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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
for the quarterly period ended September 30, 2004. 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 # 000-28229 CALIPER LIFE SCIENCES, INC.  Delaware
(State of Incorporation)
    
    33-0675808
(I.R.S. Employer Identification Number)
 68 Elm Street
Hopkinton, Massachusetts 01748
(Address and zip code of principal executive offices) Registrants telephone number, including area code: (508) 435-9500 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x  No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x  No o NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON October 29, 2004: 29,590,722




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##### Table of Contents



Caliper Life Sciences, Inc. Table of Contents PagePART I   FINANCIAL INFORMATIONItem 1.    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2004 and 2003Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2004 and 2003Notes to Unaudited Consolidated Financial StatementsItem 2.    Managements Discussion and Analysis of Financial Condition and
Results of OperationsItem 3.    Quantitative and Qualitative Disclosures About Market RiskItem 4.    Controls and ProceduresPART IIOTHER INFORMATIONItem 1.    Legal ProceedingsItem 2.    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.    Defaults upon Senior SecuritiesItem 4.    Submission of Matters to a Vote of Security HoldersItem 5.    Other InformationItem 6.    ExhibitsSIGNATURESEx-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO
 1




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PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 
 CALIPER LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) September 30,
    
    December 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,069
    
    
    $
    8,889Marketable securities
    
    
    43,050
    
    
    
    57,828Accounts receivable, net
    
    
    11,891
    
    
    
    9,506Inventories
    
    
    11,991
    
    
    
    11,580Prepaid expenses and other current assets
    
    
    2,366
    
    
    
    3,451Total current assets
    
    
    75,367
    
    
    
    91,254Property and equipment, net
    
    
    6,571
    
    
    
    9,106Notes receivable from employee director
    
    
    144
    
    
    
    178Developed technology, net
    
    
    10,855
    
    
    
    13,002Intangible assets, net
    
    
    2,836
    
    
    
    3,407Goodwill
    
    
    47,215
    
    
    
    47,262Security deposits and other assets, net
    
    
    3,431
    
    
    
    3,827Total assets
    
    $
    146,419
    
    
    $
    168,036LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,066
    
    
    $
    3,212Accrued compensation
    
    
    6,092
    
    
    
    4,148Other accrued liabilities
    
    
    7,365
    
    
    
    8,689Deferred revenue and customer deposits
    
    
    7,104
    
    
    
    7,063Current portion of long-term obligations
    
    
    370
    
    
    
    377Current portion of sale-leaseback arrangements
    
    
    587
    
    
    
    1,521Total current liabilities
    
    
    24,584
    
    
    
    25,010Other non-current liabilities
    
    
    6,932
    
    
    
    8,229Commitments and contingencies (Note 9)Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    30
    
    
    
    28Additional paid-in capital
    
    
    277,571
    
    
    
    271,232Deferred stock compensation
    
    
    (3,025
    )
    
    
    (1,808
    )Accumulated deficit
    
    
    (159,733
    )
    
    
    (135,093
    )Accumulated other comprehensive income
    
    
    60
    
    
    
    438Total stockholders equity
    
    
    114,903
    
    
    
    134,797Total liabilities and stockholders equity
    
    $
    146,419
    
    
    $
    168,036
 See accompanying notes. 2




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CALIPER LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Product revenue
    
    $
    14,759
    
    
    $
    11,410
    
    
    $
    39,753
    
    
    $
    18,339Service revenue
    
    
    3,438
    
    
    
    2,566
    
    
    
    10,079
    
    
    
    2,635License fees and contract revenue
    
    
    1,984
    
    
    
    2,547
    
    
    
    6,203
    
    
    
    7,039Total revenue
    
    
    20,181
    
    
    
    16,523
    
    
    
    56,035
    
    
    
    28,013Costs and expenses:Cost of product revenue
    
    
    9,209
    
    
    
    7,635
    
    
    
    26,321
    
    
    
    12,395Cost of service revenue
    
    
    1,792
    
    
    
    1,020
    
    
    
    5,076
    
    
    
    1,020Research and development
    
    
    5,287
    
    
    
    8,765
    
    
    
    17,022
    
    
    
    26,068Acquired research and development
    
    
    
    
    
    
    
    
    
    
    1,010
    
    
    
    Selling, general and administrative
    
    
    7,641
    
    
    
    7,777
    
    
    
    24,004
    
    
    
    18,016Stock-based compensation, net(1)
    
    
    475
    
    
    
    117
    
    
    
    2,405
    
    
    
    457Amortization of intangible assets
    
    
    936
    
    
    
    1,396
    
    
    
    2,879
    
    
    
    1,396Restructuring charges
    
    
    
    
    
    
    774
    
    
    
    2,218
    
    
    
    1,096Total costs and expenses
    
    
    25,340
    
    
    
    27,484
    
    
    
    80,935
    
    
    
    60,448Operating loss
    
    
    (5,159
    )
    
    
    (10,961
    )
    
    
    (24,900
    )
    
    
    (32,435
    )Interest income, net
    
    
    129
    
    
    
    655
    
    
    
    465
    
    
    
    2,653Other income (expense), net
    
    
    (21
    )
    
    
    189
    
    
    
    (64
    )
    
    
    155Loss before income taxes
    
    
    (5,051
    )
    
    
    (10,117
    )
    
    
    (24,499
    )
    
    
    (29,627
    )Provision for income taxes
    
    
    (78
    )
    
    
    (31
    )
    
    
    (140
    )
    
    
    (31
    )Net loss
    
    $
    (5,129
    )
    
    $
    (10,148
    )
    
    $
    (24,639
    )
    
    $
    (29,658
    )Net loss per share, basic and diluted
    
    $
    (0.17
    )
    
    $
    (0.37
    )
    
    $
    (0.85
    )
    
    $
    (1.15
    )Shares used in computing net loss
per common share, basic and diluted
    
    
    29,508
    
    
    
    27,721
    
    
    
    29,071
    
    
    
    25,769(1) Stock-based compensation, net,
pertains to employees employed in the
following areas:Cost of Product Revenue
    
    $
    40
    
    
    $
    
    
    
    $
    153
    
    
    $
    Research and Development
    
    
    86
    
    
    
    31
    
    
    
    383
    
    
    
    119Selling, General and Administrative
    
    
    349
    
    
    
    86
    
    
    
    1,869
    
    
    
    338Total
    
    $
    475
    
    
    $
    117
    
    
    $
    2,405
    
    
    $
    457
 See accompanying notes. 3




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CALIPER LIFE SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited) Nine Months EndedSeptember 30,2004
    
    2003Operating activitiesNet loss
    
    $
    (24,639
    )
    
    $
    (29,658
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    7,954
    
    
    
    6,642Acquired research and development
    
    
    1,010
    
    
    
    Stock-based compensation expense, net
    
    
    2,446
    
    
    
    506Non-cash restructuring charges
    
    
    2,218
    
    
    
    150Loss from disposal of fixed assets
    
    
    119
    
    
    
    Changes in operating assets and liabilities, net of Zymark acquisition in 2003:Accounts receivable
    
    
    (2,195
    )
    
    
    (2,389
    )Inventories
    
    
    (794
    )
    
    
    2,390Prepaid expenses and other current assets
    
    
    1,084
    
    
    
    (62
    )Security deposits and other assets
    
    
    176
    
    
    
    (366
    )Accounts payable and other accrued liabilities
    
    
    (115
    )
    
    
    1,504Accrued compensation
    
    
    1,361
    
    
    
    (4,417
    )Deferred revenue and customer deposits
    
    
    (775
    )
    
    
    535Other non-current liabilities
    
    
    (196
    )
    
    
    102Payments of accrued restructuring obligations
    
    
    (3,717
    )
    
    
    (772
    )Net cash from operating activities
    
    
    (16,063
    )
    
    
    (25,835
    )Investing activitiesPurchases of marketable securities
    
    
    (44,888
    )
    
    
    (28,152
    )Proceeds from sales of marketable securities
    
    
    51,434
    
    
    
    91,159Proceeds from maturities of marketable securities
    
    
    7,832
    
    
    
    7,203Purchases of property and equipment
    
    
    (2,665
    )
    
    
    (1,142
    )Purchase of in-process research and development
    
    
    (200
    )
    
    
    Acquisition of Zymark
    
    
    
    
    
    
    (52,955
    )Net cash from investing activities
    
    
    11,513
    
    
    
    16,113Financing activitiesNotes receivable from officers
    
    
    34
    
    
    
    37Payments of obligations under sale-leaseback arrangements
    
    
    (1,266
    )
    
    
    (1,937
    )Payments of long-term obligations
    
    
    (357
    )
    
    
    (338
    )Proceeds from issuance of common stock
    
    
    3,261
    
    
    
    763Net cash from financing activities
    
    
    1,672
    
    
    
    (1,475
    )Effect of exchange rates on changes in cash and cash equivalents
    
    
    58
    
    
    
    89Net decrease in cash and cash equivalents
    
    
    (2,820
    )
    
    
    (11,108
    )Cash and cash equivalents at beginning of period
    
    
    8,889
    
    
    
    16,184Cash and cash equivalents at end of period
    
    $
    6,069
    
    
    $
    5,076Supplemental disclosure of cash flow informationInterest paid
    
    $
    321
    
    
    $
    316Income taxes paid
    
    $
    433
    
    
    $
    48Items not affecting cashNon-cash consideration paid for acquired research and development (Note 6)
    
    $
    810
    
    
    $
    Stock issued for acquisition of Zymark
    
    
    
    
    
    $
    14,591
 See accompanying notes. 4




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CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited) 1. Summary of Significant Accounting Principles Basis of Presentation The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring entries) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2004, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2004. The consolidated balance sheet as of
December 31, 2003, has been derived from audited financial statements as of
that date. For further information, refer to the financial statements and notes
thereto included in the Annual Report on Form 10-K for the year ended December
31, 2003, filed by Caliper Life Sciences, Inc. Principles of Consolidation Calipers financial statements include the accounts of its wholly owned
subsidiaries Caliper Life Sciences Ltd. (UK), Caliper Life Sciences Ltd.
(Canada), Caliper Life Sciences N.V. (Belgium), Caliper Life Sciences GmbH
(Germany), Caliper Life Sciences S.A. (France), and Caliper Life Sciences AG
(Switzerland). All significant inter-company balances and transactions have
been eliminated in consolidation. Use of Estimates and Reclassifications The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Certain prior period amounts have been reclassified to conform to
the current period presentation. Revenue Recognition General Policy Caliper recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. Revenue is recognized on product sales when goods
are shipped under Calipers standard terms of FOB origin. Revenues on
shipments subject to customer acceptance provisions are recognized only upon
customer acceptance, provided all other revenue recognition criteria are met.
Services offered by Caliper are generally recognized as revenue as the services
are performed. Revenue from licensing agreements is deferred and recognized
over the term of the agreement, or in certain circumstances, when milestones
are met. Revenue recognized is not subject to repayment. Cash received that is
related to future performance under such contracts is deferred and recognized
as revenue when earned. No sales made by Caliper include any return rights or
privileges. Based upon Calipers prior experience, sales returns are not
significant. Provision is made at the time of sale for estimated costs
related to Calipers warranty obligations to customers. Product Revenue Product revenue is recognized upon the shipment and transfer of title to
customers and is recorded net of discounts and allowances. Revenues on
shipments subject to customer acceptance provisions are recognized only upon
customer acceptance, provided all other revenue recognition criteria are met.
Customer product purchases are delivered under standardized terms of FOB
origin with the customer assuming the risks and rewards of product ownership
at the time of shipping from Calipers warehouse with no return rights or
privileges. In accordance with EITF 00-21, Revenue Arrangements with Multiple
Deliverables, Caliper defers the fair value of any elements that remain
undelivered after product shipment and/or acceptance (as applicable).
Undelivered elements may generally consist of annual maintenance agreements,
installation and/or training. 5




