Table of Contents

 

 

 

**UNITEDSTATES SECURITIES AND EXCHANGE**

**COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

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

 

**for the quarterly period ended September 30, 2010.**

 

**Or**

 

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

 

**for the transition period from                 to                 .**

 

**Commission file # 001-32976**

 

**CALIPERLIFE SCIENCES, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

**68 Elm Street**

**Hopkinton, Massachusetts 01748**

(Addressand zip code of principal executive offices)

 

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

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateweb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes  o  No o

 

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

 

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

 

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

 

NUMBER OF SHARES OF COMMONSTOCK OUTSTANDING ON OCTOBER 31, 2010:   50,285,209

 

 

 

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**CALIPER LIFE SCIENCES, INC.**

 

**TABLE OF CONTENTS**

 
|                                                                                                                   | **Page** |
|------------------------------------------------------------------------------------------------------------------------|----------|
| PART I    FINANCIAL INFORMATION                                                                              | 3        |
|                                                                                                                   |     |
| Item 1.  Financial Statements (unaudited)                                                                         | 3        |
| Condensed  Consolidated Balance Sheets as of September 30, 2010 and December 31,  2009                       | 3        |
| Condensed  Consolidated Statements of Operations for the Three and Nine Months Ended  September 30, 2010 and 2009 | 4        |
| Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended  September 30, 2010 and 2009           | 5        |
| Notes to Condensed Consolidated Financial Statements                                                                   | 6        |
|                                                                                                                   |     |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations               | 15       |
|                                                                                                                   |     |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                               | 22       |
|                                                                                                                   |     |
| Item 4. Controls and Procedures                                                                                   | 22       |
|                                                                                                                   |     |
| PART II   OTHER INFORMATION                                                                                  | 23       |
|                                                                                                                   |     |
| Item  1. Legal Proceedings                                                                                             | 23       |
|                                                                                                                   |     |
| Item  1A. Risk Factors                                                                                                 | 23       |
|                                                                                                                   |     |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                              | 23       |
|                                                                                                                   |     |
| Item 3. Defaults Upon Senior Securities                                                                           | 23       |
|                                                                                                                   |     |
| Item 4. Removed and Reserved                                                                                      | 23       |
|                                                                                                                   |     |
| Item 5.  Other Information                                                                                        | 23       |
|                                                                                                                   |     |
| Item 6.  Exhibits                                                                                                 | 24       |
|                                                                                                                   |     |
| SIGNATURES                                                                                                             | 24       |
|                                                                                                                   |     |
| EXHIBIT INDEX                                                                                                     | 25       |
| Ex-31.1  Section 302 Certification of CEO                                                                         |     |
| Ex-31.2  Section 302 Certification of CFO                                                                         |     |
| Ex-32.1  Section 906 Certification of CEO                                                                         |     |
| Ex-32.2  Section 906 Certification of CFO                                                                         |     |

 

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**PART I. FINANCIAL INFORMATION**

 

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

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

 

