent of default occur, and if based on such default the bank were to decide todeclare all outstanding obligations immediately due and payable, we may berequired to significantly reduce our costs and expenses, sell additional equityor debt securities, or restructure portions of our business which could involvethe sale of certain assets. The sale of additional equity or convertible debtsecurities may result in additional dilution to our stockholders. Furthermore,additional capital may not be available on terms favorable to us, if at all. Inthis circumstance, if we could not significantly reduce our costs and expenses,obtain adequate financing on acceptable terms when such financing is requiredor restructure portions of our business, our business would be adverselyaffected.

 

***Cash Flows***

 
| ** **                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2008**                                             | ** ** | **2007** | ** ** | **$ Change** | ** ** |
| Cash provided by  (used in) |       |                                                 |       |   |   |   |   |
| Operating  Activities       |       | $                                                    | (2,756     | ) | $ | (3,931 | ) | $ | 1,175 |   |
| Investing  Activities       |       | 243                                                  |       | 920 |   | (677 | ) |
| Financing  Activities       |       | 48                                                   |       | 1,277 |   | (1,229 | ) |
|                             |            |                                                      |            |  |  |  |  |  |  |  |

 

*Operating Activities.*    Duringthe three months ended March 31, 2008, we used $2.8 million of cashfor operating activities which included approximately $1.0 million relatedto our idle facilities. We used approximately $1.8 million of cash to fundoperations and working capital needs, which primarily related to a$3.5 million increase in inventory within the period, offset by anincrease in customer deposits of approximately $1.9 million, and a $0.2 millionincrease in all other working capital.

 

*Investing Activities.*    Duringthe three months ended March 31, 2008, net proceeds from purchases, salesand maturities of marketable securities generated $0.6 million of cashwhich we used primarily for operations. Our primary investing activities werethe purchase of property and equipment of $0.4 million.

 

*Financing Activities.*    Duringthe three months ended March 31, 2008, financing cash proceeds were fromoption exercises.

 

**Contractual Obligations**

 

Ourcommitments under leases and other obligations are described in our Management’sDiscussion and Analysis of Financial Condition and Results of Operations and inthe Notes to the Consolidated Financial Statements included in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2007.Other than the amended lease agreements described in Note 8 to the consolidatedfinancial statements included in this Quarterly Report on Form 10-Q, therehas been no material change during the three months ended March 31, 2008in the contractual obligations disclosed at December 31, 2007.

 

***Capital Requirements***

 

Ourcapital requirements depend on numerous factors, including market acceptance ofour products, the resources we devote to developing and supporting ourproducts, and acquisitions. We expect to devote substantial capital resourcesto continuing our research and development efforts, expanding our support andproduct development activities, and for other general corporate activities. Ourfuture capital requirements will depend on many factors, including:

 

·                  continued market acceptance of our in vivoimaging, microfluidic and lab automation products;

·                  the magnitude and scope of our research andproduct development programs;

·                  our ability to maintain existing, andestablish additional, corporate partnerships;

·                  the time and costs involved in expanding andmaintaining our manufacturing facilities;

·                  the potential need to develop, acquire orlicense new technologies and products; and

·                  other factors not within our control.

 

Basedon current plans, we expect that revenue from operations, our current cashbalances and borrowing availability under our credit facility will besufficient to fund our operations at least through the end of 2008.

 

**Item 3    Quantitative andQualitative Disclosures About Market Risk**

 

***Interest Rate Sensitivity***

 

Ourprimary market risk exposures are foreign currency fluctuation and interestrate sensitivity. There have been no material changes to the informationincluded under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”in our Annual Report on Form 10-K for the fiscal year ended December 31,2007.

 

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**Item 4.    Controls and Procedures**

 

*Evaluation of disclosure controlsand procedures.**  *  We haveestablished disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance thatinformation required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934, such as this Quarterly Report on Form 10-Q, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Disclosure controls are also designed toprovide reasonable assurance that such information is accumulated andcommunicated to our management, including the principal executive officer andprincipal financial officer, as appropriate to allow timely decisions regardingrequired disclosure.

 

Basedon their evaluation as of March 31, 2008, our principal executive officerand principal financial officer have concluded that our disclosure controls andprocedures are effective to provide reasonable assurance that information weare required to disclose in reports that we file or submit under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in SEC rules and forms.