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In certain cases, customers will be charged on a datapoint pricing basis
for their usage of chips. A datapoint is generated each time a Caliper
instrument system introduces a sample into a chip through a sipper in order to
perform a particular LabChip® technology assay. Datapoints are the test-results
that Calipers customers record when they use Calipers LabChip instruments.
Caliper records datapoint revenues in the period that Calipers customers
attain the datapoints and communicate such use to Caliper. Datapoint rates are
contractually negotiated between Caliper and its customers. Under minimum
datapoint fee arrangements, datapoint revenues are recorded over the period of
which the minimum applies, provided Caliper has no ongoing performance
obligations with respect to the minimum fees. Agilent Product Revenue Caliper supplies Agilent Technologies, Inc., (Agilent), with chips and
reagents at cost and receives a share of Agilents gross margin on components
of the LabChip systems sold by Agilent. Revenue related to the reimbursement of
costs for the supply of chips and reagents is recognized as product revenue
upon shipment to Agilent, and Calipers share of gross margin on sales made by
Agilent is recognized as product revenue upon shipment by Agilent to its end
users. Caliper has no continuing obligations at the time these sales are made
and Agilent has no return privileges. Calipers transfer of title on products
sold to Agilent is not contingent on Agilents resale of these products. The
instruments, chips and reagents, as sold, are useable by Agilent and their
customers without additional support from Caliper. Service and Annual Maintenance Agreements Service revenue is recognized as services are performed or, as applicable,
ratably over the contract service term in the case of annual maintenance
contracts. Customers may purchase optional warranty coverage during the initial
standard warranty term and annual maintenance contracts beyond the standard
warranty expiration. These optional service offerings are not included in the
price Caliper charges customers for the initial product purchase. Under
Calipers standard warranty, the customer is entitled to repair or replacement
of defective goods. No upgrades are included in the standard warranty. Contract Revenue Revenue from contract research and development services is recognized as
earned based on the performance requirements of the contract. Non-refundable
contract fees which are neither time and materials- or time and
expense- based, nor tied to substantive milestones are recognized on a
percentage-of-completion basis in accordance with SOP 81-1. Contract fees
received in advance of work performed are recorded as deferred revenue, and are
recognized as revenue as the work is performed. For contracts recognized on
the percentage-of-completion basis, the amount recognized as revenue is limited
to the lesser of the amount measured as earned on a percentage of completion
basis, or the cumulative amount of non-refundable payments earned in accordance
with the contract. Licensing and Royalty Revenue from up-front license fees is recognized when the earnings process
is complete and no further obligations exist. If further obligations exist, the
up-front license fee is recognized ratably over the obligation period.
Royalties from licenses are based on third-party sales and recorded as earned
in accordance with contract terms, when third-party results are reliably
measured and collectability is assured. Software Caliper has developed software that is marketed with its solutions as a
component to operate and run its instruments and systems. Caliper
generally does not sell
or otherwise market the software. Calipers customers purchase the instruments
and systems in order to conduct scientific research, and the software is
incidental to the overall cost of the instruments development and marketing
effort. Caliper does not provide post-sale software support, except for
functional defects in the software as contemplated in Calipers warranty on its
instruments. Goodwill Caliper performs a test for the impairment of goodwill annually in the
fourth quarter of its fiscal year, or more frequently if events or
circumstances indicate that goodwill may be impaired. Because Caliper has a
single operating and reportable business segment, Caliper performs this test by
comparing the fair value of Caliper with its book value, including goodwill. If
the fair value exceeds the book value, goodwill is not impaired. If the book
value exceeds the fair value, Caliper would calculate the potential impairment
loss by comparing the implied fair value of goodwill with the book value. If
the implied goodwill is less than the book value, an estimate of the impairment
charge would be determined by performing a detailed assessment of the fair
value of goodwill as compared to its carrying value. 6




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Foreign Currency Translation Foreign currency transaction gains and losses from the settlement of
account balances denominated in another currency are included in current period
other income, net as incurred. Cumulative translation adjustments included in
stockholders equity as of September 30, 2004, and December 31, 2003, were
$112,000 and $98,000, respectively. Warranty Expense At the time product revenue is recognized, Caliper establishes an accrual
for estimated warranty expenses associated with sales, recorded as a component
of cost of revenue. Caliper offers a one-year limited warranty on
instrumentation products and a 90-day warranty on chips, which is included in
the sales price of many of its products. Calipers standard limited warranty
covers repair or replacement of defective goods, a preventative maintenance
visit on certain products, and telephone based technical support. No upgrades
are included in the standard warranty. In accordance with SFAS No. 5,
Accounting for Contingencies, provision is made for estimated future warranty
costs at the time of sale. Factors that affect Calipers warranty liability
include the number of installed units, historical and anticipated rates of
warranty claims, and cost per claim. Caliper periodically assesses the adequacy
of its recorded warranty liabilities and adjusts amounts as necessary. Changes in Calipers warranty obligation during the nine months ended
September 30, 2004, and 2003 are as follows (in thousands): 2004
    
    2003Balance, at December 31, 2003, and 2002
    
    $
    1,108
    
    
    $
    265Zymark warranty obligations assumed
    
    
    
    
    
    
    850Accruals for warranties issued during the
period
    
    
    945
    
    
    
    302Settlements made during the period
    
    
    (926
    )
    
    
    (366
    )Balance at September 30, 2004, and 2003
    
    $
    1,127
    
    
    $
    1,051
 Net Loss Per Share Basic net income (loss) per share is calculated based on the
weighted-average number of common shares outstanding during the period. Diluted
net income (loss) per share would give effect to the dilutive effect of common
stock equivalents consisting of stock options and warrants (calculated using
the treasury stock method). Potentially dilutive securities have been excluded
from the diluted earnings per share computations where they have an
anti-dilutive effect due to Calipers net loss. As of September
30, 2004 and 2003, there were approximately 8.1 million and
9.3 million options and other potentially dilutive securities
outstanding that were excluded from the calculation of net loss per
share due to antidilution. These potential common shares could dilute
earnings per share in the future. Stock-Based Compensation Caliper accounts for its stock options and equity awards under the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations, and has elected to follow the disclosure only
alternative prescribed by Financial Accounting Standards Boards SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation expense
is recognized in Calipers financial statements for stock options granted to
employees, which had an exercise price equal to the fair value of the
underlying common stock on date of grant. Caliper accounts for stock options
issued to non-employees in accordance with the provisions of SFAS No. 123 and
EITF No. 96-18, Accounting for Equity Instruments that are issued to other
than Employees for Acquiring, or in Conjunction with selling Goods or
Services. For the three and nine months ended September 30, 2004 and 2003,
compensation expense related to stock options issued to non-employees was not
material. Caliper has granted options and other stock awards that resulted in the
recording of deferred stock compensation. The amounts are amortized by charges
to operations over the vesting period of the individual awards using the graded
vesting method. During the quarter ended September 30, 2004, Caliper granted
stock-based awards to employees under its 1999 Equity Incentive Plan resulting
in additional deferred compensation of $2.3 million. Stock-based compensation
in the accompanying consolidated statements of operations included $199,000 of
amortization related to the 2004 awards, as well as ongoing amortization of
prior awards (and reversal of charges related to unvested awards for terminated
employees). In addition, during the first quarter of 2004, Caliper recorded
expense of $1.4 million related option accelerations and other stock-based
expenses incurred in connection with employment and separation agreements with
former executives and other senior employees whose employment was terminated
during the first quarter of 2004. The following table illustrates the effect on net loss and net loss per
share if Caliper had applied the fair value recognition provisions of SFAS No.
123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure  and amendment of FASB Statement No. 123. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the vesting period of the options using the graded
vesting method. Calipers pro forma information is as follows (in thousands
except per share data): 7




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss:As reported
    
    $
    (5,129
    )
    
    $
    (10,148
    )
    
    $
    (24,639
    )
    
    $
    (29,658
    )Add: Stock-based employee compensation expense
included in reported net income
    
    
    475
    
    
    
    317
    
    
    
    2,405
    
    
    
    657Deduct: Total stock-based employee compensation
expense determined under fair value based methods
for all awards
    
    
    (1,858
    )
    
    
    (3,170
    )
    
    
    (11,199
    )
    
    
    (12,604
    )Pro forma net loss
    
    $
    (6,512
    )
    
    $
    (13,001
    )
    
    $
    (33,433
    )
    
    $
    (41,605
    )Net loss per share:As reported:Basic and diluted
    
    $
    (0.17
    )
    
    $
    (0.37
    )
    
    $
    (0.85
    )
    
    $
    (1.15
    )Pro forma:Basic and diluted
    
    $
    (0.22
    )
    
    $
    (0.47
    )
    
    $
    (1.15
    )
    
    $
    (1.61
    )
 The effects of applying SFAS No. 123 for pro forma disclosures are not
likely to be representative of the effects on reported net loss for future
years. 2. Acquisition of Zymark Corporation On July 14, 2003, Caliper completed the acquisition of 100% of ZYAC
Holding Corporation (ZYAC was the parent holding company of Zymark Corporation
and had no operating activities) from The Berwind Company LLC (Berwind) for
an aggregate purchase price of approximately $72.8 million in the form of $55.7
million in cash, 3.15 million shares of Calipers common stock valued at $14.6
million, and acquisition costs of $2.5 million. The purchase terms also
provided for Caliper to issue Berwind an additional 1.575 million contingent
shares if certain financial targets are met in 2003 and 2004. These targets
were not achieved in 2003 resulting in the obligation to issue 787,500
contingent shares to lapse. If the 2004 targets are achieved, the fair value of
the additional shares issued will be added to the purchase price and allocated
to goodwill. Zymarks operations, assumed as of the date of the acquisition, have been
included in the results of operations of Caliper beginning on July 14, 2003.
The acquisition was accounted for as a purchase in accordance with SFAS No.
141, Accounting for Business Combinations, and Caliper accordingly allocated
the purchase price of Zymark based upon the estimated fair value of net assets
acquired and liabilities assumed. Acquired intangible assets consisted of the following as of September 30,
2004 (in thousands): AccumulatedUseful Life
    
    Fair Value
    
    Amortization
    
    Net ValueDeveloped Technology
    
    5 years
    
    $
    14,314
    
    
    $
    3,459
    
    
    $
    10,855Customer List
    
    5 years
    
    
    3,640
    
    
    
    880
    
    
    
    2,760Backlog
    
    0.5 years
    
    
    1,211
    
    
    
    1,211
    
    
    
    $
    19,165
    
    
    $
    5,550
    
    
    $
    13,615
 Fair value was determined by an independent appraisal and was based upon
expected future discounted cash flows taking into account risks related to the
characteristics and application of the technology, existing and future markets
and assessments of the life cycle stage of the technology. Amortization for
purchased intangible assets was approximately $900,000 and $2.8 million for
the three and nine month period ended September 30, 2004, respectively.
Approximate scheduled amortization expense related to the intangible assets is
$900,000 for the remainder of 2004, and for future fiscal periods is as
follows (in thousands): 12-month period ending December 31:
    
    Amount2005
    
    
    3,6002006
    
    
    3,6002007
    
    
    3,6002008
    
    
    1,900$
    12,700
 8




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##### Table of Contents



Unaudited pro forma operating results for Caliper for the three and nine
months ended September 30, 2004 and 2003, assuming the acquisition was
completed prior to 2003, is as follows (in thousands, except per share
amounts): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    
    
    
    
    2004(as reported)
    
    2003
    
    (as reported)
    