**Item1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** |                             | ** ** |                            | ** ** |
| Current  assets:                                                                                                                                        |       |                             |       |                            |       |
| Cash  and cash equivalents                                                                                                                              |       | $                                | 28,797     |                            | $          | 34,522 |   |
| Marketable  securities                                                                                                                                  |       | 10,007                           |       | 3,525                           |       |
| Accounts  receivable, net                                                                                                                               |       | 22,513                           |       | 26,816                          |       |
| Inventories                                                                                                                                             |       | 11,789                           |       | 11,525                          |       |
| Prepaid  expenses and other current assets                                                                                                              |       | 2,756                            |       | 2,385                           |       |
| Total  current assets                                                                                                                                   |       | 75,862                           |       | 78,773                          |       |
| Property  and equipment, net                                                                                                                            |       | 9,208                            |       | 9,107                           |       |
| Intangible  assets, net                                                                                                                                 |       | 21,574                           |       | 25,222                          |       |
| Goodwill                                                                                                                                                |       | 18,356                           |       | 21,011                          |       |
| Other  assets                                                                                                                                           |       | 357                              |       | 359                             |       |
| Total  assets                                                                                                                                           |       | $                                | 125,357    |                            | $          | 134,472 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                          |       |                             | ** ** |                            | ** ** |
| Current  liabilities:                                                                                                                                   |       |                             |       |                            |       |
| Accounts  payable                                                                                                                                       |       | $                                | 6,152      |                            | $          | 5,114 |   |
| Accrued  compensation                                                                                                                                   |       | 7,239                            |       | 8,085                           |       |
| Other  accrued liabilities                                                                                                                              |       | 8,465                            |       | 9,735                           |       |
| Deferred  revenue and customer deposits                                                                                                                 |       | 12,303                           |       | 12,390                          |       |
| Current  portion of accrued restructuring                                                                                                               |       | 1,630                            |       | 1,449                           |       |
| Borrowings  under credit facility                                                                                                                       |       | —                           |       | 14,900                          |       |
| Total  current liabilities                                                                                                                              |       | 35,789                           |       | 51,673                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 2,000                            |       | 2,232                           |       |
| Other  noncurrent liabilities                                                                                                                           |       | 5,861                            |       | 6,429                           |       |
| Deferred  tax liability                                                                                                                                 |       | 1,128                            |       | 1,128                           |       |
| Commitments  and contingencies                                                                                                                          |       |                             |       |                            |       |
| Stockholders’  equity:                                                                                                                             |       |                             |       |                            |       |
| Preferred  stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and  outstanding                                                      |       | —                           | ** ** | **—**                      | ** ** |
| Common  stock, $0.001 par value; 100,000,000 shares authorized, 50,281,022 and  49,324,699 shares issued and outstanding in 2010 and 2009, respectively |       | 50                               |       | 49                              |       |
| Additional  paid-in capital                                                                                                                             |       | 385,106                          |       | 383,306                         |       |
| Accumulated  deficit                                                                                                                                    |       | (304,928                         | )          | (310,637                        | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 351                              |       | 292                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 80,579                           |       | 73,010                          |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                                | 125,357    |                            | $          | 134,472 |   |

* *

*See accompanying notes.*

 

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**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended********September 30** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                                  | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenues:                                                             |       |                                                      |       |                                                      |       |   |   |   |   |
| Product revenue                                                       |       | $                                                         | 20,066     |                                                      | $          | 20,952 |   | $ | 60,920 |   | $ | 60,760 |   |
| Service revenue                                                       |       | 6,590                                                     |       | 8,200                                                     |       | 17,013 |   | 23,761 |   |
| License fees and contract revenue                                     |       | 3,090                                                     |       | 3,021                                                     |       | 9,514 |   | 8,234 |   |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Total revenue                                                         |       | 29,746                                                    |       | 32,173                                                    |       | 87,447 |   | 92,755 |   |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Costs and expenses:                                                   |       |                                                      |       |                                                      |       |   |   |   |   |
| Cost of product revenue                                               |       | 10,179                                                    |       | 11,947                                                    |       | 30,575 |   | 36,030 |   |
| Cost of service revenue                                               |       | 3,270                                                     |       | 5,393                                                     |       | 9,778 |   | 16,431 |   |
| Cost of license revenue                                               |       | 478                                                       |       | 356                                                       |       | 1,404 |   | 1,057 |   |
| Research and development                                              |       | 4,416                                                     |       | 4,221                                                     |       | 13,061 |   | 13,406 |   |
| Selling, general and administrative                                   |       | 11,046                                                    |       | 10,786                                                    |       | 32,650 |   | 33,235 |   |
| Amortization of intangible assets                                     |       | 1,169                                                     |       | 1,548                                                     |       | 3,648 |   | 4,662 |   |
| Restructuring charges, net                                            |       | 741                                                       |       | 1,044                                                     |       | 1,375 |   | 1,096 |   |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Total costs and expenses                                              |       | 31,299                                                    |       | 35,295                                                    |       | 92,491 |   | 105,917 |   |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Operating loss                                                        |       | (1,553                                                    | )          | (3,122                                                    | )          | (5,044 | ) | (13,162 | ) |
| Interest expense, net                                                 |       | (75                                                       | )          | (144                                                      | )          | (277 | ) | (535 | ) |
| Gain (loss) on divestiture (Note 2)                                   |       | (37                                                       | )          | —                                                    |       | 11,387 |   | — |   |
| Other income (expense), net                                           |       | 320                                                       |       | (85                                                       | )          | (69 | ) | (202 | ) |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Income (loss) before income taxes                                     |       | (1,345                                                    | )          | (3,351                                                    | )          | 5,997 |   | (13,899 | ) |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Benefit (provision) for income taxes                                  |       | 35                                                        |       | (26                                                       | )          | (288 | ) | (176 | ) |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Net income (loss)                                                     |       | $                                                         | (1,310     | )                                                         | $          | (3,377 | ) | $ | 5,709 |   | $ | (14,075 | ) |
|                                                                  |       |                                                      |       |                                                      |       |   |   |   |   |
| Net income (loss) per share, basic                                    |       | $                                                         | (0.03      | )                                                         | $          | (0.07 | ) | $ | 0.11 |   | $ | (0.29 | ) |
| Net income (loss) per share, diluted                                  |       | $                                                         | (0.03      | )                                                         | $          | (0.07 | ) | $ | 0.11 |   | $ | (0.29 | ) |
| Shares used in computing net income (loss) per  common share, basic   |       | 50,277                                                    |       | 49,013                                                    |       | 49,945 |   | 48,816 |   |
| Shares used in computing net income (loss) per  common share, diluted |       | 50,277                                                    |       | 49,013                                                    |       | 51,888 |   | 48,816 |   |

