Table of Contents

 

 

 

**UNITED STATES SECURITIES AND EXCHANGE**

**COMMISSION**

**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 June 30, 2010.**

 

**Or**

 

| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**for the transition period from                 to                 .**

 

**Commission file # 001-32976**

 

**CALIPER LIFE SCIENCES, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

**68 Elm Street**

**Hopkinton, Massachusetts 01748**

(Addressand zip code 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 bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateweb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes  o  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 the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” inRule 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 July 31, 2010:   **50,274,085**

 

 

 

----

Table of Contents

 

**CALIPER LIFE SCIENCES, INC.**

 

**TABLE OF CONTENTS**

 
| ** **                                                                                               | **Page** |
|----------------------------------------------------------------------------------------------------------|----------|
| PART I    FINANCIAL INFORMATION                                                                | 2        |
|                                                                                                     |     |
| Item 1.  Financial Statements (unaudited)                                                           | 2        |
| Condensed  Consolidated Balance Sheets as of June 30, 2010 and December 31,  2009              | 2        |
| Condensed  Consolidated Statements of Operations for the Six Months Ended June 30,  2010 and 2009   | 3        |
| Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30,  2010 and 2009   | 4        |
| Notes to Condensed Consolidated Financial Statements                                                     | 5        |
|                                                                                                     |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 14       |
|                                                                                                     |     |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                 | 20       |
|                                                                                                     |     |
| Item 4. Controls and Procedures                                                                     | 21       |
|                                                                                                     |     |
| PART II   OTHER INFORMATION                                                                    | 22       |
|                                                                                                     |     |
| Item  1. Legal Proceedings                                                                               | 22       |
|                                                                                                     |     |
| Item  1A. Risk Factors                                                                                   | 22       |
|                                                                                                     |     |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                | 22       |
|                                                                                                     |     |
| Item 3. Defaults Upon Senior Securities                                                             | 22       |
|                                                                                                     |     |
| Item 4.  Removed and Reserved                                                                       | 22       |
|                                                                                                     |     |
| Item 5.  Other Information                                                                          | 23       |
|                                                                                                     |     |
| Item 6.  Exhibits                                                                                   | 23       |
|                                                                                                     |     |
| SIGNATURES                                                                                               | 23       |
|                                                                                                     |     |
| EXHIBIT INDEX                                                                                       | 24       |
| 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

----

Table of Contents

 

**PART I. FINANCIAL INFORMATION**

 

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(unaudited, in thousands, except share data)**

 

**Item1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** | ** **             | ** ** | ** **                      | ** ** |
| Current  assets:                                                                                                                                        |       |                   |       |                            |       |
| Cash  and cash equivalents                                                                                                                              |       | $                      | 27,978     |                            | $          | 34,522 |   |
| Marketable  securities                                                                                                                                  |       | 9,661                  |       | 3,525                           |       |
| Accounts  receivable, net                                                                                                                               |       | 21,781                 |       | 26,816                          |       |
| Inventories                                                                                                                                             |       | 11,329                 |       | 11,525                          |       |
| Prepaid  expenses and other current assets                                                                                                              |       | 3,219                  |       | 2,385                           |       |
| Total  current assets                                                                                                                                   |       | 73,968                 |       | 78,773                          |       |
| Property  and equipment, net                                                                                                                            |       | 8,766                  |       | 9,107                           |       |
| Intangible  assets, net                                                                                                                                 |       | 22,743                 |       | 25,222                          |       |
| Goodwill                                                                                                                                                |       | 18,356                 |       | 21,011                          |       |
| Other  assets                                                                                                                                           |       | 274                    |       | 359                             |       |
| Total  assets                                                                                                                                           |       | $                      | 124,107    |                            | $          | 134,472 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                          | ** ** | ** **             | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                   |       |                   |       |                            |       |
| Accounts  payable                                                                                                                                       |       | $                      | 6,457      |                            | $          | 5,114 |   |
| Accrued  compensation                                                                                                                                   |       | 5,893                  |       | 8,085                           |       |
| Other  accrued liabilities                                                                                                                              |       | 9,074                  |       | 9,735                           |       |
| Deferred  revenue and customer deposits                                                                                                                 |       | 11,633                 |       | 12,390                          |       |
| Current  portion of accrued restructuring                                                                                                               |       | 1,575                  |       | 1,449                           |       |
| Borrowings  under credit facility                                                                                                                       |       | —                 |       | 14,900                          |       |
| Total  current liabilities                                                                                                                              |       | 34,632                 |       | 51,673                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 1,751                  |       | 2,232                           |       |
| Other  noncurrent liabilities                                                                                                                           |       | 5,769                  |       | 6,429                           |       |
| Deferred  tax liability                                                                                                                                 |       | 1,128                  |       | 1,128                           |       |
| Commitments  and contingencies                                                                                                                          |       |                   |       |                            |       |
| 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, 50,273,232 and  49,324,699 shares issued and outstanding in 2010 and 2009, respectively |       | 50                     |       | 49                              |       |
| Additional  paid-in capital                                                                                                                             |       | 384,292                |       | 383,306                         |       |
| Accumulated  deficit                                                                                                                                    |       | (303,618               | )          | (310,637                        | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 103                    |       | 292                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 80,827                 |       | 73,010                          |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                      | 124,107    |                            | $          | 134,472 |   |

 

*See accompanying notes.*

 

2

----

Table of Contents

 

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended******** June 30,** | ** ** | **Six Months Ended******** June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                                    | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenues:                                                             |       |                                                        |       |                                                      |       |   |   |   |   |
| Product  revenue                                                      |       | $                                                           | 20,486     |                                                      | $          | 21,499 |   | $ | 40,854 |   | $ | 39,808 |   |
| Service  revenue                                                      |       | 5,343                                                       |       | 7,905                                                     |       | 10,424 |   | 15,562 |   |
| License  fees and contract revenue                                    |       | 3,221                                                       |       | 2,707                                                     |       | 6,424 |   | 5,213 |   |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Total  revenue                                                        |       | 29,050                                                      |       | 32,111                                                    |       | 57,702 |   | 60,583 |   |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Costs  and expenses:                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Cost  of product revenue                                              |       | 10,101                                                      |       | 12,830                                                    |       | 20,396 |   | 24,083 |   |
| Cost  of service revenue                                              |       | 3,317                                                       |       | 5,331                                                     |       | 6,507 |   | 11,038 |   |
| Cost  of license revenue                                              |       | 521                                                         |       | 310                                                       |       | 926 |   | 702 |   |
| Research  and development                                             |       | 4,299                                                       |       | 4,634                                                     |       | 8,646 |   | 9,185 |   |
| Selling,  general and administrative                                  |       | 10,745                                                      |       | 11,264                                                    |       | 21,604 |   | 22,449 |   |
| Amortization  of intangible assets                                    |       | 1,226                                                       |       | 1,557                                                     |       | 2,480 |   | 3,114 |   |
| Restructuring  charges, net                                           |       | 603                                                         |       | 29                                                        |       | 634 |   | 52 |   |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Total  costs and expenses                                             |       | 30,812                                                      |       | 35,955                                                    |       | 61,193 |   | 70,623 |   |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Operating  loss                                                       |       | (1,762                                                      | )          | (3,844                                                    | )          | (3,491 | ) | (10,040 | ) |
| Interest  expense, net                                                |       | (72                                                         | )          | (179                                                      | )          | (202 | ) | (391 | ) |
| Gain  on divestiture (Note 2)                                         |       | 11,424                                                      |       | —                                                    |       | 11,424 |   | — |   |
| Other  income (expense), net                                          |       | (37                                                         | )          | 66                                                        |       | (389 | ) | (117 | ) |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Income  (loss) before income taxes                                    |       | 9,553                                                       |       | (3,957                                                    | )          | 7,342 |   | (10,548 | ) |
| Provision  for income taxes                                           |       | (316                                                        | )          | (96                                                       | )          | (323 | ) | (150 | ) |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Net  income (loss)                                                    |       | $                                                           | 9,237      |                                                      | $          | (4,053 | ) | $ | 7,019 |   | $ | (10,698 | ) |
|                                                                  |       |                                                        |       |                                                      |       |   |   |   |   |
| Net  income (loss) per share, basic                                   |       | $                                                           | 0.18       |                                                      | $          | (0.08 | ) | $ | 0.14 |   | $ | (0.22 | ) |
| Net  income (loss) per share, diluted                                 |       | $                                                           | 0.18       |                                                      | $          | (0.08 | ) | $ | 0.14 |   | $ | (0.22 | ) |
| Shares  used in computing net income (loss) per common share, basic   |       | 50,070                                                      |       | 48,806                                                    |       | 49,776 |   | 48,716 |   |
| Shares  used in computing net income (loss) per common share, diluted |       | 52,002                                                      |       | 48,806                                                    |       | 51,812 |   | 48,716 |   |

 

*See accompanying notes.*

 

3

----

Table of Contents

 

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited, in thousands)**

 
| ** **                                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
| **Operating activities**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net  income (loss)                                                                 |       | $                                                 | 7,019      |   | $ | (10,698 | ) |
| Adjustments  to reconcile net income (loss) to net cash from operating activities: |       |                                              |       |   |   |
| Depreciation  and amortization                                                     |       | 3,716                                             |       | 4,700 |   |
| Stock-based  compensation expense, net                                             |       | 1,802                                             |       | 1,904 |   |
| Gain  on divestiture                                                               |       | (11,424                                           | )          | — |   |
| Non-cash  restructuring charge, net                                                |       | 634                                               |       | 52 |   |
| Foreign  currency exchange losses                                                  |       | 518                                               |       | 196 |   |
| Changes  in operating assets and liabilities:                                      |       |                                              |       |   |   |
| Accounts  receivable                                                               |       | 2,565                                             |       | 2,315 |   |
| Inventories                                                                        |       | (1,472                                            | )          | 3,230 |   |
| Prepaid  expenses and other current assets                                         |       | (836                                              | )          | 171 |   |
| Accounts  payable and other accrued liabilities                                    |       | 960                                               |       | (3,209 | ) |
| Accrued  compensation                                                              |       | (3,342                                            | )          | 829 |   |
| Deferred  revenue and customer deposits                                            |       | (166                                              | )          | (1,077 | ) |
| Other  noncurrent liabilities                                                      |       | (660                                              | )          | (110 | ) |
| Payments  of accrued restructuring obligations, net                                |       | (901                                              | )          | (951 | ) |
|                                                                               |       |                                              |       |   |   |
| Net  cash from operating activities                                                |       | (1,587                                            | )          | (2,648 | ) |
|                                                                               |       |                                              |       |   |   |
| **Investing activities**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Purchases  of marketable securities                                                |       | (8,488                                            | )          | (2,833 | ) |
| Proceeds  from sales of marketable securities                                      |       | —                                            |       | 400 |   |
| Proceeds  from maturities of marketable securities                                 |       | 2,350                                             |       | 2,002 |   |
| Purchases  of property and equipment                                               |       | (946                                              | )          | (785 | ) |
| Proceeds  from divestiture                                                         |       | 16,500                                            |       | — |   |
| Net  cash from investing activities                                                |       | 9,416                                             |       | (1,216 | ) |
|                                                                               |       |                                              |       |   |   |
| **Financing activities**                                                           | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Borrowings  under credit facility                                                  |       | 12,900                                            |       | 7,500 |   |
| Payments  of credit facility                                                       |       | (27,800                                           | )          | (7,500 | ) |
| Proceeds  from issuance of common stock                                            |       | 484                                               |       | 264 |   |
|                                                                               |       |                                              |       |   |   |
| Net  cash from financing activities                                                |       | (14,416                                           | )          | 264 |   |
|                                                                               |       |                                              |       |   |   |
| Effect  of exchange rates on changes in cash and cash equivalents                  |       | 43                                                |       | (103 | ) |
| Net  decrease in cash and cash equivalents                                         |       | (6,544                                            | )          | (3,703 | ) |
| Cash  and cash equivalents at beginning of period                                  |       | 34,522                                            |       | 23,667 |   |
|                                                                               |       |                                              |       |   |   |
| Cash  and cash equivalents at end of period                                        |       | $                                                 | 27,978     |   | $ | 19,964 |   |