    2003RevenueProduct
    
    $
    14,759
    
    
    $
    14,465
    
    
    $
    39,753
    
    
    $
    39,030Service
    
    
    3,438
    
    
    
    2,850
    
    
    
    10,079
    
    
    
    8,481License fee and contract revenue
    
    
    1,984
    
    
    
    2,896
    
    
    
    6,203
    
    
    
    7,650Total Revenue
    
    
    20,181
    
    
    
    20,212
    
    
    
    56,035
    
    
    
    55,161Operating loss
    
    
    (5,159
    )
    
    
    (9,888
    )
    
    
    (24,900
    )
    
    
    (39,996
    )Net loss
    
    
    (5,129
    )
    
    
    (9,363
    )
    
    
    (24,639
    )
    
    
    (38,268
    )Basic and diluted loss per share
    
    
    (0.17
    )
    
    
    (0.33
    )
    
    
    (0.85
    )
    
    
    (1.37
    )
 The unaudited pro forma financial information is presented for
informational purposes only, and is not necessarily indicative of Calipers
operating results had the acquisition been completed prior to all periods for
which the pro forma results give effect. 3. Inventories Inventories for use in the manufacture of Calipers instruments include
electronic components, devices, and accessories either produced or purchased
from original equipment manufacturers. Inventories for use in the manufacture
of LabChip technologies consist primarily of glass, quartz, and reagents.
Inventories are stated at the lower of standard cost (which approximates actual
cost on a first-in, first-out basis) or market, reflect appropriate reserves
for potential obsolete, slow moving or otherwise impaired material, and include
appropriate elements of material, labor, and indirect costs. Inventories
consist of the following (in thousands): September 30,
    
    December 31,2004
    
    2003Raw material
    
    $
    6,349
    
    
    $
    5,929Work-in-process
    
    
    1,070
    
    
    
    1,087Finished goods
    
    
    4,572
    
    
    
    4,564Inventories
    
    $
    11,991
    
    
    $
    11,580
 Caliper reserves or writes off 100% of the cost of inventory that it
specifically identifies and considers obsolete or excessive to fulfill future
sales estimates. Caliper defines obsolete inventory as inventory that will no
longer be used in the manufacturing process. Excess inventory is generally
defined as inventory in excess of projected usage, and is determined using
managements best estimate of future demand at the time, based upon information
then available to Caliper. Caliper uses a twelve-month demand forecast and, in
addition to the demand forecast, Caliper also considers: (i) parts and
subassemblies that can be used in alternative finished products; (ii) parts and
subassemblies that are unlikely to be engineered out of Calipers products; and
(iii) known design changes which would reduce Calipers ability to use the
inventory as planned. During the three and nine months ended September 30,
2004, Caliper recorded charges of $134,000 and $616,000, respectively, to cost
of product revenues to reserve for excess and obsolete inventories. During the
three and nine months ended September 30, 2003, Caliper recorded charges of
$96,000 and $301,000, respectively, to cost of product revenues to reserve for
excess and obsolete inventories. 9




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4. Comprehensive Loss The components of comprehensive loss included within stockholders equity
for the three and nine months ended September 30, 2004, and 2003 are as follows
(in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (5,129
    )
    
    $
    (10,148
    )
    
    $
    (24,639
    )
    
    $
    (29,658
    )Unrealized gain (loss) on marketable securities
    
    
    20
    
    
    
    (514
    )
    
    
    (398
    )
    
    
    (835
    )Foreign currency translation gain
    
    
    34
    
    
    
    60
    
    
    
    19
    
    
    
    87Comprehensive loss
    
    $
    (5,075
    )
    
    $
    (10,602
    )
    
    $
    (25,018
    )
    
    $
    (30,406
    )
 5. Related Party Sales For the three and nine months ended September 30, 2003, Caliper had
recognized $680,000 and $1.8 million in related-party revenue consisting
primarily of sales of Caliper 250 drug discovery system products, LabChip
devices, and datapoints to Amphora Discovery Corporation. As of December 31,
2003, Amphora was no longer considered a related party as Calipers ownership
interest in Amphora declined to a fraction of 1%; as a result Caliper no longer
separately reports sales to Amphora. 6. Acquired Research and Development On April 15, 2004, Caliper purchased from Amphora certain technology
rights and know-how related to improving the performance of certain types of
cell-based assays on a microfluidic chip. Caliper paid $200,000 in cash and
issued to Amphora credits to purchase $900,000 worth of products from Caliper
in exchange for the acquired technology and know-how. Through April 15, 2009,
Caliper will also pay royalties to Amphora based on datapoint revenue received
by Caliper from end-users as a result of datapoint revenue derived using the
acquired technology. Caliper is further developing the acquired technology to
adapt it for potential applications and uses on the LabChip 3000 instrument
platform. Given that additional development work is necessary to produce a
commercially saleable product based on this technology, and the absence of
material revenue streams currently derived from the acquired technology, the
entire consideration was expensed as research and development expense during
the second quarter of 2004. The transaction has been accounted for in
accordance with APB No. 29, Accounting for Non-Monetary Transactions, pursuant
to which Caliper valued the acquired research and development based on the fair
value of the product credits and established a deferred liability for the
future product credits owed to Amphora. The recorded deferred liability is
subject to adjustment based upon the fair value of products and services
purchased by Amphora, or in the event that any portion of the credit expires
unutilized. Any adjustments to the deferred liability will have a
corresponding credit offset to research and development expense. Through
September 30, 2004, Amphora fully utilized the product credits, which were
valued at $810,000. 7. Significant Concentrations In the three months ended September 30, 2004 and 2003, one customer,
Agilent, represented approximately 10% and 11% of total revenues. For the nine
months ended September 30, 2004 and 2003, one customer, Agilent, represented
approximately 12% and 24% of total revenues. As of September 30, 2004 and December 31, 2003, no individual customer
accounted for greater than 10% of outstanding accounts receivable. 8. Restructuring Activities Employment Downsizing On May 6, 2003, Caliper conducted a reduction in force that downsized its
employee work force by 26 people, or approximately 10%. Caliper incurred a
charge of $322,000 in the second quarter of 2003 for severance payments and
related benefits, with all employee separations completed and payments
distributed by the end of June 2003. Following its acquisition of Zymark in July 2003, Caliper conducted a
series of downsizings to promote its new commercial strategies and increase
organizational efficiencies within the newly combined company: 10




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##### Table of Contents




    
    On August 5, 2003, 37 positions were identified to be eliminated by
June 30, 2004. A charge of $774,000 was recorded in the third quarter
of 2003 for severance and related benefits. All separations and
payments had been completed as of June 30, 2004.
    
    On December 3, 2003, 37 positions were identified to be eliminated by
June 30, 2004. A charge of $2.7 million was recorded in the fourth
quarter of 2003 for severance and related benefits. During the
quarter ended March 31, 2004, Caliper recorded a $134,000 credit
adjustment to restructuring charges based upon actual payments. All separations and
related payments are expected to be completed in 2004.
    
    On June 15, 2004, 14 positions were identified to be eliminated by
September 30, 2004. A charge of $180,000 was recorded in the second
quarter of 2004 for severance and related benefits. All separations and
related payments are expected to be completed in 2004. Facility Closures In November 2003, Caliper closed one of its three facilities in Mountain
View, California, that was used primarily for instrument manufacturing and
research and development activities, and recognized a $7.7 million charge for
costs to be incurred over the remainder of the lease (June 2008) for which there is no
expected ongoing economic benefit. In June 2004, in connection with the
finalization of restructuring activities associated with the combination with
Zymark, Caliper vacated and shut down approximately one half of one of its two
currently occupied Mountain View facilities that was primarily used for
research and development activities and recognized an additional $2.2 million
charge related to costs estimated over the remainder of the lease
(June 2008), including leasehold improvements having a carrying value of $67,000
that had no further use. In accordance with Statement of Financial Accounting
Standard No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, Caliper recorded a liability equal to the fair value of the
remaining lease payments as of the cease-use date for each of the closed
facilities. Fair value was determined based upon the discounted present value
of remaining lease rentals (5% discount rate used) for the space no longer
occupied, reduced by the discounted present value of future estimated sublease
rentals, through the end of the lease, that could be obtained for the property
even if Caliper does not enter into a sublease. The following table summarizes the restructuring activity (in thousands): Severance
    
    Facilityand
    
    LeaseRelated
    
    Accrual
    
    Leaseholds
    
    TotalBalance, December 31, 2003
    
    $
    2,083
    
    
    $
    7,819
    
    
    $
    
    
    
    $
    9,902Restructuring charges
    
    
    180
    
    
    
    2,105
    
    
    
    67
    
    
    
    2,352Non-cash restructuring charges
    
    
    
    
    
    
    

    
    
    
    (67
    )
    
    
    (67
    )Restructuring credits
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    (134
    )Reclassification of deferred rent liability
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    220Accretion of facility lease accrual
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    177Payments
    
    
    (2,024
    )
    
    
    (1,760
    )
    
    
    
    
    
    
    (3,784
    )Balance, September 30, 2004
    
    $
    105
    
    
    $
    8,561
    
    
    $
    
    
    
    $
    8,666
 As of September 30, 2004, $2.8 million of the accrued restructuring
liability was included within other accrued liabilities and $5.9 million was
included within other non-current liabilities in the consolidated balance
sheet. Expenses from restructuring activities are included within
restructuring charges in the accompanying Statements of Operations,
except for accretion which is included in interest income, net. 11




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9. Commitments The following are contractual commitments as of September 30, 2004,
associated with debt and lease obligations (in thousands): Other Long-termObligationsObligations Under
    
    included in OtherOperating
    
    Sale-Leaseback
    
    Non-currentLeases
    
    Arrangements
    
    Liabilities12-month period ending December 31:2004
(remaining)
    
    $
    1,909
    
    
    $
    301
    
    
    $
    2005
    
    
    7,442
    
    
    
    311
    
    
    
    3702006
    
    
    6,203
    
    
    
    
    
    
    
    2007
    
    
    6,076
    
    
    
    
    
    
    
    2008
    
    
    4,063
    
    
    
    
    
    
    
    Thereafter
    
    
    470
    
    
    
    
    
    
    
    Total minimum lease and principal payments
    
    $
    26,163
    
    
    $
    612
    
    
    $
    370Amount representing interest
    
    
    
    
    
    $
    (25
    )
    
    
    Present value of future payments
    
    
    
    
    
    
    587
    
    
    
    370Current portion of sale-leaseback arrangements
and other obligations
    
    
    
    
    
    
    (587
    )
    
    
    (370
    )Non-current portion of obligations
    
    
    
    
    
    $
    
    
    