 

*See accompanying notes.*

 

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**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited, in thousands)**

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                                                | ** ** | **2009** | ** ** |
| **Operating activities**                                                           | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Net income (loss)                                                                  |       | $                                                       | 5,709      |   | $ | (14,075 | ) |
| Adjustments to reconcile net income (loss) to net  cash from operating activities: |       |                                                    |       |   |   |
| Depreciation and amortization                                                      |       | 5,478                                                   |       | 6,992 |   |
| Stock-based compensation expense, net                                              |       | 2,599                                                   |       | 2,916 |   |
| Gain on divestiture                                                                |       | (11,387                                                 | )          | — |   |
| Restructuring charges, net                                                         |       | 1,375                                                   |       | 1,096 |   |
| Foreign currency exchange losses                                                   |       | 165                                                     |       | 229 |   |
| Changes in operating assets and liabilities:                                       |       |                                                    |       |   |   |
| Accounts receivable                                                                |       | 2,446                                                   |       | 3,939 |   |
| Inventories                                                                        |       | (1,667                                                  | )          | 4,547 |   |
| Prepaid expenses and other current assets                                          |       | (377                                                    | )          | 367 |   |
| Accounts payable and other accrued liabilities                                     |       | (326                                                    | )          | (4,159 | ) |
| Accrued compensation                                                               |       | (2,100                                                  | )          | 2,092 |   |
| Deferred revenue and customer deposits                                             |       | 286                                                     |       | (1,632 | ) |
| Other noncurrent liabilities                                                       |       | (767                                                    | )          | (707 | ) |
| Payments of accrued restructuring obligations, net                                 |       | (1,319                                                  | )          | (1,453 | ) |
|                                                                               |       |                                                    |       |   |   |
| Net cash from operating activities                                                 |       | 115                                                     |       | 152 |   |
|                                                                               |       |                                                    |       |   |   |
| **Investing activities**                                                           | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Purchases of marketable securities                                                 |       | (13,031                                                 | )          | (2,814 | ) |
| Proceeds from sales of marketable securities                                       |       | —                                                  |       | 400 |   |
| Proceeds from maturities of marketable securities                                  |       | 6,555                                                   |       | 3,148 |   |
| Other assets                                                                       |       | (2                                                      | )          | 66 |   |
| Purchases of property and equipment                                                |       | (1,460                                                  | )          | (1,230 | ) |
| Proceeds from divestiture                                                          |       | 16,500                                                  |       | — |   |
| Deferred gain from divestiture of product lines                                    |       | —                                                  |       | 711 |   |
|                                                                               |       |                                                    |       |   |   |
| Net cash from investing activities                                                 |       | 8,562                                                   |       | 281 |   |
|                                                                               |       |                                                    |       |   |   |
| **Financing activities**                                                           | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Borrowings under credit facility                                                   |       | 12,900                                                  |       | 17,500 |   |
| Payments of credit facility                                                        |       | (27,800                                                 | )          | (17,500 | ) |
| Payments of capital lease obligations                                              |       | (55                                                     | )          | — |   |
| Proceeds from issuance of common stock                                             |       | 502                                                     |       | 270 |   |
|                                                                               |       |                                                    |       |   |   |
| Net cash from financing activities                                                 |       | (14,453                                                 | )          | 270 |   |
|                                                                               |       |                                                    |       |   |   |
| Effect of exchange rates on changes in cash and  cash equivalents                  |       | 51                                                      |       | (190 | ) |
| Net increase (decrease) in cash and cash  equivalents                              |       | (5,725                                                  | )          | 513 |   |
| Cash and cash equivalents at beginning of period                                   |       | 34,522                                                  |       | 23,667 |   |
|                                                                               |       |                                                    |       |   |   |
| Cash and cash equivalents at end of period                                         |       | $                                                       | 28,797     |   | $ | 24,180 |   |