 

*See accompanying notes.*

 

4

----

Table of Contents

 

**CALIPER LIFE SCIENCES, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**June 30, 2010**

**(Unaudited)**

 

**1. Basis ofPresentation and Summary of Significant Accounting Policies**

 

***Basis of Presentation***

 

The accompanying unauditedconsolidated financial statements of Caliper Life Sciences, Inc. and itswholly owned subsidiaries (collectively, the “Company” or “Caliper”) have beenprepared by the Company pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”) and generally accepted accountingprinciples for interim financial information. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith U.S. generally accepted accounting principles (“GAAP”) have been condensedor omitted pursuant to such rules or regulations. The December 31,2009 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. GAAP.  However, in the opinion of management, alladjustments (consisting of normal recurring entries) considered necessary for afair presentation have been included. These unaudited consolidated financialstatements should be read in conjunction with Caliper’s Annual Report onForm 10-K for the year ended December 31, 2009.

 

Operating results for thethree and six months ended June 30, 2010, are not necessarily indicativeof the results that may be expected for the full fiscal year or for any futureperiods. For example, the Company typically experiences higher revenue in thefourth quarter of its fiscal year due to spending patterns of its customers,and may realize significant periodic fluctuations in license and contractrevenue depending on the timing and circumstances of underlying individualtransactions.

 

***Summary of Significant Accounting Principles***

 

The accounting policiesunderlying the accompanying unaudited consolidated financial statements arethose set forth in Note 2 to the consolidated financial statementsincluded in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2009, filed with the SEC on March 12, 2010. Thosepolicies are not presented herein, except to the extent that new policies havebeen adopted or that the description of existing policies has been meaningfullyupdated.

 

***Revenue Recognition***

 

*GeneralPolicy*

 

Caliper recognizes revenuewhen persuasive evidence of an arrangement exists, delivery has occurred orservices have been rendered, the fee is fixed or determinable, andcollectability is reasonably assured or probable, as applicable.  Salesmade by Caliper do not typically include general return rights or privileges.In the limited circumstance where a right of return exists, Caliper recognizesrevenue when the right has lapsed. Based upon Caliper’s prior experiences,sales returns have not been significant and therefore a general provision forsales returns or other allowances is not recorded at the time of sale.Provision is made at the time of sale for estimated costs related to Caliper’swarranty obligations to customers.

 

Cash received from customersas advance deposits for undelivered products and services including contractresearch and development services, is recorded within customer deposits untilrevenue is recognized. Revenue related to annual maintenance contracts or otherremaining undelivered performance obligations is deferred and recognized uponcompletion of the underlying performance criteria.

 

*ProductRevenue*

 

Product revenue isrecognized upon the shipment and transfer of title to customers and is recordednet of discounts and allowances. Revenues on shipments subject to customeracceptance provisions are recognized only upon customer acceptance provided allother revenue recognition criteria are met. Customer product purchases aregenerally delivered under standardized terms of “FOB origin” with the customerassuming the risks and rewards of product ownership at the time of shippingfrom Caliper’s warehouses. Revenue associated with customer product purchasesdelivered under terms of “FOB destination” is deferred until product isdelivered to the customer. In accordance with Accounting Standards Update (ASU)No. 2009-13, Caliper defers the relative selling price of any elementsthat remain undelivered after product shipment and/or acceptance (asapplicable), such as remaining services to be performed.

 

*Serviceand Annual Maintenance Agreements*

 

Caliper’s general policy isto recognize revenue as services are performed, typically using theproportional performance method 

 

5

----

Table of Contents

 

based upon defined outputsor other reasonable measures as applicable, or ratably over the contractservice term in the case of annual maintenance contracts. Customers maypurchase optional warranty coverage during the initial standard warranty termand annual maintenance contracts beyond the standard warranty expiration. Theseoptional service offerings are not included in the price Caliper chargescustomers for the initial product purchase. Under Caliper’s standard warranty,the customer is entitled to repair or replacement of defective goods.

 

*Licensingand Royalty*

 

Revenue from up-frontlicense fees is recognized when the earnings process is complete and no furtherobligations exist. If further obligations exist, the up-front license fee isrecognized ratably over the obligation period. Royalties and milestone paymentsunder licenses are recorded as earned in accordance with contract terms, whenthird-party results are reliably measured and collectability is reasonablyassured. Imaging patent rights granted to commercial imaging customers arerecognized ratably over the term of the license.

 

*ContractRevenue*

 

Revenue from contractresearch and development services is recognized as earned based on theperformance requirements of the contract. Non-refundable contract fees, unlessbased upon time and materials, time and expense, or substantive milestones, aregenerally recognized using the proportional performance method.

 

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

 

Caliper measures fair valueat the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date.  Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) 820, *FairValue Measurements*, prioritizes the assumption that marketparticipants would use in pricing the asset or liability (the “inputs”) into athree-tier fair value hierarchy.  This fair value hierarchy gives thehighest priority (Level 1) to quoted prices in active markets for identicalassets or liabilities and the lowest priority (Level 3) to unobservable inputsin which little or no market data exists, requiring companies to develop theirown assumptions.

 

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 andliabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptionsmarket participants would use in pricing the asset or liability, based on thebest information available in the circumstances.  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 onlyutilized to the extent that observable inputs are not available or cost-effectiveto obtain.

 

On June 30, 2010,Caliper’s investments were valued in accordance with the fair value hierarchyas follows (in thousands):

 
| ** **                       | ** ** | **Total Fair******** Value** | ** ** | **Quoted******** Prices in******** Active******** Markets******** (Level 1)** | ** ** | **Observable******** Inputs******** (Level 2)** | ** ** | **Unobservable******** Inputs******** (Level 3)** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Money  market funds              |       | $                                 | 2,342      |                                                                                              | $          | 2,342                                                     |       | $                                                           | —     |   | $ | — |   |
| Government  treasuries and bonds |       | 3,500                             |       | 3,500                                                                                             |       | —                                                    |       | —                                                      |       |
| Commercial  paper                |       | 1,399                             |       | —                                                                                            |       | 1,399                                                     |       | —                                                      |       |
| U.S.  corporate notes and bonds  |       | 2,904                             |       | —                                                                                            |       | 2,904                                                     |       | —                                                      |       |
| Other                            |       | 1,837                             |       | —                                                                                            |       | 1,837                                                     |       | —                                                      |       |
| Total                            |       | $                                 | 11,982     |                                                                                              | $          | 5,842                                                     |       | $                                                           | 6,140      |   | $ | — |   |

 

Investments are generallyclassified Level 1 or Level 2 because they are valued using quoted marketprices, broker or dealer quotations, market prices received from industrystandard pricing data providers or alternative pricing sources with reasonablelevels of price transparency.  Investments in U.S. Treasury Securities andovernight money market mutual funds have been classified as Level 1 becausethese securities are valued based upon quoted prices in active markets orbecause the investments are actively traded.

 

As of June 30, 2010,Caliper’s cash and available for sale securities of $37.6 million all havecontracted maturities of less than one year.  In addition, Caliper heldsecurities that were in an unrealized loss position as of June 30, 2010;however, these unrealized losses were not material to Caliper eitherindividually or in the aggregate.

 

6

----

Table of Contents

 

***Income Taxes***

 

Caliper accounts for incometaxes in accordance with FASB ASC 740, *Accountingfor Income Taxes*, (“FASB ASC 740”), and accounts for uncertainty inincome taxes recognized in financial statements in accordance with FASB ASC 740*.*  FASB ASC 740 prescribes acomprehensive model for the recognition, measurement, and financial statementdisclosure of uncertain tax positions. Unrecognized tax benefits are thedifferences between tax positions taken, or expected to be taken, in taxreturns, and the benefits recognized for accounting purposes pursuant to FASBASC 740. Caliper classifies uncertain tax positions as short-term liabilitieswithin accrued expenses.  During the six months ended June 30, 2010and 2009, Caliper’s tax provision includes estimated foreign taxes injurisdictions where its wholly owned subsidiaries are subject to current taxes.During the six months ended June 30, 2010, Caliper’s tax position includesa provision for estimated taxes incurred in connection with the gain realizedon the May 24, 2010 TurboVap® andRapidTrace® product line divestiture discussed in Note 2.

 

***Goodwill***

 

Caliper performs a test forthe impairment of goodwill annually, or more frequently if events orcircumstances indicate that goodwill may be impaired. Because Caliper has asingle operating segment, which is the sole reporting unit, Caliper performsthis test by comparing the fair value of Caliper with its carrying value,including goodwill. If the fair value exceeds the carrying value, goodwill isnot impaired. If the book value exceeds the carrying value, Caliper wouldcalculate the potential impairment loss by comparing the implied fair value ofgoodwill with the book value of goodwill. If the implied fair value of goodwillis less than the book value, an impairment charge would be recorded equal tothe difference.  Caliper concluded that approximately $2.7 million ofgoodwill was associated with the TurboVap and RapidTrace product lines thatwere sold in the second quarter of 2010 (Note 2).  Accordingly, this amount was reduced fromgoodwill and charged to the statement of operations as part of the gain on thedivestiture.  Caliper reviewed itsremaining goodwill for indicators of impairment as of June 30, 2010, andconcluded that there was no impairment.

 

***Recently Issued Accounting Standards***

 

In January 2010, theFASB issued authoritative guidance on improving disclosures about fair valuemeasurements. This guidance requires new disclosures about transfers in and outof Level 1 and 2 measurements and separate disclosures about activity relatingto Level 3 measurements. In addition, this guidance clarifies existing fairvalue disclosures about the level of disaggregation and the input and valuationtechniques used to measure fair value. The guidance only relates to disclosureand does not impact Caliper’s consolidated financial statements. Caliperadopted this guidance in the first quarter of fiscal year 2010. There was nosignificant impact to Caliper’s disclosures upon adoption.

 

In February 2010, theFASB issued an amendment to the guidance on subsequent events that removedthe requirement for an SEC registrant to disclose the date through whichsubsequent events are evaluated. It did not change the accounting for ordisclosure of events that occur after the balance sheet date but before thefinancial statements are issued. This amendment was effective upon issuance.