    $
    
 Letters of Credit Caliper has pledged a certificate of deposit of $2.5 million as collateral
on outstanding letters of credit related to Calipers Mountain View,
California, facility lease agreements. In addition to the outstanding
letters-of-credit related to the Mountain View operating lease agreements
described above, Caliper issued a $663,000 letter-of-credit to secure certain
customer deposits in Germany. These commitments are classified as security
deposits in the accompanying balance sheet. Other Long-Term Obligation As a result of the acquisition of Labotec by Zymark in August 2002,
Caliper is obligated to make non-interest-bearing deferred purchase price
payments of 900,000 Euros to the former owner of Labotec. As of September 30,
2004, the U.S. dollar value of the final remaining payment was $370,000 and is
due on August 13, 2005. Inventory Purchases As of September 30, 2004, Caliper had a non-cancelable purchase commitment
in the amount of approximately $196,000 with its foreign supplier for the
purchase of proprietary glass stock used in the manufacture of certain types of
its chips. Royalties Caliper has an exclusive license from UT-Batelle, LLC to the patents
covering the inventions of Dr. J. Michael Ramsey. Royalty expense related to
the UT-Batelle patents during the three and nine months ended September 30,
2004 was $18,000 and $54,000, respectively, and for the three and nine months
ended September 30, 2003 was $20,000 and $134,000, respectively. Caliper also
has an exclusive license from the Trustees of the University of Pennsylvania to
certain patents relating to microfluidic applications and chip structures. The
minimum royalty obligations under these licenses rise over time, but never
exceed $213,000 per year. 10. Stockholders
Equity During
the nine months ended September 30, 2004, Caliper issued 1,163,046
shares of its common stock pursuant to exercises and purchases under
its employee stock plans and 38,140 shares of its common stock
pursuant to warrant exercises. 12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations This Managements Discussion and Analysis of Financial Condition and
Results of Operations as of September 30, 2004, and for the three and nine
month periods ended September 30, 2004, and September 30, 2003, should be read
in conjunction with our financial statements included in this Quarterly Report
onForm 10-Qand Managements Discussion and Analysis of Financial Condition
and Results of Operations and our financial statements included in our Annual
Report onForm 10-Kfor the year ended December 31, 2003. The discussion in this report contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations, and intentions, especially under the Executive Summary caption,
Progress in Obtaining Our Objectives below. Our actual results could differ
materially from those discussed here. Factors that could cause or contribute to
these differences include those discussed under the caption, Factors Affecting
Operating Results, below as well as those discussed elsewhere. The cautionary
statements made in this report should be read as applying to all related
forward-looking statements wherever they appear in this report. Executive Summary Business Caliper uses its core technologies of liquid handling, automation, and
LabChip microfluidics to create leading edge tools for the life sciences
industry. Within the life sciences industry, Caliper is currently addressing
three major markets: drug discovery and development, genomics and proteomics,
and molecular diagnostics. In July 2003 Caliper acquired Zymark Corporation, a pioneer and leader in
the field of laboratory automation, robotics and advanced liquid handling
solutions. Zymark, founded in 1981, manufactured and sold products and
services to a multitude of customers in the pharmaceutical, biotechnology,
chemical, agriculture and food industries worldwide. We substantially completed
our integration of the Zymark business by the end of 2003 and, effective April
2, 2004, we completed a legal merger of Zymark into Caliper. We no longer
actively market our products under the Zymark trade name. Our strategy is to evolve the companys various product platforms into
technologically advanced liquid handling and LabChip systems that offer
efficiency, versatility, and high quality data to customers for genomics and
proteomics, and drug discovery research applications. In addition, we believe
that our microfluidics technology may be particularly suitable for certain
applications in molecular diagnostics, and we are actively investigating
opportunities in this area. Our customers include leading pharmaceutical and biotechnology customers,
universities, governmental research laboratories, and other research
organizations throughout the world. We utilize three distribution channels for
our products. In some cases, we sell instruments and chips directly to
end-users. In other instances we sell products to commercial partners, who in
turn sell these products to end-users. Following the acquisition of Zymark, we
also sell our products through a global network of approximately 30 independent
distributors, who in turn sell our products to end-users. Progress in Obtaining Our Objectives Over the past year, our activities have been focused on the continued
transition of Caliper from a fundamentally R&D driven company, prior to our
acquisition of Zymark, to a commercial company of sufficient scale to drive
adoption of Calipers new microfluidic technology in markets where established
alternatives are available, while still developing and expanding Zymarks
laboratory automation business. When we acquired Zymark just over a year ago,
our principal goals were (i) to gain access to a global sales and marketing
force to help drive microfluidic adoption, (ii) to accelerate our commercial
transition by building on the capabilities of a more commercially experienced
management team and (iii) to accelerate our path to profitability by increasing
revenues, reducing expenses through combination synergies and reducing our net
loss and cash utilization. Since the acquisition was completed, we have made very good progress against
each of the above stated goals, and have met all of our communicated financial
targets. In the third quarter of 2004 we met our revenue budget and made good
progress toward our gross margin goals for the second half of 2004. For the
third quarter of 2004, we projected revenues of between $19 and $21 million and
over the second-half of 2004 we expected gross margins of between 35 and 38% on
product revenues and between 50 and 54% on service revenues. Our actual
results in the third quarter were $20.2 million of revenue, 38% product margins
and 48% service margins. Having achieved these results, we feel we remain on
target relative to our full year projections for 2004 and longer-range projection
for attaining break-even cash flows from operations. Our expectations
are:  
    
    We expect full year revenues for 2004 to be between $80
and $85 million with a greater likelihood of being at the lower
end of this range.
    
    We expect full year combined selling, general and administrative,
and research and development expenses to be approximately $57
million to $60 million, inclusive of the $1.0 million research and
development charge we recognized in the second quarter, with a
greater likelihood of being at the lower end of this range. 13




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##### Table of Contents




    
    We expect our product gross margins to be in the range of
between 35 and 38%, and our service gross margins to be in the
range of between 50 and 54% for the second half of 2004.
    
    We expect to have a minimum of $40 million in cash, cash
equivalents and marketable securities on hand as of December 31,
2004.
    
    We continue to expect to attain break-even cash flows
from operations in the fourth quarter of 2005. On a year-to-date
basis in 2004, we have used $16.1 million of cash for operations,
including $2.9 million of operating cash uses in the third
quarter. The financial projections that we have provided above are forward-looking
statements that are subject to risks and uncertainties, and are only made as of
the date of the filing of this Form 10-Q. These projections are based upon
assumptions that we have made and believe to be reasonable. However, actual
results may vary significantly from these projections due to the risks and
uncertainties inherent in our business as described in the section entitled
Factors Affecting Operating Results. We are making continued progress on our efforts to drive further market
adoption of our microfluidics products by the life sciences industry. During
the third quarter and early fourth quarter, three major pharmaceutical
companies purchased our LabChip 3000 drug discovery system for the first time,
and two additional major pharmaceutical customers added to their existing
investment in microfluidics screening systems. We are unable to predict future
sales of our LabChip 3000 platform, but regard these recent purchases as strong
indicators of the markets growing acceptance of our microfluidics products. Early in the fourth quarter of 2004, our collaboration partner Bio-Rad
Laboratories launched its Experion® automated electrophoresis system, a new
product that is based on our LabChip technology. In the fourth quarter,
another collaboration partner, Affymetrix, is slated to release on an early
access basis, a new collaboration product incorporating our Sciclone liquid
handling technology. Our revenue estimates for the fourth quarter of 2004
include assumptions about incremental product sales from these collaboration
products. Pro Forma Revenue Changes As reflected in Note 2 to the Consolidated Financial Statements in Item 1 of
this report, on a pro forma basis, which assumes that the acquisition of Zymark
occurred prior to 2003, our revenues in the third quarter remained flat on an
overall basis in comparison to 2003, and on a year-to-date basis our revenues
increased to $56.0 million in 2004 from $55.2 million in
2003, or 1.6%. We
believe that a further understanding of the underlying changes year over year
in our pro forma revenues provides useful information to better understand the
state of our business. Total product and service revenue on a year-to-date basis in 2004 was $49.8
million (as reported) compared to total pro forma product and service revenue
of $47.5 million in the same period of 2003, a pro forma increase of 4.9%. Within
this overall change, product revenues were $39.8 million in the
first nine months of 2004, up only
slightly from $39.0 million over the first nine months of 2003; however, 2003
pro forma (as well as GAAP basis) revenues included $1.4 million of data point
revenue from Amphora, a former related party, compared to no datapoint revenue
from Amphora in 2004. The data point revenues from Amphora in 2003 were
related to non-refundable minimum payments that were fully recognized as
revenue over the twelve month period ended November 30, 2003. Under our usual
arrangements, we recognize data point revenues on the basis of their actual
usage as opposed to on a periodic basis. Amphora still has not yet achieved a
level of data points that would trigger any additional payments to Caliper. Service revenues were $10.1 million (as reported) on a year-to-date basis
through the third quarter of 2004 versus pro forma service revenues in the same
period of 2003 of $8.5 million, an 18.8% increase. The pro forma increase is the
result of an increase in our installed instrument base, proactive selling
efforts related to billable service offerings and increased revenues from
extended maintenance contracts. These pro forma revenue changes are consistent with our objectives to increase
the percentage of our overall revenue represented by product and service
revenue, and we believe provides us with greater potential to achieve more
stable growth in the future. The combination of the increase in these sources
of revenue, decreased reliance on less predictable contract revenues, and the
impact of cost reductions implemented over the year since our combination with
Zymark have resulted in reduced operating losses and improved operating cash
flows on both a quarter and year-to-date basis. Critical Accounting Policies The critical accounting policies used in the preparation of our financial
statements that we believe affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements presented in
this report are described in our Managements Discussion and Analysis of
Financial Condition and Results of Operations and in the Notes to the
Consolidated Financial Statements included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2003. There have been no
material changes to the critical accounting policies. 14




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##### Table of Contents



Results of Operations Revenue Three Months Ended September 30,
    
    Nine Months Ended September 30,(In thousands)
    
    2004
    
    2003
    
    $ Change
    
    % Change
    
    2004
    
    2003
    
    $ Change
    
    % ChangeProduct revenue
    
    
    14,759
    
    
    
    11,410
    
    
    
    3,349
    
    
    
    29
    %
    
    
    39,753
    
    
    
    18,339
    
    
    
    21,414
    
    
    
    117
    %Service revenue
    
    
    3,438
    
    
    
    2,566
    
    
    
    872
    
    
    
    34
    %
    
    
    10,079
    
    
    
    2,635
    
    
    
    7,444
    
    
    
    283
    %License fees and contract revenue
    
    
    1,984
    
    
    
    2,547
    
    
    
    (563
    )
    
    
    -22
    %
    
    
    6,203
    
    
    
    7,039
    
    
    
    (836
    )
    
    
    -12
    %Total Revenues
    
    
    20,181
    
    
    
    16,523
    
    
    
    3,658
    
    
    
    22
    %
    
    
    56,035
    
    
    
    28,013
    
    
    
    28,022
    
    
    
    100
    %
 Total revenue increased for the three and nine months ended September 30,
2004, as compared to the same periods in 2003 as a result of the additional
product and service revenues added by the acquired Zymark business and
increased Agilent product revenue, offset in part by the decrease in license
fees and contract revenue, and a decrease in datapoint revenue from Amphora, a
former related party. We did not have significant service revenues prior to our acquisition of
Zymark. Product Revenue.The overall net increases in product revenue for the three
and nine months ended September 30, 2004 from the comparative periods in 2003,
in addition to the contribution to revenues from the acquired Zymark business
for the full three months ended September 30, 2004 compared to only a portion
of the three months ended September 30, 2003, included increases in LabChip
product revenue from Agilent of $284,000 and $1.4 million, respectively, due to
a combination of transfer price increases and increased volumes of LabChip
products sold to Agilent. The nine months ended September 30, 2004 included a
cumulative transfer price adjustment of $787,000 recorded in the second quarter
based upon periodic reconciliation with Agilent under the supply terms of our
arrangement. The net increases in product revenue from the comparative periods
in 2003 also occurred despite the fact that we had no datapoint revenue from Amphora,
a former related party, in 2004 compared to $450,000 and $1.4 million, in the
comparative periods of 2003. We have had no datapoint revenue from Amphora in
2004 because under the terms of the Modification Agreement entered into with
Amphora in December 2002, Amphora is not obligated to make any further
datapoint payments to us until they fully utilize the number of datapoints to
which they are entitled due to a prior $1.8 million required minimum payment to
us that was fully recognized as revenue over the twelve month period ended
November 30, 2003. We do not anticipate any additional datapoint payments
during the fourth quarter of 2004, and we currently are unable to currently estimate the
amount, if any, that may be owed to us during the remainder of 2004. Service Revenue.The increase in service revenue is due to the fact that we
had no service revenue prior to our acquisition of Zymark, and so our service
revenue in the 2003 periods reflects only two and one-half months of operations,
rather than the full periods in 2004. License Fees and Contract Revenue.We have had no royalty revenue from Aclara
Biosciences, Inc. (Aclara), in 2004, as compared to royalty revenue of
$625,000 and $1.9 million in the three and nine months ended September 30,
2003, respectively, stemming from our comprehensive settlement agreement with
Aclara in 2001, under which we received minimum annual royalty payments from
Aclara in each of the years 2002 and 2003. In addition, we have had no
research funding from Agilent in 2004, as compared to contract revenue of
$79,000 and $1.7 million in the three and nine months ended September 30, 2003,
respectively, under our collaborative agreement with Agilent which we
terminated effective as of May 8, 2003. We experienced a
decrease in license fees and contract revenue, as the increase in
contract revenue from other collaboration partners was not sufficient
to offset the above stated decreases. The increase
in contract revenues from our other collaboration partners is due, in part, to
our efforts to develop applications with new commercial partners. The decrease
in contract revenue from Agilent is the result of there being no current
product development activity with Agilent. We are not anticipating development
funding from Agilent or royalty revenue from Aclara in the fourth quarter of
2004. Costs Three Months Ended September 30,
    