 

*See accompanying notes.*

 

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**CALIPER LIFE SCIENCES, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**September 30, 2010**

**(Unaudited)**

 

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

 

***Basis of Presentation***

 

The accompanying unauditedconsolidated financial statements of Caliper Life Sciences, Inc. and itswholly owned subsidiaries (collectively, the “Company” or “Caliper”) have beenprepared by the Company pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”) and generally accepted accountingprinciples for interim financial information. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith U.S. generally accepted accounting principles (“GAAP”) have been condensedor omitted pursuant to such rules or regulations. The December 31,2009 consolidated balance sheet has been derived from the Company’s auditedfinancial statements as of that date, but does not include all disclosuresrequired by U.S. GAAP.  However, in the opinion of management, alladjustments (consisting of normal recurring entries) considered necessary for afair presentation have been included. These unaudited consolidated financialstatements should be read in conjunction with Caliper’s Annual Report onForm 10-K for the year ended December 31, 2009.

 

Operating results for thethree and nine months ended September 30, 2010, are not necessarilyindicative of the results that may be expected for the full fiscal year or forany future periods. For example, the Company typically experiences higherrevenue in the fourth quarter of its fiscal year due to spending patterns ofits customers, and may realize significant periodic fluctuations in license andcontract revenue depending on the timing and circumstances of underlyingindividual transactions.

 

***Summary of Significant Accounting Principles***

 

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

 

***Revenue Recognition***

 

*GeneralPolicy*

 

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

 

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

 

*ProductRevenue*

 

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

 

*Serviceand Annual Maintenance Agreements*

 

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

 

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

 

*Licensingand Royalty*

 

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

 

*ContractRevenue*

 

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

 

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

 

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

 

Observable inputs that donot meet the criteria of Level 1, and include quoted prices for similar assetsor liabilities in active markets or quoted prices for identical assets andliabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions marketparticipants would use in pricing the asset or liability, based on the bestinformation available in the circumstances.  Valuation techniques forassets and liabilities measured using Level 3 inputs may include methodologiessuch as the market approach, the income approach or the cost approach, and mayuse unobservable inputs such as projections, estimates and management’sinterpretation of current market data.  These unobservable inputs are onlyutilized to the extent that observable inputs are not available orcost-effective to obtain.

 

On September 30, 2010,Caliper’s investments, classified as either cash equivalents or marketablesecurities, were valued in accordance with the fair value hierarchy as follows(in thousands):

 
| ** **                      | ** ** | **Quoted Prices  in Active Markets  (Level 1)** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------------|------------|
| Money market funds              |       | $                                                                   | 2,016      |   |
| Government treasuries and bonds |       | 3,016                                                               |       |
| Commercial paper                |       | 1,049                                                               |       |
| U.S. corporate notes and bonds  |       | 3,590                                                               |       |
| U.S. agency bonds               |       | 1,974                                                               |       |
| Other                           |       | 355                                                                 |       |
| Total                           |       | $                                                                   | 12,000     |   |

 

As of September 30,2010, all of Caliper’s cash and available for sale securities have contractedmaturities of less than one year with the exception of a few securities thattotal $1.6 million and mature in greater than one year.  In addition,Caliper held securities that were in an unrealized loss position as ofSeptember 30, 2010; however, these unrealized losses were not material toCaliper either individually or in the aggregate.