 

*Limitations on the Effectivenessof Disclosure Controls and Procedures.*    Ourmanagement, including our principal executive officer and principal financialofficer, does not expect that our disclosure controls and procedures willprevent all error and all fraud. A control system can provide only reasonable,not absolute, assurance that the objectives of the control system are met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within Caliper have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Additionally, controls can be circumvented by the individual acts ofsome persons, by collusion of two or more people or by management override ofthe control. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.

 

*Changes in internal controls.*    Therewere no changes in our internal control over financial reporting, identified inconnection with the evaluation of such internal control that occurred duringthe first quarter of 2008, that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

**Part II—OTHERINFORMATION**

 

**Item 1.    Legal Proceedings**

 

Commencingon 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 inthree securities class action lawsuits filed in the United States DistrictCourt for the Southern District of New York. The cases have been consolidatedunder the caption, In re Caliper Technologies Corp. Initial Public OfferingSecurities Litigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were filedagainst approximately 300 other public companies that conducted initial publicofferings of their common stock during the late 1990s (the “IPO Lawsuits”). On August 8,2001, the IPO Lawsuits were consolidated for pretrial purposes before UnitedStates Judge Shira Scheindlin of the Southern District of New York. Together,those cases are denominated In re Initial Public Offering SecuritiesLitigation, 21 MC 92(SAS). On April 19, 2002, a Consolidated AmendedComplaint was filed alleging claims against Caliper and the individualdefendants under Sections 11 and 15 of the Securities Act of 1933, andunder Sections 10(b) and 20(a) of the Securities Exchange Act of1934, as well as Rule 10b-5 promulgated thereunder. The ConsolidatedAmended Complaint also names certain underwriters of Caliper’s December 1999initial public offering of common stock as defendants. The Complaint allegesthat these underwriters charged excessive, undisclosed commissions to investorsand entered into improper agreements with investors relating to aftermarkettransactions. 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 datedOctober 9, 2002, the claims against Messrs. Milligan, Kisner andKnighton were dismissed without prejudice. On February 19, 2003, the Courtgranted Caliper’s motion to dismiss all claims against it. Plaintiffs were notgiven the right to replead the claims against Caliper. The time to appeal thedismissal has not yet expired. On December 5, 2006 the Court of Appealsfor the Second Circuit issued an opinion reversing Judge Scheindlin’s priorcertification of the plaintiff classes in several “focus” cases pending beforeher as part of the consolidated IPO Lawsuits. As a result of this ruling, on June 25,2007, Judge Scheindlin issued an order terminating the settlement that hadpreviously been agreed to among the plaintiffs, the issuers and their insurers.The parties in the “focus” cases have briefed plaintiffs’ motion seekingcertification of a new class of plaintiffs. The final resolution of thislitigation is not expected to have a material impact on Caliper.

 

Caliperhad been engaged in litigation in New York State Supreme Court with Young &Partners LLC (“Young”), an investment banking firm that was engaged by Caliperbetween August 2004 and September 2005, regarding whether Caliperowed a fee to Young for Caliper’s acquisition of Xenogen Corporation, whichclosed in August 2006. The lawsuit was filed by Young in October 2006.In this suit, Young sought payment of the fee that it believed it was owed,approximately $1.1 million, plus accrued interest, and payment of attorneys’fees. A two-day bench trial regarding this dispute was held on February 7and 8, 2008. On the basis of these proceedings, Caliper recorded an accrual asof December 31, 2007 based on its estimate of the probable loss exposure.Caliper and Young entered into a settlement agreement with respect to thislitigation on March 28, 2008, pursuant to which Caliper agreed to payYoung $1.4 million in settlement of Young’s claims.

 

Fromtime to time Caliper is involved in litigation arising out of claims in thenormal course of business.  Based on theinformation presently available, management believes that there are nooutstanding claims or actions pending or threatened against Caliper, theultimate resolution of which will have a material adverse effect on ourfinancial position, liquidity or results of operations, although the results oflitigation are inherently uncertain, and adverse outcomes are possible.

 

**Item 1A.    Risk Factors**

 

Ourrisk factors are described in Part I, Item 1A of our Annual Report on Form 10-Kfiled with the Securities and Exchange Commission for the year ended December 31,2007. There have been no material changes in the risks affecting Caliper sincethe filing of our Annual Report on Form 10-K.

 

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**Item 2.    Unregistered Sales ofEquity Securities and Use of Proceeds**

 

None.

 

**Item 3.    Defaults Upon SeniorSecurities**

 

None.

 

**Item 4.    Submission of Matters toa Vote of Security Holders**

 

None.