    Nine Months Ended September 30,(In thousands)
    
    2004
    
    2003
    
    $ Change
    
    % Change
    
    2004
    
    2003
    
    $ Change
    
    % ChangeCost of product revenue
    
    
    9,209
    
    
    
    7,635
    
    
    
    1,574
    
    
    
    21
    %
    
    
    26,321
    
    
    
    12,395
    
    
    
    13,926
    
    
    
    112
    %Cost of service revenue
    
    
    1,792
    
    
    
    1,020
    
    
    
    772
    
    
    
    76
    %
    
    
    5,076
    
    
    
    1,020
    
    
    
    4,056
    
    
    
    398
    %Total Costs
    
    
    11,001
    
    
    
    8,655
    
    
    
    2,346
    
    
    
    27
    %
    
    
    31,397
    
    
    
    13,415
    
    
    
    17,982
    
    
    
    134
    %
 15




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Cost of Product Revenue.The increase in cost of product revenue is due
primarily to the increase in product revenues generated from sales of products
acquired in the Zymark acquisition and includes the effects of the
organizational realignment completed during 2003 that resulted in a greater
proportion of unabsorbed labor and overhead costs of our Mountain View,
California, chip manufacturing operation being allocated to product
manufacturing as opposed to research and development expenses. As discussed
in Note 8 of the Notes to Consolidated Financial Statements, we completed an
employee downsizing in June 2004 to reduce our underutilized labor and
overhead, which we believe will result in an annualized reduction to cost of
product revenues of approximately $1.1 million starting in the fourth quarter
of 2004. Cost of Service Revenue.The increase in cost of service revenue is due to the
fact that we had no service operations prior to our acquisition of Zymark, and
so our cost of service revenue in the 2003 periods reflects only
two and one-half months of operations, rather than the full periods in 2004. Gross Margins.Our gross margin on product revenue was 38% and 34% for the
three and nine months ended September 30, 2004, as compared to 33% and 32%,
respectively, for the same periods in 2003. The improvement during
both the three and nine months ended September 30, 2004 as compared to the same period in 2003
occurred as a result of volume leverage due to the substantial increase in product revenue, especially
from the acquired Zymark business, and the effects of cost reductions
implemented across the combined businesses. Comparison of service gross
margins to the same periods in 2003 is not meaningful due to certain purchase
accounting adjustments recorded in connection with the Zymark purchase. Gross
margin on service revenue was 48% and 50% for the three and nine months ended
September 30, 2004, respectively. We expect that service gross margins will be
approximately 50-54% over the second half of 2004, depending upon the level of billable
services in relation to non-billable services, such as warranty repair work,
occurring in any given period. Expenses Three Months Ended September 30,
    
    Nine Months Ended September 30,(In thousands)
    
    2004
    
    2003
    
    $ Change
    
    % Change
    
    2004
    
    2003
    
    $ Change
    
    % ChangeResearch and development
    
    
    5,287
    
    
    
    8,765
    
    
    
    (3,478
    )
    
    
    -40
    %
    
    
    17,022
    
    
    
    26,068
    
    
    
    (9,046
    )
    
    
    -35
    %In process R&D charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,010
    
    
    
    
    
    
    
    1,010Selling, general and administrative
    
    
    7,641
    
    
    
    7,777
    
    
    
    (136
    )
    
    
    -2
    %
    
    
    24,004
    
    
    
    18,016
    
    
    
    5,988
    
    
    
    33
    %Amortization of deferred
compensation
    
    
    475
    
    
    
    117
    
    
    
    358
    
    
    
    306
    %
    
    
    2,405
    
    
    
    457
    
    
    
    1,948
    
    
    
    426
    %Amortization of intangible assets
    
    
    936
    
    
    
    1,396
    
    
    
    (460
    )
    
    
    -33
    %
    
    
    2,879
    
    
    
    1,396
    
    
    
    1,483
    
    
    
    106
    %Restructuring charges
    
    
    
    
    
    
    774
    
    
    
    (774
    )
    
    
    -100
    %
    
    
    2,218
    
    
    
    1,096
    
    
    
    1,122
    
    
    
    102
    %
 Research and Development Expenses.The decreases in research and
development expenses are primarily due to our evaluation and prioritization of
research and development programs which led to a lower level of research and
development activities and associated employee downsizing actions in 2003 and,
as discussed above, the reduced amount of labor and overhead allocated to
research and development as a result of our increased commercial emphasis since
we acquired Zymark. These decreases to research and development more than
offset the incremental expenses associated with continuing research and
development programs assumed in our acquisition of Zymark. We believe our
increased focus on fewer projects has improved the productivity of our research
and development investments. The level of ongoing research and development
expense is highly dependent upon the number and significance of ongoing
projects at any particular time. We currently expect research and development
expenses to continue to increase in future periods as we develop new products
and enhancements. Acquired Research and Development Charge.We incurred an acquired
research and development charge of $1.0 million during the second quarter of
2004 as a result of our purchase of in-process research and development from
Amphora as more fully discussed in Note 6 to the consolidated financial
statements in Item 1 of this report. Selling, General and Administrative Expenses.Our selling, general and
administrative expenses increased for the nine months ended September 30, 2004,
primarily due to the additional costs of being a larger company as a result of
the acquisition of Zymark, offset in part by cost synergies realized through
our integration efforts. Our selling, general and administrative expenses
decreased for the three months ended September 30, 2004, primarily as a result
of combination synergies achieved over the twelve months following
the completion of the acquisition. 16




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Stock-based Compensation.The increase in stock based compensation during
the three months ended September 30, 2004, as compared to the same period in
2003, is primarily due to the amortization of deferred compensation recorded on
restricted stock awards that were granted during the third fiscal quarter
of both 2004 and 2003. The increase in stock-based compensation during the nine
months ended September 30, 2004, as compared to the same period in 2003, is due
primarily to option accelerations and other stock-based expenses incurred in
connection with employment and separation agreements with former executives and
other senior employees whose employment was terminated during the first quarter
of 2004, and to a lesser extent the amortization of deferred compensation
recorded on restricted stock awards granted in the third fiscal quarter of
both 2004 and 2003. Assuming no changes to current outstanding stock awards or
changes in personnel, we estimate stock-based compensation to be approximately
$400,000 over the remainder of 2004. Amortization of Intangible Assets.Amortization of intangible assets
consists solely of amortization of the intangible assets acquired in the Zymark
acquisition, as more fully described in Note 2 to the consolidated financial
statements in Item 1 of this report. Scheduled amortization is $900,000 in the
fourth quarter of 2004, $3.6 million for each of the years 2005 through 2007,
and the remaining $1.9 million in 2008. Restructuring Charges.We recognized restructuring charges (credits) in 2004
as follows:  
    
    We recognized a $2.2 million charge in June 2004, based
upon the estimated net present value of our future lease payments
related to the vacating and shutting down approximately one-half
of one of the three facilities we lease in Mountain View, net of
anticipated sublease rentals, including leasehold improvement
write-offs of $67,000 related to the shut-down. The facility
lease accrual charge involved certain key assumptions including
the amount, if any, of future sublease rentals. Our current
assumptions take into consideration the going market rate for
leases of similar properties, which is 80-90% below our current
lease. As such, a decrease in anticipate sublease rentals would
not materially affect our estimated liability.
    
    We recognized a $180,000 charge in June 2004 related to
severance and benefits associated with the elimination of 14
positions, primarily affecting manufacturing operations in our
Mountain View location. We expect that the annualized savings of
this downsizing action will be approximately $1.1 million starting
in the fourth quarter of 2004.
    
    We made a $134,000 credit adjustment to adjust the
estimated restructuring liability related to severance and
benefits associated with the December 2003 reduction in force. During the three month period ended June 30, 2003, we incurred a charge of
$322,000 for severance and related benefits related to the May 2003 reduction
in force, in which all employee separations and related payments were completed
by June 30, 2003. In addition, during the three month period ended September
30, 2003, we incurred a restructuring charge of $774,000 for
severance and related benefits associated with the August 2003
reduction pursuant to which all
separations and related payments were completed by June 30, 2004. Interest Income, Net Three Months Ended September 30,
    
    Nine Months Ended September 30,(In thousands)
    
    2004
    
    2003
    
    $ Change
    
    % Change
    
    2004
    
    2003
    
    $ Change
    
    % ChangeInterest income, net
    
    
    129
    
    
    
    655
    
    
    
    (526
    )
    
    
    -80
    %
    
    
    465
    
    
    
    2,653
    
    
    
    (2,188
    )
    
    
    -82
    %
 Interest income, net decreased due to lower cash, cash equivalents and
marketable securities balances over both the three and nine months ended
September 30, 2004 as compared to the same periods in 2003. Liquidity and Capital Resources Our cash, cash equivalents and marketable securities were $49.1 million at
September 30, 2004, compared to $66.7 million as of December 31, 2003. We have financed our operations from inception primarily through equity
sales, product sales and services, contract and milestone payments and $32.5
million received from the comprehensive settlement agreement with Aclara, and
equipment financing under sale lease back arrangements. The inclusion of
results of operations of the Zymark business after July 14, 2003, had a
significant impact on the business and the comparability of cash flows on a
period-over-period basis. Cash Flows Operating Activities.During the nine months ended September 30, 2004 we
used $16.1 million of cash for operating activities. We paid out $3.7 million
in severance payments during the nine months ended September 30, 2004 related
to prior restructuring activities. During the first three quarters, our
accounts receivable cash collection cycles are typically somewhat slower due to
seasonal variations common with our business, which resulted in the use of $2.2
million of cash during nine months ended September 30, 2004. 17




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Inventories used cash of $794,000 during the nine months ended September 30,
2004, which is due to a usual build-up of raw materials to meet increased
demand in the second half of the year. On a year to date basis through
September 30, 2004, the level of our advance payment deposits, which we record
as deferred revenue, declined in relation to the level of revenues recognized
resulting in the use of $775,000 of cash. The remainder of cash used in
operations was $8.6 million related to our operations and all other changes in
working capital during the nine months ended September 30, 2004. Investing Activities.During the nine months ended September 30, 2004, we
generated $14.4 million in cash from net sales and maturities of marketable
securities and used $2.7 million of cash for property and equipment purchases,
including $1.6 million invested in the purchase and ongoing implementation of
our new ERP system during the first nine months of 2004. We expect to invest a
total of between $3 and $4 million on property and equipment during 2004,
including the investment in the ERP system. Financing Activities. During the nine months ended September 30, 2004, we
generated $1.7 million in cash from financing activities, reflecting $3.3
million from the sale of our common stock pursuant to exercises of stock
options and investments in the employee stock purchase plan, offset in part by
$1.6 million of payments under sales-leaseback and other long-term obligations. As of September 30, 2004, we had commitments under leases and other
obligations totaling $27.1 million, as reflected in the table below, as
compared to $34.7 million as of December 31, 2003. The decrease is primarily
the result of payments under operating lease and sale-leaseback arrangements. Other Long-termObligationsObligations Under
    
    included in OtherOperating
    
    Sale-Leaseback
    
    Non-currentLeases
    
    Arrangements
    
    Liabilities(In thousands)12-month period ending December 31:2004 (remaining)
    