 

***Income Taxes***

 

Caliper accounts for incometaxes in accordance with FASB ASC 740, *Accountingfor Income Taxes*, (“FASB ASC 740”), and accounts for uncertainty inincome taxes recognized in financial statements in accordance with FASB ASC 740*.*  FASB ASC 740 prescribes acomprehensive model for the recognition, measurement, and financial statementdisclosure of uncertain tax positions. Unrecognized tax 

 

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benefits are the differencesbetween tax positions taken, or expected to be taken, in tax returns, and thebenefits recognized for accounting purposes pursuant to FASB ASC 740. Caliperclassifies uncertain tax positions as short-term liabilities within accruedexpenses.  During the nine months ended September 30, 2010 and 2009,Caliper’s tax provision includes estimated foreign taxes in jurisdictions whereits wholly owned subsidiaries are subject to current taxes. For the nine monthsended September 30, 2010, Caliper’s provision for income taxes isprincipally comprised of estimated taxes incurred in connection with thedivestiture of its TurboVap® and RapidTrace® product lines in May 2010as discussed in Note 2.

 

***Goodwill***

 

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

 

***Recently Issued Accounting Standards***

 

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

 

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

 

**2. Divestitures**

 

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

 

On May 17, 2010,Caliper entered into a Purchase Agreement (the “Purchase Agreement”) providingfor the sale of its solvent evaporation and solid phase extraction productlines, consisting of the TurboVap and RapidTrace product lines, to Biotage LLC(“Biotage”) for approximately $16.5 million in cash. The sale of these productlines to Biotage was completed on May 24, 2010.  The PurchaseAgreement contains representations, warranties and indemnities that arecustomary in purchase transactions.  In addition, Caliper has agreed notto engage in activities that are competitive with the divested product linesfor five years from the closing date.  Upon the closing date, the partiesalso entered into a two-year toll manufacturing agreement, with an option for athird year, pursuant to which Caliper will exclusively manufacture the TurboVapand RapidTrace products in quantities requested by Biotage and sell such unitsto Biotage at fair market prices, mutually agreed to by both parties.  Asof the closing date for this transaction, the TurboVap and RapidTrace productlines had net assets of $5.0 million comprised of $2.7 million of goodwillallocated on a relative fair value basis, $1.6 million in accounts receivableand $1.4 million in inventory, less $0.7 million of assumed liabilities. The sale resulted in a $11.4 million gain before estimated income taxes ofapproximately $0.3 million.

 

***Xenogen Biosciences Divestiture***

 

On December 11, 2009,Caliper entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”)with Taconic Farms, Inc. (“Taconic”). The Stock Purchase Agreementprovided for the sale of Caliper’s preclinical mouse services business, XenogenBiosciences Corporation (“XenBio”), to Taconic for a purchase price ofapproximately $10.8 million, which included $9.7 million in cashtogether with $1.1 million which was placed into an escrow account untilApril 30, 2011. The escrow secures Caliper’s indemnification obligationsto Taconic, if any, under the Stock Purchase Agreement. The Stock PurchaseAgreement also contains representations, warranties and indemnities that arecustomary in stock purchase transactions. As of the transaction date, XenBiohad net assets of $4.9 million comprised of $2.6 million inidentified intangibles, $1.9 million of goodwill allocated on a relativefair value basis, and $0.4 million of other net assets. The sale of XenBioresulted in a $4.2 million gain based upon the net proceeds received todate, excluding the amount held in escrow, in excess of total divested netassets.

 

***AutoTrace Product Line Divestiture***

 

On November 10, 2008,Caliper entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”)with Dionex Corporation (“Dionex”). The Asset Purchase Agreement provided forthe sale of Caliper’s AutoTrace product line to Dionex.  This transactionis further described within Note 3 to the consolidated financialstatements included in Caliper’s Annual Report on Form 10-K for the yearended 

 

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December 31, 2009 filedwith the SEC on March 12, 2010.  Caliper continued to manufacture theAutoTrace products for Dionex for approximately three months following theclosing of this transaction under a transition services agreement, which resultedin the recognition of approximately $0.3 million in revenue from this businessduring the first quarter of 2009.