 

**2. Divestitures**

 

***TurboVap and RapidTrace******Product Lines Divestiture***

 

On May 17, 2010,Caliper entered into a Purchase Agreement (the “Purchase Agreement”) providingfor the sale of its solvent evaporation and solid phase extraction productlines, consisting of the TurboVap and RapidTrace product lines, to Biotage LLC(“Biotage”) for approximately $16.5 million in cash. The sale of these productlines to Biotage was completed on May 24, 2010.  The PurchaseAgreement contains representations, warranties and indemnities that arecustomary in purchase transactions.  In addition, Caliper has agreed notto engage in activities that are competitive with the divested product linesfor five years from the closing date. Upon the closing date, the parties also entered into a two-year tollmanufacturing agreement, with an option for a third year, pursuant to whichCaliper will exclusively manufacture the TurboVap and RapidTrace products inquantities requested by Biotage and sell such units to Biotage at fair marketprices, mutually agreed to by both parties.  As of the closing date forthis transaction, the TurboVap and RapidTrace product lines had net assets of$5.0 million comprised of $2.7 million of goodwill allocated on a relative fairvalue basis, $1.6 million in accounts receivable and $1.4 million in inventory,less $0.7 million of assumed liabilities. The sale resulted in a $11.4 million gain based upon the net proceedsreceived in excess of total divested net assets.

 

***Xenogen Biosciences Divestiture***

 

On December 11, 2009,Caliper entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”)with Taconic Farms, Inc. (“Taconic”). The Stock Purchase Agreementprovided for the sale of Caliper’s preclinical mouse services business, XenogenBiosciences Corporation (“XenBio”), to Taconic for a purchase price ofapproximately $10.8 million, which included $9.7 million in cash togetherwith $1.1 million which was placed into an escrow account untilApril 30, 2011. The escrow secures Caliper’s indemnification obligationsto Taconic, if any, under the Stock Purchase Agreement. The Stock PurchaseAgreement also contains representations, warranties and indemnities that arecustomary in stock purchase transactions. As of the transaction date, XenBiohad net 

 

7

----

Table of Contents

 

assets of $4.9 millioncomprised of $2.6 million in identified intangibles, $1.9 million ofgoodwill allocated on a relative fair value basis, and $0.4 million ofother net assets. The sale of XenBio resulted in a $4.2 million gain basedupon the net proceeds received to date, excluding the amount held in escrow, inexcess of total divested net assets.

 

***AutoTrace Product Line Divestiture***

 

On November 10, 2008,Caliper entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”)with Dionex Corporation (“Dionex”). The Asset Purchase Agreement provided forthe sale of Caliper’s AutoTrace product line to Dionex.  This transaction is further described withinNote 3 to the consolidated financial statements included in Caliper’sAnnual Report on Form 10-K for the year ended December 31, 2009 filedwith the SEC on March 12, 2010.  Caliper continued to manufacture theAutoTrace products for Dionex for approximately three months following theclosing of this transaction under a transition services agreement, whichresulted in the recognition of approximately $0.3 million in revenue from thisbusiness during the first quarter of 2009.

 

**3.Inventories**

 

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

 
| ** **      | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------|------------|------------------------|------------|---------------------------------|------------|
| Raw  material   |       | $                      | 5,661      |                            | $          | 5,879 |   |
| Work-in-process |       | 888                    |       | 859                             |       |
| Finished  goods |       | 4,780                  |       | 4,787                           |       |
|            |       | $                      | 11,329     |                            | $          | 11,525 |   |

 

**4.Intangibles**

 

Intangibles, net ofamortization expense and other charges, consist of the following assetsacquired in connection with previous business combinations (in thousands):

 
| ** **                                  | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| Core technologies                           |       | $                      | 16,716     |                            | $          | 18,437 |   |
| Developed and contract technologies         |       | 1,293                  |       | 1,771                           |       |
| Customer contracts, lists and relationships |       | 1,836                  |       | 2,116                           |       |
| Trade names                                 |       | 2,898                  |       | 2,898                           |       |
|                                        |       | $                      | 22,743     |                            | $          | 25,222 |   |

 

**5. Warranty Obligations**

 

Caliper provides forestimated warranty expenses as a component of cost of revenue at the timeproduct revenue is recognized.  Caliper offers a one-year limited warrantyon most products, which is included in the selling price. Caliper’s standard limitedwarranty covers repair or replacement of defective goods, a preventativemaintenance visit on certain products, and telephone-based technical support.Factors that affect Caliper’s warranty liability include the number ofinstalled units, historical and anticipated rates of warranty claims, and costper claim. Caliper periodically assesses the adequacy of its recorded warrantyliabilities and adjusts amounts as necessary.

 

Changes in Caliper’swarranty obligation are as follows (in thousands):

 
| ** **                                          | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                          | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Balance  at beginning of period                     |       | $                                            | 1,557      |   | $ | 1,362 |   |
| Warranties  issued during the period                |       | 964                                          |       | 1,002 |   |
| Settlements  and adjustments made during the period |       | (1,225                                       | )          | (797 | ) |
| Balance  at end of period                           |       | $                                            | 1,296      |   | $ | 1,567 |   |

 

8

----

Table of Contents

 

**6.Comprehensive Income (Loss)**

 

Comprehensive income (loss)is as follows (in thousands):

 
| ** **                                       | ** ** | **Three Months Ended******** June 30,** | ** ** | **Six Months Ended******** June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                       | ** ** | **2010**                                                    | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net  income (loss)                               |       | $                                                           | 9,237      |                                                      | $          | (4,053 | ) | $ | 7,019 |   | $ | (10,698 | ) |
| Unrealized  gain (loss) on marketable securities |       | 1                                                           |       | 31                                                        |       | (3 | ) | 38 |   |
| Foreign  currency translation gain (loss)        |       | 56                                                          |       | 483                                                       |       | (187 | ) | 121 |   |
|                                             |       |                                                        |       |                                                      |       |   |   |   |   |
| Comprehensive  income (loss)                     |       | $                                                           | 9,294      |                                                      | $          | (3,539 | ) | $ | 6,829 |   | $ | (10,539 | ) |

 

**7. AccruedRestructuring Costs**

 

Caliper’s accruedrestructuring costs as of June 30, 2010 were comprised of futurecontractual obligations pursuant to facility operating leases covering certainidle space as further described below.  The following table summarizeschanges in accrued restructuring obligations during the six months ended June 30,2010 (in thousands):

 
| ** **                            | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-----------|------------|
| Balance,  December 31, 2009      |       | $         | 3,681      |   |
| Restructuring  charges                |       | 559       |       |
| Adjustments  to estimated obligations |       | (76       | )          |
| Interest  accretion                   |       | 63        |       |
| Payments                              |       | (901      | )          |
| Balance,  June 30, 2010          |       | $         | 3,326      |   |

 

The remaining facilityobligations are payable as follows (in thousands):

 
| **Years Ended December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2010  (remainder of fiscal year)            |       | $          | 871        |   |
| 2011                                        |       | 1,452      |       |
| 2012                                        |       | 685        |       |
| 2013                                        |       | 636        |       |
| 2014                                        |       | 94         |       |
| Thereafter                                  |       | 94         |       |
| Total  minimum payments                     |       | 3,832      |       |
| Less:  Amount representing interest         |       | 506        |       |
| Present  value of future payments           |       | 3,326      |       |
| Less:  Current portion of obligations       |       | 1,575      |       |
| Non-current  portion of obligations         |       | $          | 1,751      |   |

 

The restructuringobligations reflected above resulted from the following actions:

 

*FacilityClosures*

 

During 2008, Caliperconsolidated its West Coast business operations to reduce overall facilitycosts and improve productivity and effectiveness of its research anddevelopment spending. The consolidation plan entailed vacating approximately26,300 square feet of occupied space in Mountain View, California. In 2009,Caliper revised its assumptions around the restructuring charge taken in 2008regarding the facility. The effect of the change was to update the subleasetiming and rates assumed as a result of conditions in the current real estatemarket, as well as to correct an error in the amount of vacated space byapproximately 10,200 square feet (see notes to the consolidated financialstatements included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2009, filed with the SEC on March 12, 2010,for additional details). This facility closure was accounted for in accordancewith FASB ASC 420,*Accounting for CostsAssociated with Exit or Disposal Activities*, pursuant to whichCaliper recorded a liability equal to the fair value of the remaining leasepayments as of the cease-use date. Fair value was determined based upon thediscounted present value of remaining lease rentals (using a discount rate of5.5%) for the space no longer occupied, considering future estimated subleaseincome, estimated broker fees and required tenant improvements.  The leaseterm expires on November 30, 2013.

 

In July 2009, Calipervacated approximately 19,000 square feet at its Hopkinton, Massachusettsfacilities. This facility consolidation 

 

9

----

Table of Contents

 

was enabled as the result ofthe product line divestitures completed in the fourth quarter of 2008 andcontinued efforts to reduce idle capacity. Caliper recorded a restructuringcharge of approximately $1.0 million related to this action in the thirdquarter of 2009. Caliper has accounted for this restructuring activity inaccordance with FASB ASC 420, pursuant to which Caliper has recorded aliability equal to the fair value of the remaining lease payments as of thecease-use date. Fair value was determined based upon the discounted presentvalue of remaining lease payments (using a discount rate of 6.5%), consideringfuture estimated sublease income, estimated broker fees and required tenantimprovements. The lease term expires on December 31, 2015.

 

In April 2010, Calipervacated approximately 5,400 additional square feet of its Mountain View,California facility.  This facility consolidation was due to the ongoingefforts to streamline chip manufacturing operations and increase the likelihoodof securing a sub-tenant.  Caliper recorded a restructuring charge ofapproximately $0.6 million related to this action in the second quarter of2010.  This partial facility abandonment was accounted for in accordancewith FASB ASC 420, pursuant to which Caliper recorded a liability equal to thefair value of the remaining lease payments as of the cease-use date.  Fairvalue was determined based upon the discounted present value of remaining leasepayments (using a discount rate of 5.5%) for the space no longer occupied,considering future estimated sublease income, estimated broker fees andrequired tenant improvements.

 

**8.Revolving Credit Facility**

 

On May 24, 2010,Caliper entered into a Second Loan Modification Agreement relating to itsSecond Amended and Restated Loan and Security Agreement (the “credit facility”)with a bank dated March 6, 2009. The credit facility permits Caliper to borrow up to $25 million inthe form of revolving loan advances, including up to $5 million in theform of letters of credit and other contingent reserves. Principal borrowingsunder the credit facility accrue interest at a floating annual rate equal tothe bank’s prime rate (4% at June 30, 2010) plus one-half of one percent.Under the credit facility, Caliper is permitted to borrow up to$25 million, subject to a borrowing base limit consisting of (a) 80%of eligible accounts receivable plus (b) the lesser of 70% of Caliper’sunrestricted cash at the bank or $12 million; provided, that on each ofthe first three (3) business days and each of the last three(3) business days of each fiscal quarter, the borrowing base is(a) 80% of eligible accounts receivable plus (b) the lesser of 90% ofCaliper’s unrestricted cash at the bank or $12 million. Eligible accountsreceivable do not include internationally billed receivables, unbilledreceivables, and receivables aged over 90 days from invoice date. Thecurrent facility matures on April 1, 2011. The credit facility serves as asource of capital for ongoing operations and working capital needs.