    $
    1,909
    
    
    $
    301
    
    
    $
    2005
    
    
    7,442
    
    
    
    311
    
    
    
    3702006
    
    
    6,203
    
    
    
    
    
    
    
    2007
    
    
    6,076
    
    
    
    
    
    
    
    2008
    
    
    4,063
    
    
    
    
    
    
    
    Thereafter
    
    
    470
    
    
    
    
    
    
    
    Total minimum lease and other payments
    
    $
    26,163
    
    
    $
    612
    
    
    $
    370
 Our capital requirements depend on numerous factors including market
acceptance of our products, the resources we devote to developing and
supporting our products, acquisitions, and other factors. We expect to devote
substantial capital resources to continue our research and development efforts,
to expand our support and product development activities, and for other general
corporate activities. Based on our long-term strategic plan, we believe that
our current cash balances, together with the revenue to be derived from our
commercial partners and from commercial sales of our microfluidic and lab
automation products and services, will be sufficient to fund our operations at
least through the year 2005. Our future capital requirements will depend on
many factors, including, among others:  
    
    growing market acceptance of our microfluidic and lab automation products;
    
    continued scientific progress in our microfluidic, lab automation and robotic research and product development programs;
    
    the magnitude and scope of our research and product development programs;
    
    our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;
    
    the time and costs involved in expanding and maintaining our manufacturing facilities;
    
    the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
    
    the potential need to develop, acquire or license new technologies and products; and
    
    other factors not within our control. We have provided financial projections that we expect to attain break-even
cash flows from operations in the fourth quarter of 2005, and we believe our
current cash balances are more than adequate to satisfy our cash needs at least
through the end of 2005. Our 18




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actual cash needs could vary considerably, however, depending on opportunities
that arise over the course of 2004 and 2005. During or after this period, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we may need to reduce our research and development efforts, or
sell additional equity or debt securities or obtain additional credit
arrangements. The sale of additional equity or convertible debt securities may
result in additional dilution to our stockholders. Additional financing may not
be available on terms acceptable to us or at all. The inability to obtain
additional financing may force delays in research and product development
activities and, ultimately, cause us to cease operations. We have incurred operating losses since our inception and expect to incur
losses for the foreseeable future. While we have significantly reduced our
research and development expenses, we will continue to make significant
investments in research and development over the next several years. Factors Affecting Operating Results Risks Related To Our Business Our LabChip products may not achieve market acceptance, which could cause our
revenue to grow slowly or decline. Many of our microfluidic technologies, which we developed prior to our
acquisition of Zymark on July 14, 2003, are still in the process of development
or are still in the early stages of commercial adoption. For example, our drug
discovery and automated electrophoresis systems incorporating these
technologies have only relatively recently begun to be used commercially. If
these systems do not continue to gain further market acceptance, we will be
unable to generate significant sales of these products and our revenue may grow
more slowly than expected or decline. The commercial success of our LabChip
products depends upon capital spending by our potential customers, and market
acceptance of the merits of our drug discovery and automated electrophoresis
systems by pharmaceutical and biotechnology companies, academic research
centers, and other companies that rely upon laboratory experimentation. Market
acceptance will depend on many factors, including:  
    
    our ability to demonstrate the advantages and potential economic value of our LabChip
drug discovery systems over alternative well-established technologies, including the
superior data quality produced on our systems;
    
    our ability to develop a broader range of standard assays and applications for our
LabChip products and instrument systems that enable customers and potential customers to
perform many different types of experiments on a single instrument system;
    
    capital spending by our customers and potential customers, which has been sluggish over
the past several years as a result of prevailing economic conditions and other
industry-specific factors; and
    
    our ability to market and sell our drug discovery systems and related consumable products. Because our microfluidic drug discovery and automated electrophoresis
systems have been in operation for only a limited period of time with a limited
number of users, their accuracy, reliability, ease of use and commercial value
have not yet gained wide commercial acceptance. If the early users of our
microfluidic products do not endorse our initial drug discovery systems because
these systems fail to generate the quantities and quality of data they expect,
are too difficult or costly to use, or are otherwise deficient, market
acceptance of these drug discovery systems would suffer and further sales may
be limited. We cannot assure you that these customers efforts to put our high
throughput systems into use will continue or will be expeditious or effective.
Potential customers for our drug discovery systems may also wait for
indications from our initial drug discovery system customers that our drug
discovery systems work effectively and generate substantial benefits. Further,
non-acceptance by the market of our initial drug discovery systems could
undermine not only those systems but subsequent drug discovery systems as well.
Our microfluidic-based drug discovery systems are now being marketed and sold
principally by the sales and marketing organization we acquired with our
acquisition of Zymark. These systems and the technologies on which they are
based are still relatively new to this sales and marketing organization, which
may limit our ability to effectively market and sell these systems. If we are not successful in developing new and enhanced liquid handling and
other life sciences products, our products may not gain market acceptance and
we may lose market share to our competitors. The life sciences productivity tools equipment market, the principal
market for the traditional Zymark laboratory automation products, is very
competitive and is characterized by rapid technological change and frequent new
product introductions. The commercial success of our liquid handling systems
and other products depends upon continued and expanding market acceptance of
our systems and products by pharmaceutical and biotechnology companies and
genomics research organizations, and upon our ability to address quickly any
performance problems that our customers encounter. We anticipate that our
competitors will introduce new, enhanced products in this market in the near
future. Our future success will depend on our ability to offer new products and
technologies that researchers believe are an attractive alternative to current
products and technologies, that address the evolving needs of our customers and
that are technologically superior to new products that may be offered by our
competitors. We may experience difficulties or delays in our development
efforts for new products, and we may not ultimately be successful in developing
them. Any significant delay in releasing new products in this market could
adversely affect our reputation, give a competitor a first-to-market advantage
or cause a competitor to achieve greater market share. 19




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If we do not successfully introduce newer, lower cost versions of our drug
discovery systems, and expand the range of applications for these systems, we
may experience a decline in revenue or slow revenue growth and may not achieve
or maintain profitability. We intend to continue developing new, lower cost versions of our
microfluidic-based drug discovery systems with enhanced features that address
existing or emerging customer needs, such as offering a broad range of
standardized, easy to use assays. If we are unable to do so, our drug discovery
systems may not become more widely used and we may experience a decline in
revenue or slow revenue growth and may not achieve or maintain profitability.
We currently have several assays in development including assays that measure
many important activities of cells and proteins. We are developing product
extensions that are particularly well suited for the evaluation of kinases, one
of the largest focus areas of drug discovery efforts today. We are creating new
tools to make it easier for our customers to develop their own custom assays in
a microfluidic format. We are also developing kinase profiling and selectivity
screening kits. If we are not able to complete the development of any of these
applications and tools, or if we experience difficulties or delays, we may lose
our current customers and may not be able to obtain new customers. We are subject to the capital spending patterns of the pharmaceutical industry,
which over the past several years have been adversely impacted by general
economic conditions, industry consolidation and increased competition. Many of our instrument products represent relatively large capital
expenditures by our customers. During the past several years, many of our
customers and potential customers, particularly in the pharmaceutical industry,
have reduced their capital spending budgets because of generally adverse
prevailing economic conditions, consolidation in the industry, and increased
pressure on the profitability of pharmaceutical companies, due in part to more
competition from generic drugs. If our customers and potential customers do not
increase their capital spending budgets, because of continuing adverse economic
conditions or further consolidation in the industry, we could face weak demand
for our products, in particular our products used for high-throughput
screening. If the demand for our instrument products is weak because of
constrained capital spending by our pharmaceutical industry customers and
potential customers, we may not achieve our targets for revenue and cash flow
from operations. A portion of our business depends upon collaborations with OEM business
partners, and our financial success depends upon our ability to manage our
existing OEM relationships and to identify new OEM partners. Historically, an important part of our business strategy has been to
collaborate with OEM business partners in the development of new applications
for our microfluidic and liquid handling products and the subsequent
commercialization of the developed products. These collaboration arrangements
can be difficult to manage, and technical problems encountered in the
development programs or disagreements with our OEM business partners may
adversely impact our ability to complete development programs, and therefore to
realize increased product sales through these product development and
commercialization collaborations. In addition, our ability to grow our
business depends in part on our ability to identify new collaboration partners
or new applications for our technologies to develop with our existing
collaboration partners. If we are unable to identify new collaboration
partners or to agree on the terms of a collaboration, or if we are unable to
identify new applications for our technologies to develop and commercialize
with an existing collaboration partner, the growth of our business could be
adversely affected. Potential future acquisitions may have unexpected consequences or impose
additional costs on us. Our business is highly competitive and our growth is dependent upon market
growth and our ability to enhance our existing products and introduce new
products on a timely basis. One of the ways we may address the need to develop
new products is through acquisitions of complementary businesses and
technologies, such as our acquisition of Zymark in July 2003. From time to
time, we consider and evaluate potential business combinations both involving
our acquisition of another company and transactions involving the sale of
Caliper through, among other things, a possible merger or consolidation of our
business into that of another entity. Acquisitions involve numerous risks,
including the following:  
    
    difficulties in integration of the operations, technologies, and products of the acquired companies;
    
    the risk of diverting managements attention from normal daily operations of the business;
    
    potential cost and disruptions caused by the integration of financial reporting systems and development of
uniform standards, controls, procedures and policies;
    
    accounting consequences, including amortization of acquired intangible assets or other required purchase
accounting adjustments, resulting in variability or reductions of our reported earnings;
    
    potential difficulties in completing projects associated with purchased in-process research and development;
    
    risks of entering markets in which we have no or limited direct prior experience and where competitors in
these markets have stronger market positions; 20