 

**3.Inventories**

 

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

 
| ** **      | ** ** | **September 30, 2010** | ** ** | **December 31,  2009** | ** ** |
|-----------------|------------|----------------------------------|------------|---------------------------------------|------------|
| Raw material    |       | $                                | 5,847      |                                  | $          | 5,879 |   |
| Work-in-process |       | 837                              |       | 859                                   |       |
| Finished goods  |       | 5,105                            |       | 4,787                                 |       |
| Inventories     |       | $                                | 11,789     |                                  | $          | 11,525 |   |

 

**4.Intangibles**

 

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

 
| ** **                                  | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Core technologies                           |       | $                                | 15,855     |                            | $          | 18,437 |   |
| Developed and contract technologies         |       | 1,096                            |       | 1,771                           |       |
| Customer contracts, lists and relationships |       | 1,725                            |       | 2,116                           |       |
| Trade names                                 |       | 2,898                            |       | 2,898                           |       |
|                                        |       | $                                | 21,574     |                            | $          | 25,222 |   |

 

**5. WarrantyObligations**

 

Caliper provides forestimated warranty expenses as a component of cost of revenue at the timeproduct revenue is recognized.  Caliper offers a one-year limited warrantyon most products, which is included in the selling price. Caliper’s standardlimited warranty covers repair or replacement of defective goods, apreventative maintenance visit on certain products, and telephone-basedtechnical support. Factors that affect Caliper’s warranty liability include thenumber of installed units, historical and anticipated rates of warranty claims,and cost per claim. Caliper periodically assesses the adequacy of its recordedwarranty liabilities and adjusts amounts as necessary.

 

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

 
| ** **                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                         | ** ** | **2010**                                                | ** ** | **2009** | ** ** |
| Balance at beginning of period                     |       | $                                                       | 1,557      |   | $ | 1,362 |   |
| Warranties issued during the period                |       | 969                                                     |       | 1,131 |   |
| Settlements and adjustments made during the period |       | (1,180                                                  | )          | (910 | ) |
| Balance at end of period                           |       | $                                                       | 1,346      |   | $ | 1,583 |   |

 

**6.Comprehensive Income (Loss)**

 

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

 
| ** **                               | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                               | ** ** | **2010**                                                   | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net income (loss)                        |       | $                                                          | (1,310     | )                                                         | $          | (3,377 | ) | $ | 5,709 |   | $ | (14,075 | ) |
| Unrealized gain on marketable securities |       | 8                                                          |       | 3                                                         |       | 6 |   | 40 |   |
| Foreign currency translation gain        |       | 240                                                        |       | 93                                                        |       | 53 |   | 215 |   |
|                                     |       |                                                       |       |                                                      |       |   |   |   |   |
| Comprehensive income (loss)              |       | $                                                          | (1,062     | )                                                         | $          | (3,281 | ) | $ | 5,768 |   | $ | (13,820 | ) |

 

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**7. AccruedRestructuring Costs**

 

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

 
| ** **                           | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-----------|------------|
| Balance, December 31, 2009      |       | $         | 3,681      |   |
| Restructuring charge                 |       | 559       |       |
| Adjustments to estimated obligations |       | 611       |       |
| Interest accretion                   |       | 98        |       |
| Payments                             |       | (1,319    | )          |
| Balance, September 30, 2010     |       | 3,630     |       |
|                                      |            |           |            |  |

 

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

 
| **Years Ended December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2010 (remainder of fiscal year)             |       | $          | 444        |   |
| 2011                                        |       | 1,553      |       |
| 2012                                        |       | 926        |       |
| 2013                                        |       | 1,094      |       |
| 2014                                        |       | 95         |       |
| Thereafter                                  |       | 94         |       |
| Total minimum payments                      |       | 4,206      |       |
| Less: Amount representing interest          |       | 576        |       |
| Present value of future payments            |       | 3,630      |       |
| Less: Current portion of obligations        |       | 1,630      |       |
| Non-current portion of obligations          |       | $          | 2,000      |   |

 

The restructuringobligations reflected above resulted from the following actions:

 

*Facility Closures*

 

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

 

In July 2009, Calipervacated approximately 19,000 square feet at its Hopkinton, Massachusettsfacilities. This facility consolidation was enabled as the result of theproduct line divestitures completed in the fourth quarter of 2008 and continuedefforts to reduce idle capacity. Caliper recorded a restructuring charge ofapproximately $1.0 million related to this action in the third quarter of2009. Caliper has accounted for this restructuring activity in accordance withFASB ASC 420, pursuant to which Caliper has recorded a liability equal to thefair value of the remaining lease payments as of the cease-use date. Fair valuewas determined based upon the discounted present value of remaining leasepayments (using a discount rate of 6.5%), considering future estimated subleaseincome, estimated broker fees and required tenant improvements. The lease termexpires on December 31, 2015.