 

The credit facility includestraditional lending and reporting covenants including that certain financialcovenants applicable to liquidity and earnings are to be maintained by Caliperand tested as of the last day of each quarter. As of June 30, 2010,Caliper was in compliance with all of its covenants.  The credit facility also includes certainrights for the bank to accelerate the maturity of the debt, lower the borrowingbase or stop making advances, which are typical within asset-based lendingarrangements. Caliper does not believe the bank will exercise these rights aslong as it is meeting its covenants and achieving its forecast. The creditfacility also includes several potential events of default such as paymentdefault, material adverse change conditions and insolvency conditions thatcould cause interest to be charged at the interest rate in effect as of thedate of default plus two percentage points, or in the event of any uncuredevents of default (including non-compliance with liquidity and earningsfinancial covenants), could result in the bank’s right to declare alloutstanding obligations immediately due and payable.

 

There were no outstandingobligations under the credit facility as of June 30, 2010, compared to$14.9 million which was outstanding as of December 31, 2009. The creditfacility is classified as short-term consistent with Caliper’s intent toutilize the credit facility to fund operations and working capital needs, asneeded, on a revolving loan basis. Interest is due monthly and has ranged from4.5% to 5.5% during the three months ended June 30, 2010, and was 5.5%during the three months ended June 30, 2009.

 

**9.Commitments and Contingencies**

 

Caliper’s commitments andcontingencies are disclosed within Note 10 to the consolidated financialstatements included in Caliper’s Annual Report on Form 10-K for the yearended December 31, 2009, filed with the SEC on March 12, 2010. The following represent changes within the current period and all othercommitments and contingencies have not materially changed.

 

On August 9, 2006,Stanford University provided Caliper’s wholly owned subsidiary XenogenCorporation with the results of an audit performed pursuant to the exclusivelicense agreement between Stanford and Xenogen. The audit report, which wasprepared by a third party consultant, asserted certain claims of underpaymentsduring the period from 2002 through March 31, 2006, based upon a differentinterpretation of the scope of imaging products that are subject to the royaltyprovisions of the license than Xenogen had used for the calculation ofroyalties since the beginning of this licensing arrangement in 1997. Uponreview of the audit report, Caliper determined that additional royalties ofapproximately $71,000 were owed to Stanford, and paid this obligation in 2006.Caliper is contesting the remaining payment obligation that is claimed in theStanford audit report, and as a result, has not accrued for any additionalliability. The amount of any remaining contingent obligation, if any, cannotcurrently be estimated, nor does Caliper believe that it is probable that aliability exists. Stanford and Caliper are presently working with a neutralthird party in an attempt to resolve this dispute.  At any time, either party may choose bindingarbitration to resolve any dispute over the amount of back royalties owed, ifany.

 

In March 2010, Caliperreceived a letter from AntiCancer Incorporated (“AntiCancer”) which claimedthat Caliper had underpaid 

 

10

----

Table of Contents

 

royalties, during the periodfrom July 2008 through December 2009, under a cross-license agreemententered into in February 2008.  The claim is based upon a differentinterpretation of the royalty sharing provisions within the cross licensingagreement.  Caliper is contesting the claim that additional royalties aredue, and as a result, has not accrued for any additional liability. The amountof any remaining contingent obligation, if any, cannot currently be estimated,nor does Caliper believe that it is probable that a liability exists.AntiCancer and Caliper have a mediation scheduled with a neutral third party inSeptember 2010, to try to resolve this dispute.  If this dispute cannot be resolved throughmediation, either party may choose binding arbitration to resolve any disputeover the amount of back royalties owed, if any.

 

**10. LegalProceedings**

 

On February 23, 2010,Caliper, its wholly owned subsidiary Xenogen Corporation, and StanfordUniversity filed a complaint for patent infringement against CarestreamHealth, Inc. (“Carestream”) in the U.S. District Court for the EasternDistrict of Texas.  Caliper, Xenogen andStanford University seek a judgment that Carestream induced infringement ofseven United States patents that Caliper, through Xenogen, exclusively licensesfrom Stanford University.  Caliper andits co- plaintiffs seek an award of compensatory damages, trebled damages dueto Carestream’s willfulness, a permanent injunction and attorneys’ fees againstCarestream for its ongoing, indirect infringement of the patents-in-suit. Thecomplaint was served on Carestream on February 26, 2010.  OnApril 20, 2010, Carestream filed its answer to the complaint, denying itinduces infringement of the asserted patents.  Carestream alsocounterclaimed for declaratory judgments of non-infringement and invalidity ofthe asserted patents.  Carestream also filed a motion to transfer thevenue of the litigation to another District Court.  Caliper and Carestream subsequently agreed tothe transfer of this case to the U.S. District Court for the Northern Districtof California, where it is pending.  TheCourt scheduled the case management conference for this litigation for September 30,2010.

 

On June 8, 2010, theUnited States Patent and Trademark Office issued U.S. Patent No. 7,734,325(“the ‘325 Patent”) to Carestream.  Thenext day, Caliper filed a Request for *Inter Partes*Reexamination of the ‘325 Patent with the USPTO.  The USPTO is required by statute to indicateby mid-September whether it will order reexamination of the ‘325 Patent.

 

On July 9, 2010,Carestream filed a complaint for patent infringement against Caliper in theU.S. District Court for the Western District of Wisconsin.  Carestream’s complaint alleges that Caliper’sLumina XR imaging system, which is a multi-modal imaging system with bothoptical and x-ray capabilities that Caliper first introduced in September,2009, infringes the ‘325 Patent and that Caliper indirectly infringes the ‘325patent.  Carestream’s allegations ofinfringement do not involve any of Caliper’s imaging products other than theLumina XR.  Caliper believes that the ‘325Patent is invalid and that the Lumina XR system does not infringe the claims ofthe ‘325 Patent, and Caliper intends to defend against this lawsuitvigorously.  With its complaint forpatent infringement, Carestream also filed with the Court a motion forpreliminary injunction to prevent Caliper from selling the Lumina XR systemduring the pendency of this litigation. Caliper’s Opposition to Carestream’s motion for a preliminary injunctionis due on August 11, 2010.  Nohearing date for Carestream’s preliminary injunction motion has been set by theCourt.

 

On July 26, 2010,Caliper filed a motion to transfer this litigation to the U.S. District Courtfor the Northern District of California, or in the alternative, to stay thislitigation pending the resolution of any reexamination of the ‘325 Patentpursuant to the reexamination request filed by Caliper with the USPTO.  Carestream’s response to Caliper’s motion isdue on August 16, 2010.  Caliperfiled its answer to Carestream’s complaint on August 2, 2010.

 

From time to time Caliper isinvolved in litigation arising out of claims in the normal course of business,and when a probable loss contingency arises, records a loss provision basedupon actual or possible claims and assessments. The amount of possible claimrecorded is determined on the basis of the amount of the actual claim, when theamount is both probable and the amount of the claim can be reasonablyestimated. If a loss is deemed probable, but the range of potential loss iswide, Caliper records a loss provision based upon the low end estimate of theprobable range and may adjust that estimate in future periods as moreinformation becomes available. Litigation loss provisions, when made, arereflected 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.

 

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

 

***Stock-Based Compensation***

 

Caliper recognizes allshare-based payments, including grants of stock options, in the income statementas an 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-based compensation expense is includedwithin costs and expenses as follows (in thousands):

 

11

----

Table of Contents

 
| ** **                           | ** ** | **Three Months Ended******** June 30** | ** ** | **Six Months Ended******** June 30** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                           | ** ** | **2010**                                                   | ** ** | **2009**                                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
| Cost  of product revenue             |       | $                                                          | 61         |                                                     | $          | 82 |   | $ | 151 |   | $ | 159 |   |
| Cost  of service revenue             |       | 12                                                         |       | 29                                                       |       | 28 |   | 44 |   |
| Research  and development            |       | 125                                                        |       | 165                                                      |       | 270 |   | 295 |   |
| Selling,  general and administrative |       | 592                                                        |       | 713                                                      |       | 1,353 |   | 1,406 |   |
| Total                                |       | $                                                          | 790        |                                                     | $          | 989 |   | $ | 1,802 |   | $ | 1,904 |   |

 

On June 30, 2010,Caliper had share-based compensation plans (the “Plans”), which are describedwithin Note 12 to the consolidated financial statements included inCaliper’s Annual Report on Form 10-K for the year ended December 31,2009 filed with the SEC on March 12, 2010.

 

The fair value of eachoption award issued under the Plans is estimated on the date of grant using aBlack-Scholes-Merton based option pricing model that uses the assumptions notedin the following table. Expected volatilities are based on historicalvolatility of Caliper’s stock. The expected term of the options is based onCaliper’s historical option exercise data taking into consideration theexercise patterns of the option holders during the option’s life. The risk-freeinterest rate is based on the U.S. Treasury yield curve in effect on the dateof the grant.

 
| ** **                              | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2010**                                          | ** ** | **2009** | ** ** |
| Expected  volatility (%)                |       | 83-94                                             |       | 75-91 |   |
| Risk-free  interest rate (%)            |       | 1.43-2.18                                         |       | 1.60-1.95 |   |
| Expected  term (years)                  |       | 3.4-4.6                                           |       | 3.4-4.5 |   |
| Expected  dividend yield (%)            |       | —                                            |       | — |   |
| Weighted  average grant date fair value |       | $                                                 | 2.32       |   | $ | 0.55 |   |
|                                         |            |                                                   |            |  |  |  |  |

 

***Options and Restricted Stock Activity***

 

A summary of stock optionand restricted stock activity under the Plans as of June 30, 2010, andchanges during the six 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, 2009             |       | 7,922,392  |       | $                                                                          | 4.67       |                                                                                                | 6.43       |                                            | $          | 1,854 |   |
| Granted                                            |       | 1,118,194  |       | 3.61                                                                       |       | —                                                                                              |       | —                                          |       |
| Exercised                                          |       | (39,719    | )          | 2.03                                                                       |       | —                                                                                              |       | 80                                              |       |
| Canceled                                           |       | (155,757   | )          | 12.86                                                                      |       | —                                                                                              |       | —                                          |       |
| Outstanding  at June 30, 2010                 |       | 8,845,110  |       | $                                                                          | 4.40       |                                                                                                | 6.40       |                                            | $          | 6,414 |   |
| Exercisable  at June 30, 2010                 |       | 5,829,453  |       | $                                                                          | 5.12       |                                                                                                | 5.18       |                                            | $          | 2,221 |   |
| Vested  and expected to vest at June 30, 2010 |       | 8,696,979  |       | $                                                                          | 4.42       |                                                                                                | 6.36       |                                            | $          | 11,940 |   |

 
| **Restricted Stock Units**                  | ** ** | **Shares** | ** ** | **Weighted Average******** Grant Date******** Fair Market per******** Share Value** | ** ** |
|-------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| Outstanding  and non-vested at December 31, 2009 |       | 2,134,449  |       | $                                                                                                                           | 1.52       |   |
| Granted                                               |       | 351,625    |       | 3.48                                                                                                                        |       |
| Vested                                                |       | (1,072,250 | )          | 1.71                                                                                                                        |       |
| Cancelled                                             |       | (1,192     | )          | 2.72                                                                                                                        |       |
| Outstanding  and non-vested at June 30, 2010     |       | 1,412,632  |       | 1.86                                                                                                                        |       |
|                                                       |            |            |            |                                                                                                                             |            |  |

 

Restricted stock units donot carry an exercise price and typically vest over a four-year period,although the vesting period of certain awards may vary. As of June 30,2010, the weighted average remaining vesting term is 2.72 years and theaggregate intrinsic value of 

 

12

----

Table of Contents

 

outstanding and non-vestedrestricted stock is approximately $6.0 million.