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
    
    the potential loss of key employees of Caliper or the acquired company due to the employment uncertainties
inherent in the acquisition process;
    
    the assumption of known and potentially unknown liabilities of the acquired company;
    
    we may find that the acquired company or assets do not further our business strategy or that we paid more
than what the company or assets are worth;
    
    our relationship with current and new employees and customers could be impaired;
    
    the acquisition may result in litigation from terminated employees or third parties who believe a claim
against us would be valuable to pursue;
    
    our due diligence process may fail to identify significant issues with product quality, product
architecture and legal contingencies, among other matters; and
    
    insufficient revenues to offset increased expenses associated with acquisitions. Acquisitions may also cause us to:  
    
    issue common stock that would dilute our current stockholders percentage ownership;
    
    record goodwill and non-amortizable intangible assets that will be subject to impairment testing
and potential periodic impairment charges;
    
    incur amortization expenses related to certain intangible assets;
    
    incur reductions in deferred revenue of the acquired company, resulting in lower future revenues; or
    
    incur other large and immediate write-offs. We cannot assure you
that future
acquisitions will be successful and will not adversely affect our business. We
must also maintain our ability to manage any growth effectively. Failure to
manage growth effectively and successfully integrate acquisitions we make could
harm our business. We expect to incur future operating losses and may not achieve profitability. We have experienced significant operating losses each year since our
inception and expect to incur substantial additional operating losses for the
years 2004 and 2005, primarily as a result of a current sluggish economic
climate, dampened life sciences research spending by many of our customers and
expected continuing expenses for manufacturing capabilities, research and
product development costs and general and administrative costs. We may never
achieve profitability. As of September 30, 2004, we had an accumulated deficit
of approximately $159.7 million. Our losses have resulted principally from
costs incurred in research and development, product marketing and from general
and administrative costs associated with our operations. These costs have
exceeded our interest income and revenue which, to date, have been generated
principally from product sales, collaborative research and development
agreements, technology access fees, cash and investment balances. Our operating results fluctuate significantly and any failure to meet financial
expectations may disappoint securities analysts or investors and result in a
decline in our stock price. Our quarterly operating results have fluctuated significantly in the past,
and we expect they will continue to fluctuate in the future, even with our
combination with Zymark, as a result of many factors, some of which are outside
of our control. For example, many of our products represent relatively large
capital expenditures for our customers, which leads to variations in the amount
of time it takes for us to sell our products because customers may take several
months or longer to evaluate and obtain the necessary internal approvals for
the purchase of our products. In addition, a significant portion of our
revenues is derived from sales of relatively high-priced products, and these
sales are generally made by purchase orders and not long-term contracts. Delays
in receipt of anticipated orders for higher-priced products could lead to
substantial variability of revenue from quarter to quarter. Furthermore,
Zymarks business historically received purchase orders and shipped a
significant portion of each quarters product orders near the end of the
quarter. If that pattern continues, even short delays in the receipt of orders
or shipment of products at the end of a quarter could result in shipment during
the next quarter, which could have a material adverse effect on results of
operations for the quarter in which the shipment did not occur. In addition,
Zymarks business was historically affected by capital spending patterns of its
customers with a greater percentage of purchases, and therefore higher
revenues, occurring in the second half of the year. There can be no assurance
that this trend will continue. For all of these and other reasons, it is
possible that in some future quarter or quarters, our operating results will be
below the expectations of securities analysts or investors. In this event, the
market price of our common stock may fall 21




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abruptly and significantly. Because our revenue and operating results are
difficult to predict, we believe that period-to-period comparisons of our
results of operations are not a good indication of our future performance. If revenue declines in a quarter, whether due to a delay in recognizing
expected revenue or otherwise, our earnings will decline because many of our
expenses are relatively fixed. In particular, research and development and
general and administrative expenses and amortization of deferred stock
compensation and intangible assets are not affected directly by variations in
revenue. We have limited experience in manufacturing our products and may encounter
manufacturing problems or delays, which could result in lost revenue. Although Agilent manufactures the Agilent 2100 Bioanalyzer and Bio-Rad
manufactures the Experion instrument system, we manufacture the chips used in
these instruments and also currently manufacture instruments and sipper chips
for our drug discovery systems. If we fail to deliver chips and automated drug
discovery products in a timely manner, our relationships with our customers
could be seriously harmed, and revenue would decline. We currently have one
manufacturing location for LabChip products in Mountain View, California, and
one manufacturing location for instruments and other products located in
Hopkinton, Massachusetts. The actual number of chips we are able to sell or use
depends in part upon the manufacturing yields for these chips. We have only
recently begun to manufacture significant numbers of sipper chips and are
continuing to develop our manufacturing procedures for these chips. In order to
offer sipper chips with four or more capillaries for drug discovery
applications, we will need to continue to achieve consistently high yields in
this process. We have experienced difficulties in manufacturing both our chips
and instruments. We cannot assure you that manufacturing or quality problems
will not continue or arise as we attempt to scale-up our production of chips or
that we can scale-up manufacturing in a timely manner or at commercially
reasonable costs. If we are unable to consistently manufacture sipper chips or
chips for the Agilent 2100 Bioanalyzer or the Bio-Rad Experion instrument
systems on a timely basis because of these or other factors, our product sales
will decline. We are currently manufacturing drug discovery instruments
in-house and in limited volumes. If demand for our drug discovery instruments
increases significantly, we will either need to expand our in-house
manufacturing capabilities or outsource to other manufacturers, which could
result in a decrease in yields, and therefore an increase in manufacturing
costs and a decrease in net income from sales. Our ability to scale-up chip manufacturing may be compromised by
uncertainty regarding the volume of chips for the Agilent 2100 Bioanalyzer and
the Bio-Rad Experion instrument systems that we will need to supply to Agilent
and Bio-Rad in the future. As our exclusive collaboration with Agilent
terminated in May 2003 pursuant to the notice we delivered to Agilent, Agilent
now has the option to manufacture chips itself rather than continue to receive
its supply of chips from Caliper. Accordingly, we face uncertainty regarding
future demand for these chips from our manufacturing operations. Because a small number of customers and Agilent have accounted for, and may
continue to account for, a substantial portion of our revenue, our revenue
could decline due to the loss of one of these customers or the termination of
our agreement with Agilent. Historically, we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue, although our
acquisition of Zymark in July 2003 greatly expanded our customer base. During
the three and nine month periods ended September 30, 2004, Agilent accounted
for 10% and 12%, respectively, of total revenues. If we were to lose Agilent
and one or more of our other significant customers, our revenue could decrease
significantly. Our revenue could decline due to the termination of our agreement with Agilent
because of a number of different factors, including a reduction in our gross
margin share of Agilent 2100 Bioanalyzer and LabChip products sold by Agilent
or reduced sales of such products by Agilent due to competition from us or our
other commercial partners. Our commercial relationship with Agilent is currently in a state of
transition due to our termination of the collaboration agreement with Agilent,
effective in May 2003. We are now operating under the surviving provisions of
that agreement. We will continue to receive revenue from Agilent based on a
formula for gross margin sharing on sales by Agilent of instruments and chips
developed under our collaboration agreement. Although we anticipate that future sales of the Agilent 2100 Bioanalyzer
system will further expand our revenue base, under the surviving provisions of
our agreement with Agilent, our gross margin share of collaboration products
sold by Agilent will begin to decline at the end of 2004. If sales of these
products do not increase fast enough to offset the decline in our gross margin
share, the amount of revenue we receive from Agilent will decline. In addition, under the surviving terms of our agreement with Agilent, we
granted to Agilent a non-exclusive, royalty-bearing license to certain of our
LabChip technologies existing as of the termination date for Agilent to
develop, make and sell products in the field of the collaboration.
Consequently, there is the possibility that Agilent may manufacture its own
supply of LabChip products, rather than purchasing them from us, or that we may
experience competition from Agilent in the future, which would reduce our
ability to sell products independently or through other commercial partners. Now that our agreement with Agilent is terminated, Agilents sales of
collaboration products could be reduced due to competition from us or our other
commercial partners, such as Bio-Rad. In such event, the revenue we would
receive from Agilent could be reduced by more than the revenue we receive from
other commercial partners. Further, Agilent may decide for reasons wholly
independent of competition to reduce its sales efforts and/or pricing for these
products. If Agilent does so, our revenue may decline. 22




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Finally, we have not entered into a new research and development funding
agreement with Agilent as of September 30, 2004. While we anticipate that we
may collaborate with Agilent at some point, either related to existing
collaboration products or for new products, it is unlikely that we will receive
any development funding from Agilent over the remainder of 2004. We depend on our key personnel, the loss of whom would impair our ability to
compete. We are highly dependent on the principal members of our management,
especially our Chief Executive Officer, and certain of our scientific staff.
The loss of services of any of these persons could seriously harm our product
development and commercialization efforts. In addition, research, product
development, and commercialization will require additional skilled personnel in
areas such as chemistry and biology, software engineering and electronic
engineering. Our principal business locations in the United States are Silicon
Valley, California, and in the Boston metropolitan area, where demand for
personnel with these skills remains high, and may increase further as the
economic outlook in these areas improves. As a result, competition for and
retention of personnel, particularly for employees with technical expertise, is
intense and the turnover rate for these people is high. If we are unable to
hire, train and retain a sufficient number of qualified employees, our ability
to conduct and expand our business could be seriously reduced. The inability to
retain and hire qualified personnel could also hinder any planned expansion of
our business. Our products could infringe on the intellectual property rights of others,
which may cause us to engage in costly litigation and, if we are not
successful, could also cause us to pay substantial damages and prohibit us from
selling our products. Third parties may assert infringement or other intellectual property
claims against us. We may have to pay substantial damages, including treble
damages, for past infringement if it is ultimately determined that our products
infringe a third partys proprietary rights. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if these claims are without
merit, defending a lawsuit takes significant time, may be expensive and may
divert management attention from other business concerns. We are aware of
third-party patents that may relate to our technology or potential products. We
have also been notified that a third party has attempted to provoke an
interference with one issued U.S. patent that we have exclusively licensed to
determine the priority of inventions. Any public announcements related to
litigation or interference proceedings initiated or threatened against us could
cause our stock price to decline. In 2001, we settled intellectual property
litigation with Aclara concerning one family of Aclara patents. However, Aclara
could assert other patent infringement claims against us in the future in
alternative dispute resolution proceedings established under our settlement
agreement. We may need to initiate lawsuits to protect or enforce our patents, which would
be expensive and, if we lose, may cause us to lose some of our intellectual
property rights, which would reduce our ability to compete in the market. We rely on patents to protect a large part of our intellectual property and our
competitive position, especially in our microfluidics business. In order to
protect or enforce our patent rights, we may initiate patent litigation against
third parties, such as the patent infringement suit against Molecular Devices
we settled in November 2003. These lawsuits could be expensive, take
significant time, and could divert managements attention from other business
concerns. They would put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not issuing. We may
also provoke these third parties to assert claims against us. Patent law
relating to the scope of claims in the technology fields in which we operate is
still evolving and, consequently, patent positions in our industry are
generally uncertain. We cannot assure you that we will prevail in any of these
suits or that the damages or
other remedies awarded, if any, will be commercially valuable. During the
course of these suits, there may be public announcements of the results of
hearings, motions and other interim proceedings or developments in the
litigation. If securities analysts or investors perceive any of these results
to be negative, it could cause our stock price to decline. The rights we rely upon to protect our intellectual property underlying our
products may not be adequate, which could enable third parties to use our
technology and would reduce our ability to compete in the market. In addition to patents, we rely on a combination of trade secrets,
copyright and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Nevertheless, these measures may not be adequate to safeguard the technology
underlying our products. If they do not protect our rights, third parties could
use our technology, and our ability to compete in the market would be reduced.
In addition, employees, consultants and others who participate in the
development of our products may breach their agreements with us regarding our
intellectual property, and we may not have adequate remedies for the breach. We
also may not be able to effectively protect our intellectual property rights in
some foreign countries. For a variety of reasons, we may decide not to file for
patent, copyright or trademark protection outside of the United States. We also
realize that our trade secrets may become known through other means not
currently foreseen by us. Notwithstanding our efforts to protect our
intellectual property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior to our
technology and products without infringing on any of our intellectual property
rights or design around our proprietary technologies. We are dependent on a single-source supplier for the glass used in our LabChip
products and if we are unable to buy this glass on a timely basis, we will not
be able to deliver our LabChip products to customers. We currently purchase a key component for our chips from a single-source
supplier located in Germany. Although we keep surplus inventory in our Mountain
View manufacturing facility, if we are unable to replenish this component on a
timely basis, we will not be
able to deliver our chips to our customers, which would harm our business. 23