 

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

 

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In September 2010,Caliper entered into a two year sublease for approximately 13,200 square feetof the vacated space in Mountain View, California.  As a result of entering into this agreement,Caliper revised its assumptions around the restructuring charge taken withrespect to this property in 2009, and recorded an additional $0.7 millionrestructuring charge during the three months ended September 30,2010.  The effect of the charge was toupdate the sublease rates for the remaining space as well as to capture theperiod from the end of the sublease through November 2013 for whichCaliper does not expect to receive sublease income.

 

**8.Revolving Credit Facility**

 

On May 24, 2010,Caliper entered into a Second Loan Modification Agreement relating to itsSecond Amended and Restated Loan and Security Agreement (the “credit facility”)with a bank dated March 6, 2009.  The credit facility permits Caliperto borrow up to $25 million in the form of revolving loan advances,including up to $5 million in the form of letters of credit and othercontingent reserves. Principal borrowings under the credit facility accrue interestat a floating annual rate equal to the bank’s prime rate (4% atSeptember 30, 2010) plus one-half of one percent. Under the creditfacility, Caliper is permitted to borrow up to $25 million, subject to aborrowing base limit consisting of (a) 80% of eligible accounts receivableplus (b) the lesser of 70% of Caliper’s unrestricted cash at the bank or$12 million; provided, that on each of the first three (3) businessdays and each of the last three (3) business days of each fiscal quarter,the borrowing base is (a) 80% of eligible accounts receivable plus(b) the lesser of 90% of Caliper’s unrestricted cash at the bank or$12 million. Eligible accounts receivable do not include internationallybilled receivables, unbilled receivables, and receivables aged over90 days from invoice date. The current facility matures on April 1,2011. The credit facility serves as a source of capital for ongoing operationsand working capital needs.

 

The credit facility includestraditional lending and reporting covenants including that certain financialcovenants applicable to liquidity and earnings are to be maintained by Caliperand tested as of the last day of each quarter. As of September 30, 2010,Caliper was in compliance with all of its covenants.  The credit facilityalso includes certain rights for the bank to accelerate the maturity of thedebt, lower the borrowing base or stop making advances, which are typicalwithin asset-based lending arrangements. Caliper does not believe the bank willexercise these rights as long as it is meeting its covenants and achieving itsforecast. The credit facility also includes several potential events of defaultsuch as payment default, material adverse change conditions and insolvencyconditions that could cause interest to be charged at the interest rate ineffect as of the date of default plus two percentage points, or in the event ofany uncured events of default (including non-compliance with liquidity andearnings financial covenants), could result in the bank’s right to declare alloutstanding obligations immediately due and payable.

 

There were no outstandingobligations under the credit facility as of September 30, 2010, comparedto $14.9 million which was outstanding as of December 31, 2009. The creditfacility is classified as short-term consistent with Caliper’s intent toutilize the credit facility to fund operations and working capital needs, asneeded, on a revolving loan basis. Interest is due monthly and has ranged from4.5% to 5.5% during the nine months ended September 30, 2010, and rangedfrom 4.5% to 6.5% during the nine months ended September 30, 2009.

 

**9. Commitments and Contingencies**

 

Caliper’s commitments andcontingencies are disclosed within Note 10 to the consolidated financialstatements included in Caliper’s Annual Report on Form 10-K for the yearended December 31, 2009, filed with the SEC on March 12, 2010. With respect to such disclosure, the following changes occurred during the ninemonth period ended September 30, 2010.

 

In March 2010, Caliperreceived a letter from AntiCancer Incorporated (“AntiCancer”) which claimedthat Caliper had underpaid royalties during the period from July 2008through December 2009, under a cross-license agreement entered into inFebruary 2008.  The claim is based upon a different interpretation ofthe royalty sharing provisions within the cross licensing agreement. Caliper is contesting the claim that additional royalties are due, and as aresult, has not accrued for any additional liability. The amount of any remainingcontingent obligation, if any, cannot currently be estimated, nor does Caliperbelieve that it is probable that a liability exists. AntiCancer and Caliperheld a mediation session with a neutral third party in September 2010, andare attempting to reach a negotiated settlement of this dispute.  If thisdispute cannot be resolved through mediation, either party may choose bindingarbitration to resolve any dispute over the amount of back royalties owed, ifany.