 

**Item 5.    Other Information**

 

OnFebruary 26, 2008, we announced that we would undertake a plan to reducegeneral and administrative costs and improve productivity, and consolidate ourWest Coast business operations to reduce overall facility costs and improveproductivity and effectiveness of our research and development spending.  Based on preliminary financial data for thefirst fiscal quarter ended March 31, 2008, we expect this initiative toresult in annual cost savings of approximately $3.3 million once fullyimplemented, and we expect to incur costs of approximately $3.7 million infiscal 2008 to achieve this projected savings. A first quarter severance and retention charge of approximately $0.6million was recorded for the West Coast consolidation and other streamliningactions taken during the quarter.

 

Inaddition to the first quarter charge, we estimate total additional costsassociated with the West Coast consolidation to be approximately $3.1million.  The following are the majorcategories of the additional costs expected to be incurred:  (1) approximately $0.4 million inemployee severance and retention costs spread evenly over the remainder of thefiscal year; and (2) approximately $2.7 million in facility abandonmentcharges in the third quarter.  Weestimate that ongoing Mountain View, California facility cash outflow,primarily rent payments net of sublease income, will be spread over the 5.6years remaining on our Mountain View, California lease.  The consolidation entails moving approximately33 employees engaged principally in research and development activities fromMountain View, California to our facilities in Alameda, California.  The consolidation resulted in a reduction ofapproximately 13 positions.

 

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**Item 6.    Exhibits**

 

**EXHIBIT INDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                      |       | Amendment  to Lease Agreement dated as of March 18, 2008, by and between 605  Fairchild Associates, L.P., as landlord, and Caliper Life  Sciences, Inc., as tenant.                                                           |
|                      |       |                                                                                                                                                                                                                                    |
| 10.2                      |       | Consulting  Agreement, dated March 10, 2008, between Caliper and Dr. Daniel  Kisner.                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                    |
| 10.3                      |       | Separation  Agreement dated April 4, 2008, between Caliper and Mr. Thomas  Higgins.                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                    |
| 10.4                      |       | Consulting  Agreement, dated April 5, 2008, between Caliper and Mr. Thomas  Higgins.                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                    |
| 31.1                      |       | Certification  of Chief Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 31.2                      |       | Certification  of Chief Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 32.1*                     |       | Certification  of Chief Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                      |       |                                                                                                                                                                                                                                    |
| 32.2*                     |       | Certification  of Chief Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |

 

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** *Thecertifications attached as Exhibits 32.1 and 32.2 accompany this QuarterlyReport on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Actof 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18of the Securities Exchange Act of 1934, as amended.

 

17

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                          | CALIPER  LIFE SCIENCES, INC. |
|-------------------------------|------------------------------|
|                          |                         |
| Date:  May 9, 2008       |                         |   |
|                          | By:                          | /s/  E.  KEVIN HRUSOVSKY |
|                          |                         | E.  Kevin Hrusovsky |
|                          |                         | Chief  Executive Officer and President |
|                          |                         |   |
|  Date:  May 9, 2008 |                         |   |
|                          | By:                          | /s/  PETER  F. MCAREE |
|                          |                         | Peter  F. McAree |
|                          |                         | Senior  Vice President and Chief Financial Officer |

 

18

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**EXHIBITINDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                      |       | Amendment  to Lease Agreement dated as of March 18, 2008, by and between 605  Fairchild Associates, L.P., as landlord, and Caliper Life  Sciences, Inc., as tenant.                                                           |
|                      |       |                                                                                                                                                                                                                                    |
| 10.2                      |       | Consulting  Agreement, dated March 10, 2008, between Caliper and Dr. Daniel  Kisner.                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                    |
| 10.3                      |       | Separation  Agreement dated April 4, 2008, between Caliper and Mr. Thomas  Higgins.                                                                                                                                           |
|                      |       |                                                                                                                                                                                                                                    |
| 10.4                      |       | Consulting  Agreement, dated April 5, 2008, between Caliper and Mr. Thomas  Higgins.                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                    |
| 31.1                      |       | Certification  of Chief Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 31.2                      |       | Certification  of Chief Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 32.1*                     |       | Certification  of Chief Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                      |       |                                                                                                                                                                                                                                    |
| 32.2*                     |       | Certification  of Chief Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |

 

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** *Thecertifications attached as Exhibits 32.1 and 32.2 accompany this QuarterlyReport on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Actof 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18of the Securities Exchange Act of 1934, as amended.

 

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