 

During the six months ended June 30,2010, Caliper granted 1,118,194 options at a weighted average grant date fairvalue, using the Black-Scholes-Merton option pricing model, of $2.32 per share,and 351,625 restricted stock units at a weighted average grant date fair valueof $3.48 per share. The total fair value of restricted stock that vested duringthe six months ended June 30, 2010 was approximately $1.8 million.

 

As of June 30, 2010,there was $6.3 million of total unrecognized compensation cost related tounvested stock-based compensation arrangements granted under the Plans. Thatcost is expected to be recognized over a weighted-average remaining serviceperiod of approximately 2.83 years.

 

***Common Shares Outstanding***

 

During the six months ended June 30,2010, Caliper issued 948,533 shares of common stock as a result of purchasesunder Caliper’s Employee Stock Purchase Plan and activity related to stockoption exercises and vesting of restricted stock.

 

***Net Income (Loss) per Weighted Average Common Share Outstanding***

 

Basic net income (loss) pershare is calculated based upon net income (loss) divided by theweighted-average number of common shares outstanding during the period. Thecalculation of diluted net income per share gives effect to the dilutive effectof common stock equivalents consisting of stock options, unvested restrictedstock, unvested restricted stock units and warrants (calculated using thetreasury stock method).  Potentiallydilutive securities are excluded from the diluted earnings per sharecomputation to the extent they have an antidilutive effect due to Caliper’s netloss.

 

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

 
| ** **                                                                       | ** ** | **Three Months Ended******** June 30** | ** ** | **Six Months Ended******** June 30** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2010**                                                   | ** ** | **2009**                                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
| Weighted-average  shares of common stock outstanding, basic                      |       | 50,070                                                     |       | 48,806                                                   |       | 49,776 |   | 48,716 |   |
| Dilutive  options and restricted stock – based on the treasury stock method |       | 1,932                                                      |       | —                                                   |       | 2,036 |   | — |   |
| Weighted-average  shares used in dilutive computations of net income per share   |       | 52,002                                                     |       | 48,806                                                   |       | 51,812 |   | 48,716 |   |

 

The following outstandingoptions, restricted stock and warrants (prior to the application of thetreasury stock method) were excluded from the computation of diluted net lossper share as they had an antidilutive effect (in thousands):

 
| ** **                    | ** ** | **Three Months Ended******** June 30** | ** ** | **Six Months Ended******** June 30** | ** ** |
|-------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                    | ** ** | **2010**                                                   | ** ** | **2009**                                                 | ** ** | **2010** | ** ** | **2009** | ** ** |
| Options  and restricted stock |       | 6,299                                                      |       | 10,881                                                   |       | 6,668 |   | 10,881 |   |
| Warrants                      |       | 6,165                                                      |       | 6,174                                                    |       | 6,165 |   | 6,174 |   |
|                          |       | 12,464                                                     |       | 17,055                                                   |       | 12,833 |   | 17,055 |   |

 

13

----

Table of Contents

 

**Item 2.****                                     ****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

*ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations as of June 30, 2010, and for the three and six months ended June 30,2010, 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 endedDecember 31, 2009, filed with the SEC on March 12, 2010.*

 

*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 and sellsinnovative and enabling products and services to the life sciences researchcommunity, a customer base that includes pharmaceutical and biotechnologycompanies, and government and other not-for-profit research institutions. Webelieve our integrated systems, consisting of instruments, software andreagents, our laboratory automation tools and our assay development 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 opportunitiesand challenges in the drug discovery and development process—namely, thecomplex and costly process to conceive of and bring a new drug to market.

 

We believe that increasingthe clinical relevance of drug discovery experimentation, whether at early stage,lower cost in vitro (in an artificial environment) testing or later stage, moreexpensive, preclinical in vivo (in a living organism) testing, will have aprofound impact in helping our customers to determine the ultimate likelihoodof success of drugs in treating humans. With enabling offerings in both the invitro and in vivo testing arenas, and a unique strategy of enhancing the “bridge”or linkages between in vitro and in vivo research testing and between researchtesting and clinical diagnostic testing, we expect to continue to addressgrowing, unmet needs in the market and drive on-going demand for our productsand services. These market needs are underscored by key challenges that facethe pharmaceutical and biotechnology industry, including late-stage drugfailures and unforeseen side effects coming to light late in the developmentprocess or even after drugs are on the market.

 

We offer an array ofproducts and services, many of which are based on our own proprietarytechnologies, to address critical experimental needs in drug discovery andpreclinical development. Our technologies are also enabling for other lifesciences applications beyond drug discovery, such as environmental-relatedtesting, and in applied markets such as agriculture and forensics. We alsobelieve that our technology platforms may be able to provide ease of use, costand data quality benefits for certain in vitro and in vivo diagnosticapplications.

 

We have multiple channels ofdistribution 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 iscomplementary to our direct sales and distribution network activities, as itenables us to extend the commercial potential of our LabChip technology intonew industries and new applications with both experienced commercial partnersand earlier stage companies with their own proprietary technologies. 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.

 

Our product and service offeringsare organized into three core business areas—Imaging, Discovery Research(Research), and Caliper Discovery Alliances and Services (CDAS)—with the goalof creating a more scalable infrastructure while putting increased focus ongrowth and profitability.

 

·            The Imaging business holds,we believe, a global leadership position in the high-growth pre-clinicalmolecular imaging market. Principal activities of this business area includethe expansion of the IVIS imaging instrument system and related reagent productlines, development of new therapeutic area applications and addition of andsupport for complementary imaging modalities.

 

14

----

Table of Contents

 

·            The Research business areais responsible for utilizing Caliper’s automation and microfluidic technologiesto address an expanding array of opportunities in drug discovery and lifescience research, including molecular biology sample preparation and analysisfor genomics, proteomics, diagnostics, cellular screening and forensics.

 

·            The CDAS business area isresponsible for expanding drug discovery collaborations and alliances, andincreasing sales of drug discovery services. The focus of CDAS is to capitalizeon market “outsourcing” trends, and to offer complementary services to Caliper’sImaging and Research platform solutions.

 

***Second Quarter Key Highlights***

 

*SummaryFinancial Performance*

 

·            Our total revenues duringthe second quarter of 2010 decreased by approximately $3.1 million to$29.0 million, from $32.1 million in the second quarter of 2009 dueto a $4.2 million net change resulting from recent divestitures, as describedin Note 2 to our consolidated financial statements and summarized in the non-GAAPrevenue reconciliation as set forth below, which was offset by 4% growth inrevenue derived from our ongoing business. Total revenue derived from ongoingbusiness operations increased 6% during the quarter, adjusted for unfavorablecurrency changes.  Key changes in revenueon a strategic business unit basis are discussed below (see non-GAAP revenuetable and related discussion.)

 

·            Product gross marginsincreased to 50.7% in 2010 versus 40.3% in 2009 in the second quarter. The tenpoint improvement resulted from increased revenue on higher margin instrumentssuch as the LabChip GX II and IVIS instruments, in contrast to lower productmargin sales experienced in the second quarter of 2009, together withmanufacturing efficiencies and lower material costs.  The favorable product mix shift accounted forapproximately 4 points of gross margin gain, and improvements in manufacturing,procurement, warranty and distribution costs accounted for approximately 6points of gross margin improvement compared to the second quarter of 2009.

 

·            Service gross marginsincreased to 38% in 2010 from 33% in 2009 due principally to the December 2009divestiture of XenBio which contributed only 14% in service gross margin in thesecond quarter of 2009.

 

·            Net income for the secondquarter of 2010 was $9.2 million, or $0.18 per share, compared to net lossof $4.1 million, or $0.08 per share, in 2009. The increase in the netincome of $13.3 million was primarily related to the $11.4 million gain on theTurboVap and RapidTrace product line divestiture, but also was due to theincrease in gross margin contribution.

 

*RevenuePerformance by Strategic Business Unit*

 

The table below provides areconciliation of our GAAP basis revenue to pro forma non-GAAP revenue resultsfor the second quarters of 2010 and 2009, after giving effect to the divesturesdescribed in Note 2 to our consolidated financial statements. We believe thisreconciliation, and the discussion that follows, provide meaningful comparisonsfor evaluating revenue performance between fiscal periods and understanding ourongoing business operations.  Thesenon-GAAP comparisons are not intended to substitute for GAAP financialmeasures.

 
| ** **      | ** ** | **Three Months Ended  June 30,** | ** ** | ** **   | ** ** | ** **   | ** ** |
|-----------------|------------|---------------------------------------|------------|--------------|------------|--------------|------------|
| ** **      | ** ** | **GAAP**                              | ** ** | **Non-GAAP** | ** ** | **Non-GAAP** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **      | ** ** | **(in thousands)**                    | ** ** | **GAAP**     | ** ** | **Non-GAAP** | ** ** |
| ** **      | ** ** | **2010**                              | ** ** | **2009**     | ** ** | **2010**     | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** | **% Chg** | ** ** | **% Chg(2)** | ** ** |
| Imaging         |       | $                                     | 14,826     |         | $          | 12,906       |       | $ | — |   | $ | (111 | ) | $ | 14,826 |   | $ | 12,795 |   | 15 | % | 16 | % |
|            |       |                                  |       |         |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Microfluidics   |       | 7,412                                 |       | 6,691        |       | —       |       | — |   | 7,412 |   | 6,691 |   | 11 | % | 11 | % |
| Automation      |       | 5,811                                 |       | 8,391        |       | (1,152       | )          | (2,511 | ) | 4,659 |   | 5,880 |   | (31 | )% | (21 | )% |
| Research        |       | 13,223                                |       | 15,082       |       | (1,152       | )          | (2,511 | ) | 12,071 |   | 12,571 |   | (12 | )% | (4 | )% |
|            |       |                                  |       |         |       |         |       |   |   |   |   |   |   |   |   |   |   |
| Services (CDAS) |       | 1,001                                 |       | 4,123        |       | —       |       | (2,703 | ) | 1,001 |   | 1,420 |   | (76 | )% | (30 | )% |
| Total revenue   |       | $                                     | 29,050     |         | $          | 32,111       |       | $ | (1,152 | ) | $ | (5,325 | ) | $ | 27,898 |   | $ | 26,786 |   | (10 | )% | 4 | % |

 

----

| (1) | For purposes of comparing  growth rates for each of the three principal product and service groups  within our business, the above non-GAAP table reconciliations exclude  revenues related to the TurboVap and RapidTrace product lines divested in  May 2010, the AutoTrace product lines divested in November 2008, as  well as revenues related to Xenogen Biosciences Corporation which was  divested in December 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Percentages in column  include the impact of currency changes. Currency movements unfavorably  impacted the above growth rates by 2% for both the Research and Imaging  strategic business units and 2% with respect to total non-GAAP revenue during  the three months ended June 30, 2010.                                                                                                                                           |

 

Imaging revenues increasedby 16% on a non-GAAP basis to $14.8 million during the second quarter of2010 from $12.8 million during the second quarter of 2009. Imaging revenuegrowth was primarily driven by expansion of the instrumentation business,including a 19% increase in the number of instruments sold within the quartercompared to the same period in 2009.