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We obtain some of the components and subassemblies included in our systems from
a single source or a limited group of suppliers, and the partial or complete
loss of one of these suppliers could cause production delays and a substantial
loss of revenue. We rely on outside vendors to manufacture many components and
subassemblies for our products. Certain components, subassemblies and services
necessary for the manufacture of our products are provided by a sole supplier
or limited group of suppliers, some of which are our competitors. We currently
purchase additional components, such as optical, electronic, and pneumatic
devices, in configurations specific to our requirements that, together with
certain other components, such as computers, are integrated into our products.
We maintain only a limited number of long-term supply agreements with our
suppliers. Our reliance on a sole or a limited group of suppliers involves several
risks, including the following:  
    
    we may be unable to obtain an adequate supply of required components;
    
    we have reduced control over pricing and the timely delivery of components and subassemblies; and
    
    our suppliers may be unable to develop technologically advanced products to support our growth
and development of new systems. Because the manufacturing of certain of these components and subassemblies
involves complex processes and requires long lead times, we may experience
delays or shortages caused by suppliers. We believe that alternative sources
could be obtained at the same prices and on substantially the same terms and
conditions, if necessary, for most sole and limited source parts. However, if
we were forced to seek alternative sources of supply or to manufacture such
components or subassemblies internally, we might be forced to redesign our
systems, which could prevent us from shipping our systems to customers on a
timely basis. Some of our suppliers have relatively limited financial and other
resources, and, therefore, their businesses could fail. Any inability to obtain
sufficient quantities of components and subassemblies, or any other
circumstance that would restrict our ability to ship our products, could damage
relationships with current and prospective customers and could harm our
business. If a natural disaster strikes our manufacturing facility we would be unable to
manufacture our products for a substantial amount of time and we would
experience lost revenue. We rely on a single manufacturing location to produce our chips and drug
discovery systems, and a single location to produce laboratory automation and
robotics systems, with no alternative facilities. These facilities and some
pieces of manufacturing equipment are difficult to replace and could require
substantial replacement lead-time. Our manufacturing facilities may be affected
by natural disasters such as earthquakes and floods. Earthquakes are of
particular significance since the microfluidic manufacturing facility is
located in Mountain View, California, an earthquake-prone area. In the event
that our existing manufacturing facilities or equipment is affected by man-made
or natural disasters, we would be unable to manufacture products for sale, meet
customer demands or sales projections. If our manufacturing operations were
curtailed or ceased, it would harm our business. Failure to raise additional capital or generate the significant capital
necessary to expand our operations and invest in new products could reduce our
ability to compete and result in lower revenue. We anticipate that our existing capital resources, together with the
revenue to be derived from our commercial partners and from commercial sales of
our microfluidic and lab automation products and services, will enable us to
maintain currently planned operations at least through the year 2005. However,
we premise this expectation on our current operating plan, which may change as
a result of many factors. Consequently, we may need additional funding sooner
than anticipated. Our inability to raise needed capital would seriously harm
our business and product development efforts. In addition, we may choose to
raise additional capital due to market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through the sale of
equity or convertible debt securities, the issuance of these securities could
result in dilution to our stockholders. We currently have no credit facility or committed sources of capital. To
the extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the
development and commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are not available on
attractive terms, we may be required to curtail operations significantly or to
obtain funds by entering into financing, supply or collaboration agreements on
unattractive terms. Our net operating loss and tax credit carryforwards may expire if we do not
achieve or maintain profitability. As of December 31, 2003, we had federal and state net operating loss
carryforwards of approximately $101.5 million and $26.7 million. We also had
federal and state research and development tax credit carryforwards of
approximately $3.1 million and $3.1 million, respectively. The federal net
operating loss and credit carryforwards will expire at various dates beginning
in the year 2009 through 2023 if not utilized. The state net operating losses
will begin to expire in year 2004, if not utilized. 24




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Utilization of the federal and state net operating losses and credits may
be subject to a substantial limitation due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization. Because of our lack of earnings history and the uncertainty of realizing
these net operating losses, the deferred tax assets have been fully offset by a
valuation allowance. Risks Related to Owning Our Common Stock Our stock price is extremely volatile, and you could lose a substantial portion
of your investment. Our stock has been trading on the Nasdaq National Market only since
mid-December 1999. We initially offered our common stock to the public at
$16.00 per share. Since then our stock price has been extremely volatile and
has ranged, through October 31, 2004, from a high of approximately $202.00 per
share on March 2, 2000, to a low of $2.71 per share both on January 28, 2003,
and February 6, 2003. Our stock price may drop substantially following an
investment in our common stock. We expect that our stock price will remain
volatile as a result of a number of factors, including:  
    
    announcements by analysts regarding their assessment of Caliper and its prospects;
    
    announcements by our competitors of complementary or competing products and technologies;
    
    announcements of our financial results, particularly if they differ from investors expectations; and
    
    general market volatility for technology stocks. These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock. Investor confidence and
share value may be adversely impacted if we and our independent
registered public accounting firm are unable to provide adequate
attestation over the adequacy of our internal controls over financial
reporting as of December 31, 2004, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. The
Securities and Exchange Commission, as directed by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring public companies
to include a report of management on the companys internal
controls over financial reporting in its annual reports on Form 10-K
that contain an assessment by management of the effectiveness of the
companys internal controls over financial reporting. In
addition, the companys independent registered public accounting
firm must attest to and report on managements assessment of the
effectiveness of the companys internal controls over financial
reporting. This requirement will first apply to our Annual Report on
Form 10-K for the fiscal year ending December 31, 2004. Although we
intend to diligently and vigorously review our internal controls over
financial reporting in order to ensure compliance with the Section
404 requirements, if our independent registered public accounting
firm are not satisfied with our internal controls over financial
reporting or the level at which these controls are documented,
designed, operated or reviewed, or if the independent registered
public accounting firm interpret the requirements, rules and
regulations differently from us, then they may decline to attest to
managements assessment or may issue a report that is qualified.
This could result in an adverse reaction in the financial marketplace
due to a loss of investor confidence in the reliability of our
financial statements, which ultimately could negatively impact the
market price of our shares. We are at risk of future securities class action litigation. Given the volatility of our stock, we are at risk of having securities
class action lawsuits filed against us and our officers and directors. Such
securities litigation could result in potential liability, cause us to incur
litigation costs and divert managements attention and resources, any of which
could harm our business. In addition, announcements of lawsuits of this or some
other nature, and announcements of events occurring during the course of the
lawsuits, could cause our stock price to drop. Provisions of our charter documents and Delaware law may inhibit a takeover,
which could limit the price investors might be willing to pay in the future for
our common stock. Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination including us. These provisions
could limit the price that investors might be willing to pay in the future for
our common stock. 25




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Item 3. Quantitative and Qualitative Disclosures About Market Risk Our primary market risk exposures are foreign currency fluctuation and
interest rate sensitivity. There have been no material changes to the
information included under Item 7A in our Annual report on Form 10-K for the
fiscal year ended December 31, 2003. 
 Item 4. Controls and Procedures We evaluated our disclosure controls and procedures and our internal
controls and procedures for financial reporting as of September 30, 2004. This
evaluation was done under the supervision and with the participation of
management, including our chief executive officer and our principal financial
officer. Evaluation of disclosure controls and procedures. Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, such as this Quarterly Report on Form
10-Q, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions (SEC) rules and forms.
Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the
chief executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure. Subject to the limitations set forth below, based on their evaluation, as
of the end of this reporting period, the chief executive officer and the
principal financial officer have concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the time periods specified
in SEC rules and forms. Changes in internal controls. Internal controls over financial reporting are procedures which are
designed with the objective of providing reasonable assurance that: (1) our
transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded
and reported, all to permit the preparation of our financial statements in
conformity with accounting principles generally accepted in the United States.
Among other matters, we evaluated our internal controls over financial
reporting to determine whether there were any significant deficiencies or
material weaknesses, and sought to determine whether Caliper has identified
any acts of fraud involving personnel who have a significant role in Calipers
internal controls. In the professional auditing literature, significant
deficiencies may be interpreted as being comparable as reportable
conditions; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize, and report financial data
in the financial statements. A material weakness is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in
relation to the financial statements and would not be detected within a timely
period by employees in the normal course of performing their assigned
functions. On July 30, 2004, we implemented the initial modules of our new Oracle ERP
System which introduced changes in certain business processes and the
associated controls over financial reporting. These changes mainly impacted
our consolidation reporting systems, general ledger accounting systems (in the
United States) and order management system and processes. The implementation
of Oracle is being carried out in a phased-approach in order to accommodate the
substantial time demands and related business constraints that are associated
with the implementation of the Section 404 requirements of the Sarbanes-Oxley
Act of 2002. Our objective in developing an Oracle implementation project plan
was to avoid substantial changes in business processes and the design of
certain key internal controls so that we are able to minimize the potential for
reportable conditions to exist as of December 31, 2004. Limitations on the Effectiveness of Controls. Our management, including our chief executive and principal financial
officer, does not expect that our disclosure controls or our internal controls
will prevent 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 are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within Caliper have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected. 
 Part II  Other Information 
 Item 1. Legal Proceedings Not applicable. 26




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Caliper granted restricted stock to a number of its employees in
connection with its acquisition of Zymark in July 2003, which restricted stock
grants were subject to a right of repurchase by the Caliper in the event that
the grantees left the employment of Caliper. A number of these employees did
leave the employment of Caliper prior to the actual issuance of this stock to
these employees. Consequently, Caliper only issued the vested shares to these
employees, as the remaining unvested shares continued to be subject to this
repurchase right and would have been repurchased by Caliper. The table below
reflects the stock not issued to the employees as if these shares had been
issued and subsequently repurchased during the three months ended September 30,
2004. Maximum DollarTotal Number of
    
    Value of SharesShares Purchased as
    
    that May Yet BeTotal Number of
    
    Average Price Paid
    
    Part of Publicly
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Per Share
    
    Announced Programs
    
    ProgramsJuly 1, 2004 through July 31, 2004
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    August 1, 2004 through August 31, 2004
    
    
    2,250
    
    
    $
    .001
    
    
    
    
    
    
    
    September 1, 2004 through September 30, 2004
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    Total
    
    
    2,250
    
    
    $
    .001
    
    
    
    
    
    
    
    
 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information Not applicable. 
 Item 6. Exhibits ExhibitNumber
    
    Description of document3.1(1)
    
    Restated Certificate of Incorporation of Caliper.3.2(2)
    
    Restated Bylaws of Caliper.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.31.2
    
    Certification of Principal Financial Officer
Required Under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
amended.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 Principal 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)
    
    Previously filed as Exhibit 3.1 to Calipers Quarterly Report
on Form 10-Q for the Quarter ended March 31, 2004, filed May
10, 2004, and incorporated by reference herein.(2)
    
    Previously filed as Exhibit 3.3 to Calipers Quarterly Report
on Form 10-Q for the Quarter ended September 30, 2003, filed
August 14, 2003, and incorporated by reference herein.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this
Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not be deemed filed by Caliper for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended. 27




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. CALIPER LIFE SCIENCES, INC.November 9, 2004
    By:
    /s/ E. Kevin HrusovskyE. Kevin HrusovskyChief Executive Officer and PresidentBy:
    /s/ Peter F. McAreePeter F. McAreeVice President, Finance and
Principal Financial Officer 28




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ExhibitNumber
    
    Description of document3.1(1)
    
    Restated Certificate of Incorporation of Caliper.3.2(2)
    
    Restated Bylaws of Caliper.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.31.2
    
    Certification of Principal Financial Officer
Required Under Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as
amended.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 Principal 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)
    
    Previously filed as Exhibit 3.1 to Calipers Quarterly Report
on Form 10-Q for the Quarter ended March 31, 2004, filed May
10, 2004, and incorporated by reference herein.(2)
    
    Previously filed as Exhibit 3.3 to Calipers Quarterly Report
on Form 10-Q for the Quarter ended September 30, 2003, filed
August 14, 2003, and incorporated by reference herein.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this
Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not be deemed filed by Caliper for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended. 29