 

15

----

Table of Contents

 

Ongoing Research revenuesdecreased by 4% on a non-GAAP basis to $12.1 million during the secondquarter of 2010 from $12.6 million during the second quarter of 2009. Theoverall Research decline included a decrease in automation sales of $1.2million as a result of strategic refocusing of our automation platforms awayfrom non-core applications in order to support microfluidic (LabChip) growthand fast-growing biomolecular market applications.  Microfluidic revenues increased by $0.7million, or 11%, in total.  Themicrofluidics revenue increase resulted from an increase in sales of LabChip GXof $1.1 million driven by biotherapeutic discovery applications, offset by adecrease in sales of EZ Reader of approximately $1.4 million due to sluggishkinase screening demand.  LabChip-associated consumables (chips, kits and reagents) revenues and license revenuesalso increased by $0.5 million and $0.4 million, respectively, during thesecond quarter compared to the same period in 2009.

 

CDAS revenues decreased by30% on a non-GAAP basis to $1.0 million during the second quarter of 2010from $1.4 million during the second quarter of 2009. The net decreaseresulted from the completion of a large oncology project with a single customerwhich generated approximately $0.5 million in revenue in the second quarter of2009, offset in part by growth from government contract services.  CDAS also experienced continued delays in itsEnvironmental Protection Agency (EPA) ToxCast screening program.  However, in May 2010, CDAS was awarded anew funding commitment for $2.9 million under its contract with the EPA,increasing the current backlog of Phase II task orders to $4.7 million.  CDAS is awaiting receipt of compounds tobegin Phase II services, the timing of which is now expected to be late in thethird quarter or the fourth quarter of 2010.

 

**CriticalAccounting Policies and 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, 2009, filed with the SEC onMarch 12, 2010.

 

**Results ofOperations for the Three and Six Months Ended June 30, 2010**

 

Operating results for thethree and six months ended June 30, 2010 are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2010.For example, we typically experience higher revenues in the fourth quarter ofour fiscal year as a result of the capital spending patterns of our customers.

 

***Revenue***

 
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**            | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product  revenue                   |       | $                                | 20,486     |                           | $          | 21,499 |   | $ | (1,013 | ) | (5 | )% | $ | 40,854 |   | $ | 39,808 |   | $ | 1,046 |   | 3 | % |
| Service  revenue                   |       | 5,343                            |       | 7,905                          |       | (2,562 | ) | (32 | )% | 10,424 |   | 15,562 |   | (5,138 | ) | (33 | )% |
| License  fees and contract revenue |       | 3,221                            |       | 2,707                          |       | 514 |   | 19 | % | 6,424 |   | 5,213 |   | 1,211 |   | 23 | % |
|                               |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  Revenues                    |       | $                                | 29,050     |                           | $          | 32,111 |   | $ | (3,061 | ) | (10 | )% | $ | 57,702 |   | $ | 60,583 |   | $ | (2,881 | ) | (5 | )% |

 

*ProductRevenue.   *Product revenue decreasedduring the three months ended June 30, 2010, by $1.0 million comparedto the same period in 2009, due primarily to revenues of $1.5 million fromdivested product lines that we realized during the second quarter of 2009.  Net of the impact of divestitures, product revenuesfrom ongoing product lines increased $0.5 million during the period, includingan increase in Imaging product sales of $1.3 million, or approximately 15%, anda decrease in Research product sales of $0.9 million, or 9%, compared to thesecond quarter of 2009.  The increase inImaging product sales was primarily due to a 19% increase in IVIS instrumentplacements (44 units in 2010 compared to 37 units in 2009). Research productsales in the quarter decreased due to a decrease in EZ Reader unit sales ofapproximately $1.4 million and a $1.1 million decrease in liquid handlinginstrument sales, offset by a $1.1 million increase in LabChip GX unit salesand a $0.5 million increase in microfluidic chip, kit and reagent sales. Webelieve the increase in LabChip GX instrument performance contrasted with thedecrease in EZ Reader instrument sales characterizes a trend of increasedinvestment by pharmaceutical companies in biotherapeutic research anddevelopment programs and a scale back of funding of small molecule discoveryprograms and, to a lesser extent, spending delays due to recent pharmaceuticalmergers.

 

Product revenue increased by$1.0 million during the six months ended June 30, 2010, whichincludes a $1.7 million decrease in product revenues from divested productlines.  Net of the impact ofdivestitures, product revenues from ongoing product lines increased $2.7million during the period, including an increase in Imaging product sales of$3.6 million, or 22%, and a decrease in Research revenues of $0.9 million, or5%, compared to the six months ended June 30, 2009.  The Imaging product sales increase was due toa 

 

16

----

Table of Contents

 

19% increase in IVISinstrument placements (81 units in 2010 compared to 68 units in 2009) as wellas an increased average selling price which was favorably impacted by IVISSpectrum and Lumina XR instrument sales.

 

The Research product saledecrease during the six months ended June 30, 2010, was comprised of a$1.3 million, or 13%, increase in microfluidic product revenues and a$2.2 million, or 26%, decline in automation product revenues, compared tothe same period in 2009. The increase in microfluidic revenues during the sixmonths ended June 30, 2010, compared to 2009, was primarily due to(a) a $1.6 million increase in sales of our LabChip GX instrumentsfrom a 56% increase in instrument placements; (b) a $0.9 million, or16%, increase in sales of microfluidic consumables (chips, kits and reagents)resulting from growth in the installed base of LabChip instruments as well asan increase in the usage of ProfilerPro consumables by a single customer in thefirst quarter compared to 2009; offset in part by (c) a $1.2 milliondecrease in sales of EZ Reader instrument sales. The decrease in automationproduct revenues during the six months ended June 30, 2010 compared to2009 was primarily due to (a) a $1.1 million decrease in sales of StaccatoAutomated Workstation instruments; (b) a $0.9 million decrease in unitsales of our Zephyr liquid handling instrument; and (c) a $0.6 millionlast time purchase of product we no longer manufacture by an automation OEMcustomer in the first quarter of 2009; offset in part by sales of Twister platehandling systems and other accessories.

 

*ServiceRevenue.*   Total service revenue decreased$2.6 million during the three months ended June 30, 2010, compared tothe same period in 2009, including a decrease of $2.6 million as a result ofthe divestiture of XenBio in December 2009, an increase of$0.4 million in instrument service revenues associated with Imaging andResearch instrument offerings and a $0.4 million decrease in CDAS servicerevenues. The CDAS decrease was comprised of a $0.5 million declineattributed to the completion of a large oncology project with a singlecustomer, offset in part by a $0.1 million increase in government contractservices.

 

Total service revenuedecreased $5.1 million during the six months ended June 30, 2010,compared to the same period in 2009, including a decrease of $5.2 million as aresult of the divestiture of XenBio, an increase of $0.8 million ininstrument service revenues from Imaging and Research product offerings and a$0.7 million decrease in CDAS service revenues. The $0.8 millionincrease in instrument service revenues was primarily due to an increase inservice revenues generated from the Imaging and Microfluidic installed bases,offset in part by a decrease in automation service revenue.  The CDASdecrease was comprised of a $1.2 million decline attributed to thecompletion of a large oncology project with a single customer, offset in partby growth from other commercial customers and government contract services.

 

*LicenseFees and Contract Revenue.*    Licensefees and contract revenue increased during the three and six months ended June 30,2010, compared to the same periods in 2009, primarily as a result of anincrease in microfluidic license and contract revenues received from newlicensees secured after the second quarter of 2009 and an increase in Imaginglicense revenue of $0.2 million and $0.5 million during the three and sixmonths ended June 30, 2010, respectively.

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)** | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                | 10,101     |                           | $          | 12,830 |   | $ | (2,729 | ) | (21 | )% | $ | 20,396 |   | $ | 24,083 |   | $ | (3,687 | ) | (15 | )% |
| Service                 |       | 3,317                            |       | 5,331                          |       | (2,014 | ) | (38 | )% | 6,507 |   | 11,038 |   | (4,531 | ) | (41 | )% |
| License                 |       | 521                              |       | 310                            |       | 211 |   | 68 | % | 926 |   | 702 |   | 224 |   | 32 | % |
| Total  Costs            |       | $                                | 13,939     |                           | $          | 18,471 |   | $ | (4,532 | ) | (25 | )% | $ | 27,829 |   | $ | 35,823 |   | $ | (7,994 | ) | (22 | )% |

 

*Cost ofProduct Revenue.*    Cost of product revenuedecreased $2.7 million during the three months ended June 30, 2010,compared to the same period in 2009 as a result of recent product linedivestitures ($0.6 million of the decrease) combined with lower product costsrelated to ongoing product sales.  The overall decrease in cost of productrevenue for ongoing product revenue includes (a) lower material costs of$0.5 million due to sourcing initiatives and favorable changes in productmix; (b) reduced excess and obsolete inventory provisions of$0.7 million resulting from the improved inventory turnover and thereplacement of inventory by newer technologies; and (c) a $0.3 milliondecrease in other costs, including warranty provisions, royalties andmanufacturing variances.

 

Cost of product revenuedecreased $3.7 million during the six months ended June 30, 2010, comparedto the same period in 2009, despite a 3% increase in product revenue within theperiod.  The overall decrease in cost of product revenue is due to recentproduct line divestitures ($0.7 million of the decrease) combined with theeffects from ongoing product revenue, including (a) lower material costsof $1.0 million, due to sourcing initiatives and favorable changes inproduct mix; (b) a $0.8 million decrease in warranty expenses relatedto both materials and labor which are related to quality initiativesimplemented in 2009 which have resulted in reduced spending over the last sixmonths compared to prior periods; (c) reduced excess and obsoleteinventory provisions of $0.5 million resulting from improved inventoryturnover and the replacement of inventory by newer technologies; and(d) other cost reductions, including reduced overhead related to ourfacility as a result of the shutdown of a portion of our Hopkinton,Massachusetts instrument manufacturing facility in 2009.

 

17

----

Table of Contents

 

*Cost ofService Revenue.*    Cost of service revenuedecreased during the three and six months ended June 30, 2010, as comparedto the same periods in 2009, primarily due to our divestiture of XenBio in December 2009,which had $2.2 million and $4.7 million, respectively, in costs during2009.  All other service costs increased by $0.2 million during the threeand six months ended June 30, 2010, primarily related to increasedspending within our instrument services business.

 

*Cost ofLicense Revenue.*     Cost of license revenueincreased during the three and six months ended June 30, 2010 compared tothe same periods in 2009 due primarily to an increase in cost of royaltiesrelated to the corresponding increase in imaging license revenues.

 

*GrossMargins.*     Product gross marginsincreased to 50.7% in the quarter ended June 30, 2010, versus 40.3% in2009. The ten point improvement resulted from growth among higher margininstruments such as the LabChip GX II and IVIS instruments, together withmanufacturing efficiencies and lower material costs.  The favorable product mix shift accounted forapproximately 4 points of gross margin gain, and improvements in manufacturing,procurement, warranty and distribution costs accounted for approximately 6points of gross margin improvement compared to the second quarter of 2009.  Gross margin on service revenue was 38% forthe three months ended June 30, 2010, as compared to 33% for the sameperiod in 2009. This increased service margin resulted primarily from thedivestiture of XenBio, which had a service margin of only 14% in the secondquarter of 2009.

 

Product gross marginsincreased to 50% in the six months ended June 30, 2010, versus 40% in2009. The ten point improvement resulted from growth among higher margininstruments such as the LabChip GX II and IVIS instruments, in contrast tolower product margin sales experienced in 2009 together with manufacturingefficiencies and lower material costs. The favorable product mix shift accounted for approximately 3 points ofgross margin gain, and improvements in manufacturing, procurement, warranty anddistribution costs accounted for approximately 7 points of gross marginimprovement compared to the six months ended June 30, 2009. Gross marginon service revenue was 38% for the six months ended June 30, 2010, ascompared to 29% for the same period in 2009. This increased service marginresulted primarily from the divestiture of XenBio, which had a service marginof only 10% in the first half of 2009.

 

***Expenses***

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                            | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                            | ** ** | **(In thousands)**          | ** ** |
| Research  and development             |       | $                                | 4,299      |                           | $          | 4,634 |   | $ | (335 | ) | (7 | )% | $ | 8,646 |   | $ | 9,185 |   | $ | (539 | ) | (6 | )% |
| Selling,  general and administrative  |       | 10,745                           |       | 11,264                         |       | (519 | ) | (5 | )% | 21,604 |   | 22,449 |   | (845 | ) | (4 | )% |
| Amortization  of intangible assets    |       | 1,226                            |       | 1,557                          |       | (331 | ) | (21 | )% | 2,480 |   | 3,114 |   | (634 | ) | (20 | )% |
| Restructuring  charges (credits), net |       | 603                              |       | 29                             |       | 574 |   | 1,979 | % | 634 |   | 52 |   | 582 |   | 1,119 | % |
|                                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Researchand Development Expenses.*    Research anddevelopment spending decreased by $0.3 million during the three months endedJune 30, 2010, compared to the same period in 2009, primarily as a resultof a $0.2 million reduction in materials and supplies utilized within theperiod and $0.1 million in reduced facility costs .

 

Research and developmentspending decreased by $0.5 million during the six months ended June 30, 2010,compared to the same period in 2009, primarily as a result of a $0.2 millionreduction in personnel-related costs which was comprised of a reduction inbonus provisions based upon the final payout of bonuses for 2009 versus theoriginal accrual estimates at year end, severance provisions recorded in thesix months ended June 30, 2009, and slightly reduced headcount within theperiod compared to 2009.  The remainingdecrease was due to a $0.1 million reduction in materials and supplies, a $0.1million reduction in facility allocations and a $0.1 million reduction relatedto divested businesses.

 

*Selling,General and Administrative Expenses.*    Selling,general and administrative expenses decreased by $0.5 million during thethree months ended June 30, 2010, compared to the same period in 2009, dueprimarily to the divestiture of XenBio in December 2009, which resulted ina $0.4 million decrease in such expenses. General and administrative expenses decreased by approximately $0.1million, primarily related to a reduction in stock based compensation expensewithin the period.  Selling and marketingexpenses were unchanged during the three months ended June 30, 2010compared to the same period in 2009.

 

Selling, general andadministrative expenses decreased by $0.8 million during the six monthsended June 30, 2010, compared to the same period in 2009 on an overall netbasis due primarily to the divestiture of XenBio, which resulted in a $0.9million decrease in such expenses.  Excluding the impact of the XenBiodivestiture, selling and marketing expenses increased $0.4 million and generaland administrative expenses decreased $0.3 million.  Selling and marketingexpenses increased due to a $0.2 million increase in marketing 

 

18

----

Table of Contents

 

and supplies, as well as a$0.2 million increase in travel and related costs.   General andadministrative expenses decreased by $0.3 million during the six months ended June 30,2010, compared to the same period in 2009, primarily due to $0.2 million inreduced legal spending and a $0.2 million reduction within office and operatingcosts, offset in part by an increase in all other general and administrativecosts.

 

*Amortizationof Intangible Assets.*  The amortization of intangibleassets for the three and six months ended June 30, 2010, relates to assetsacquired in our previous business combinations. Amortization is computed basedupon the estimated timing of the undiscounted cash flows used to value eachrespective asset over the estimated useful life of the particular intangibleasset, or using the straight-line method over the estimated useful life of theintangible asset when the pattern of cash flows is not necessarily reflectiveof the true consumption rate of the particular intangible asset.  Thedecrease in amortization during the three and six months ended June 30,2010, is the result of certain intangibles related to the XenBio business thatwas divested in December 2009 and to a lesser extent reduced amortizationfrom our NovaScreen intangibles for which an impairment charge was recorded inthe fourth quarter of 2009.

 

*RestructuringCharges.*    We incurred restructuringcharges in 2008 and prior periods related to acquisition and integrationactivities that are more fully discussed in Note 7 to the accompanyingfinancial statements.  InApril 2010, we vacated approximately 5,400 square feet of our MountainView, California facility in connection with improving certain aspects of ourchip manufacturing operations and in order to increase the likelihood ofsecuring a sub-tenant for already existing vacant space.  We recorded arestructuring charge of approximately $0.6 million related to this action inthe second quarter of 2010.  Additional restructuring charges during thethree and six months ended June 30, 2010, and 2009 relate to accretion ofinterest related to idle facility rent obligations.

 

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

 
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**      | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest  expense, net       |       | $                                | (72        | )                              | $          | (179 | ) | $ | 107 |   | 60 | % | $ | (202 | ) | $ | (391 | ) | 189 |   | 48 | % |
| Gain  on divestitures        |       | 11,424                           |       | —                         |       | 11,424 |   | nm |   | 11,424 |   | — |   | 11,424 |   | nm |   |
| Other  income (expense), net |       | (37                              | )          | 66                             |       | (103 | ) | (156 | )% | (389 | ) | (117 | ) | (272 | ) | (232 | )% |
|                              |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*InterestExpense, Net.*    Net interest expensedecreased during the three and six months ended June 30, 2010, compared tothe same periods in 2009, as a result of a decrease in average borrowings underour credit facility during the periods.

 

*Gain onDivestitures.*    In May 2010, wedivested our TurboVap and RapidTrace product lines and recorded a gain of $11.4million, which is more fully discussed in Note 2 of the accompanying financialstatements.  A tax provision of $0.3million was provided for alternative minimum federal taxes in connection withthis gain.

 

*OtherIncome (Expense), Net.*    Other expense, net,increased on a three-month basis compared to 2009 due to transaction losses onforeign denominated accounts receivable resulting primarily from astrengthening of the U.S. dollar compared to the Euro which affected unsettledaccounts receivable with our subsidiaries during the second quarter of 2010.During the three months ended June 30, 2010, we incurred foreign currencytransaction losses of approximately $0.1 million, compared to none for thesame period in 2009.

 

Other expense, net,increased on a six-month basis compared to 2009 due to transaction losses onforeign denominated accounts receivable resulting from a strengthening of theU.S. dollar compared to the Euro and the British Pound which affected unsettledaccounts receivable with our subsidiaries during the six months ended June 30,2010. During the six months ended June 30, 2010, we incurred foreigncurrency transaction losses of approximately $0.5 million, compared tolosses of approximately $0.2 million for the same period in 2009.

 

**Liquidityand Capital Resources**

 

As of June 30, 2010, wehad $37.6 million in cash, cash equivalents and marketable securities,compared to $38.0 million as of December 31, 2009, and we had nooutstanding debt under our credit facility compared to $14.9 million at December 31,2009.  The credit facility matures on April 1, 2011 and serves as asource of capital for ongoing operations and working capital needs.  As ofJune 30, 2010, we were in compliance with our covenants under the creditfacility. We expect to remain in compliance with the covenants through thecredit facility’s maturity date based on current forecasts. The terms of ourcredit facility are more fully discussed under Item 7, “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2009,filed with the SEC on March 12, 2010.

 

On November 21, 2007,we filed, and the SEC subsequently declared effective, a universal shelfregistration statement on Form S-3 that will permit us to raise up to$100 million of any combination of common stock, preferred stock, debtsecurities, warrants or units, either individually or in units. The shelfregistration will expire in December 2010 unless we extend it. The sale ofadditional equity or 

 

19

----

Table of Contents

 

convertible debt securitiesmay result in additional dilution to our stockholders. Furthermore, additionalcapital may not be available on terms favorable to us, if at all. Accordingly,no assurances can be given that we will be successful in these endeavors.

 

We maintain cash balances inmany subsidiaries through which we conduct our business. The repatriation ofcash balances from certain of our subsidiaries could have adverse taxconsequences. However, these cash balances are generally available withoutlegal restrictions to fund ordinary business operations. We have transferred,and will continue to transfer, cash from our subsidiaries to us and to otherinternational subsidiaries when it is cost effective to do so.

 

***Cash Flows***

 
| ** **                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2010**                                          | ** ** | **2009** | ** ** | **$ Change** | ** ** |
| Cash  provided by (used in) |       |                                              |       |   |   |   |   |
| Operating  Activities       |       | $                                                 | (1,587     | ) | $ | (2,648 | ) | $ | 1,061 |   |
| Investing  Activities       |       | 9,416                                             |       | (1,216 | ) | 10,632 |   |
| Financing  Activities       |       | (14,416                                           | )          | 264 |   | (14,680 | ) |
|                             |            |                                                   |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*    During the six months ended June 30,2010, we used $1.6 million in operating activities, reflecting a net improvement(reduction) in operating cash needs of $1.0 million compared to the same periodof 2009.  An increase in operating cashused of $3.5 million during this period resulted from 2009 cash bonuses paid in2010, in contrast to no cash bonus payments in 2009.   Notwithstanding this increase, cashgenerated from operations and all other working capital changes resulted inimproved operating cash flow results.

 

*InvestingActivities.*    In May 2010, wegenerated $16.5 million in cash from the divestiture of the TurboVap andRapidTrace product lines.  These proceedswere offset during the six months ended June 30, 2010 by net purchases ofmarketable securities in order to increase interest income yields.  Our other primary investing activity was theuse of cash for the purchase of property and equipment of $0.9 million coveringmiscellaneous manufacturing, research and development, and information systemsneeds.

 

*FinancingActivities.*    During the six months ended June 30,2010, we utilized $14.9 million in cash that was generated from the divestitureof the TurboVap and RapidTrace product lines to pay down our creditfacility.  In addition, we realizedapproximately $0.5 million in cash proceeds related to option exercises.

 

**ContractualObligations**

 

Our commitments under leasesand other obligations are described in Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and in the Notes tothe Consolidated Financial Statements included in our Annual Report onForm 10-K for the fiscal year ended December 31, 2009, filed with theSEC on March 12, 2010.  There has been no material change during thesix months ended June 30, 2010 in the contractual obligations disclosed asof December 31, 2009.

 

***Capital Requirements***

 

Our capital requirementsdepend on numerous factors, including market acceptance of our products, theresources we devote to developing and supporting our products, andacquisitions. We expect to devote substantial capital resources to continuingour research and development efforts, expanding our support and productdevelopment activities, and for other general corporate activities. Our futurecapital requirements will depend on many factors, including:

 

·                             continuedmarket acceptance of our in vivo imaging, microfluidic and lab automationproducts and services;

·                             the magnitudeand scope of our research and product development programs;

·                             our ability tomaintain existing, and establish additional, corporate partnerships;

·                             the time andcosts involved in expanding and maintaining our manufacturing facilities;

·                             the potentialneed to develop, acquire or license new technologies and products; and

·                             other factorsnot within our control.

 

**Item 3.             Quantitativeand Qualitative Disclosures About Market Risk**

 

***Interest Rate Sensitivity***

 

Our primary market riskexposures are foreign currency fluctuation and interest rate sensitivity.During the six months ended June 30, 2010, there have been no materialchanges to the information included under Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in our Annual Report on Form 10-K for thefiscal year ended December 31, 2009, filed with the SEC on March 12,2010.

 

20

----

Table of Contents

 

**Item 4.             Controls and Procedures**

 

*Evaluationof disclosure controls and procedures.  *  Wehave established disclosure controls and procedures (as defined in Exchange ActRules 13a-15 (e) and 15d-15(e)) that are designed to providereasonable assurance that information required to be disclosed in our reportsfiled under the Securities Exchange Act of 1934, such as this Quarterly Reporton Form 10-Q, is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms. Our officersconcluded that our disclosure controls and procedures are also effective toensure that information required to be disclosed in the reports that we file orsubmit under the Exchange Act is accumulated and communicated to ourmanagement, including the principal executive officer and principal financialofficer, to allow timely decisions regarding required disclosure.

 

Based on their evaluation asof June 30, 2010, our principal executive officer and principal financialofficer have concluded that our disclosure controls and procedures areeffective to provide reasonable assurance that information we are required todisclose in reports that we file or submit under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodsspecified in SEC rules and forms.

 

*Limitationson the Effectiveness of 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 or mistake.Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people or by management override of thecontrol. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.

 

*Changes ininternal controls.*    There were no changes in ourinternal control over financial reporting, identified in connection with theevaluation of such internal control that occurred during the second quarter of2010 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

21

----

Table of Contents

 

**Part II—OTHER INFORMATION**

 

**Item 1.             LegalProceedings**

 

On February 23, 2010,Caliper, its wholly owned subsidiary Xenogen Corporation, and StanfordUniversity filed a complaint for patent infringement against Carestream Health, Inc.(“Carestream”) in the U.S. District Court for the Eastern District ofTexas.  Caliper, Xenogen and StanfordUniversity seek a judgment that Carestream induced infringement of seven UnitedStates patents that Caliper, through Xenogen, exclusively licenses fromStanford University.  Caliper and its co-plaintiffs seek an award of compensatory damages, trebled damages due toCarestream’s willfulness, a permanent injunction and attorneys’ fees againstCarestream for its ongoing, indirect infringement of the patents-in-suit. Thecomplaint was served on Carestream on February 26, 2010.  OnApril 20, 2010, Carestream filed its answer to the complaint, denying itinduces infringement of the asserted patents.  Carestream also counterclaimedfor declaratory judgments of non-infringement and invalidity of the assertedpatents.  Carestream also filed a motion to transfer the venue of thelitigation to another District Court. Caliper and Carestream subsequently agreed to the transfer of this caseto the U.S. District Court for the Northern District of California, where it ispending.  The Court scheduled the casemanagement conference for this litigation for September 30, 2010.

 

On June 8, 2010, theUnited States Patent and Trademark Office issued U.S. Patent No. 7,734,325(“the ‘325 Patent”) to Carestream.  Thenext day, Caliper filed a Request for *Inter Partes*Reexamination of the ‘325 Patent with the USPTO.  The USPTO is required by statute to indicateby mid-September whether it will order reexamination of the ‘325 Patent.

 

On July 9, 2010,Carestream filed a complaint for patent infringement against Caliper in theU.S. District Court for the Western District of Wisconsin.  Carestream’s complaint alleges that Caliper’sLumina XR imaging system, which is a multi-modal imaging system with bothoptical and x-ray capabilities that Caliper first introduced in September,2009, infringes the ‘325 Patent and that Caliper indirectly infringes the ‘325patent.  Carestream’s allegations ofinfringement do not involve any of Caliper’s imaging products other than theLumina XR.  Caliper believes that the ‘325Patent is invalid and that the Lumina XR system does not infringe the claims ofthe ‘325 Patent, and Caliper intends to defend against this lawsuitvigorously.  With its complaint forpatent infringement, Carestream also filed with the Court a motion forpreliminary injunction to prevent Caliper from selling the Lumina XR systemduring the pendency of this litigation. Caliper’s Opposition to Carestream’s motion for a preliminary injunctionis due on August 11, 2010.  Nohearing date for Carestream’s preliminary injunction motion has been set by theCourt.

 

On July 26, 2010,Caliper filed a motion to transfer this litigation to the U.S. District Courtfor the Northern District of California, or in the alternative, to stay thislitigation pending the resolution of any reexamination of the ‘325 Patentpursuant to the reexamination request filed by Caliper with the USPTO.  Carestream’s response to Caliper’s motion isdue on August 16, 2010.  Caliperfiled its answer to Carestream’s complaint on August 2, 2010.

 

From time to time Caliper isinvolved in litigation arising out of claims in the normal course ofbusiness.  Based on the information presently available, management believesthat there are no outstanding claims or actions pending or threatened againstCaliper, the ultimate resolution of which will have a material adverse effecton our financial position, liquidity or results of operations, although theresults of litigation are inherently uncertain, and adverse outcomes arepossible.

 

**Item 1A.          RiskFactors**

 

Our risk factors aredescribed in Part I, Item 1A of our Annual Report on Form 10-Kfor the year ended December 31, 2009, filed with the SEC on March 12,2010. There have been no material changes in the risks affecting Caliper sincethe filing of such Annual Report on Form 10-K.

 

**Item 2.             UnregisteredSales of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3.             DefaultsUpon Senior Securities**

 

None.

 

**Item 4.             Reserved**

 

22

----

Table of Contents

 

**Item 5.             OtherInformation**

 

None.

 

**Item 6.             Exhibits**

 

**EXHIBIT INDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                    |
| 2.1(1)                    |       | Asset Purchase Agreement,  dated as of May 17, 2010, by and between Biotage LLC and Caliper Life  Sciences, Inc.                                                                                                              |
|                      |       |                                                                                                                                                                                                                                    |
| 2.2(1)(2)                 |       | Stock Purchase Agreement  by and among Caliper Life Sciences, Inc., Taconic Farms, Inc., and  Xenogen Corporation, dated as of December 11, 2009.                                                                        |
|                      |       |                                                                                                                                                                                                                                    |
| 10.1                      |       | Second Loan Modification  Agreement, dated May 24, 2010, by and among Caliper Life  Sciences, Inc., Silicon Valley Bank, NovaScreen Biosciences Corporation,  Xenogen Corporation, and Caliper Life Sciences Ltd.             |
|                      |       |                                                                                                                                                                                                                                    |
| 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.                                    |

 

----

(1)                                 Confidentialtreatment has been requested for certain portions of this exhibit, whichportions have been omitted and filed separately with the Securities andExchange Commission.

 

(2)                                 Previouslyfiled as Exhibit 2.4 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2009 (the “Exhibit”). The Exhibit is being re-filed for thepurpose of revising portions of the Exhibit in response to comments made by theCommission on the Company’s request for confidential treatment with respect tothe Exhibit.

 

* The certificationsattached as Exhibits 32.1 and 32.2 accompany this Quarterly Report onForm 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002and shall not be deemed “filed” by Caliper for purposes of Section 18 ofthe Securities Exchange Act of 1934, as amended.

 

**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                      | CALIPER LIFE  SCIENCES, INC. |
|---------------------------|-----------------------------------|
|                      |                              |   |
| Date: August 6, 2010 |                              |   |
|                      | By:                               | /s/ E. KEVIN  HRUSOVSKY |
|                      |                              | E. Kevin Hrusovsky |
|                      |                              | Chief Executive Officer  and President |
|                      |                              |   |
| Date: August 6, 2010 |                              |   |
|                      | By:                               | /s/ PETER F. MCAREE |
|                      |                              | Peter F. McAree |
|                      |                              | Senior Vice President and  Chief Financial Officer |

 

23

----

Table of Contents

 

**EXHIBIT INDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                    |
| 2.1(1)                    |       | Asset Purchase Agreement,  dated as of May 17, 2010, by and between Biotage LLC and Caliper Life  Sciences, Inc.                                                                                                              |
|                      |       |                                                                                                                                                                                                                                    |
| 2.2(1)(2)                 |       | Stock Purchase Agreement  by and among Caliper Life Sciences, Inc., Taconic Farms, Inc., and  Xenogen Corporation, dated as of December 11, 2009.                                                                        |
|                      |       |                                                                                                                                                                                                                                    |
| 10.1                      |       | Second Loan Modification  Agreement, dated May 24, 2010, by and among Caliper Life  Sciences, Inc., Silicon Valley Bank, NovaScreen Biosciences Corporation,  Xenogen Corporation, and Caliper Life Sciences Ltd.             |
|                      |       |                                                                                                                                                                                                                                    |
| 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.                                    |

 

----

(1)                                 Confidentialtreatment has been requested for certain portions of this exhibit, whichportions have been omitted and filed separately with the Securities andExchange Commission.

 

(2)                                 Previouslyfiled as Exhibit 2.4 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2009 (the “Exhibit”). The Exhibit is being re-filed for thepurpose of revising portions of the Exhibit in response to comments made by theCommission on the Company’s request for confidential treatment with respect tothe Exhibit.

 

* The certificationsattached as Exhibits 32.1 and 32.2 accompany this Quarterly Report onForm 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002and shall not be deemed “filed” by Caliper for purposes of Section 18 ofthe Securities Exchange Act of 1934, as amended.

 

24

----