 

**10. LegalProceedings**

 

As reported previously, onFebruary 23, 2010, Caliper, its wholly owned subsidiary XenogenCorporation, and Stanford University filed a complaint for patent infringementagainst Carestream Health, Inc. (“Carestream”) in the U.S. District Courtfor the Eastern District of Texas.  Caliper, Xenogen and StanfordUniversity seek a judgment that Carestream induced infringement of seven UnitedStates patents that Caliper, through Xenogen, exclusively licenses fromStanford University.  Caliper and its co- plaintiffs seek an award of compensatorydamages, trebled damages due to Carestream’s willfulness, a permanentinjunction and attorneys’ fees against Carestream for its ongoing, indirect infringementof the patents-in-suit. The complaint was served on Carestream onFebruary 26, 2010.  On April 20, 2010, Carestream filed itsanswer to the complaint, denying it induces infringement of the assertedpatents.  Carestream also counterclaimed for declaratory judgments ofnon-infringement and invalidity of the asserted patents.  Carestream also fileda motion to transfer the venue of the litigation to another DistrictCourt.  Caliper and Carestream subsequently agreed to the transfer of thiscase to the U.S. District Court for the Northern District of California, whereit is pending.  The claim construction hearing for this case is presentlyscheduled for May 2, 2011, and the trial is presently scheduled for April 2012.

 

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On June 8, 2010, theU.S. Patent and Trademark Office (“PTO”) issued U.S. Patent Number 7,734,325 (“the‘325 Patent”) to Carestream.  The nextday, Caliper filed a request for reexamination of all claims of the ‘325Patent.  On August 12, 2010, the PTOissued an order granting reexamination of all claims of the ‘325 Patent.  On the same day, the PTO also issued anaction closing prosecution of the reexamination of the ‘325 Patent.  On September 29, 2010, the PTO issued aright of appeal notice notifying Caliper and Carestream of each party’s rightto appeal the examiner’s determinations in the reexamination.  Caliper filed a  Notice of Appeal with the PTO on October 29,2010.

 

On July 9, 2010,Carestream filed a complaint for patent infringement against Caliper in the U.S.District Court for the Western District of Wisconsin.  Carestream’scomplaint alleges that Caliper’s Lumina XR imaging system, which is amulti-modal imaging system with both optical and x-ray capabilities thatCaliper first introduced in September 2009, infringes the ‘325 Patent andthat Caliper indirectly infringes the ‘325 Patent.  Caliper filed itsanswer to Carestream’s complaint on August 2, 2010.  Carestream’s allegations of infringement donot involve any of Caliper’s imaging products other than the Lumina XR. Caliper believes that the ‘325 Patent is invalid and that the Lumina XR systemdoes not infringe the claims of the ‘325 Patent, and Caliper intends to defendagainst this lawsuit vigorously.  With its complaint for patentinfringement, Carestream also filed with the Court a motion for preliminaryinjunction to prevent Caliper from selling the Lumina XR system during thependency of this litigation.  Caliper filed its opposition to Carestream’smotion for a preliminary injunction on October 20, 2010.  No hearingdate for Carestream’s preliminary injunction motion has been set by theCourt.  On October 20, 2010, Caliperalso filed a motion for summary judgment based on non-infringement of the ‘325Patent.  No hearing date for Caliper’ssummary judgment motion has been set by the Court.  The claim construction hearing for this caseis presently scheduled for March 4, 2011 and the trial is presentlyscheduled for January 2012.

 

From time to time Caliper isinvolved in litigation arising out of claims in the normal course of business,and when a probable loss contingency arises, records a loss provision basedupon actual or possible claims and assessments. The amount of possible claimrecorded is determined on the basis of the amount of the actual claim, when theamount is both probable and the amount of the claim can be reasonablyestimated. If a loss is deemed probable, but the range of potential loss iswide, Caliper records a loss provision based upon the low end estimate of theprobable range and may adjust that estimate in future periods as moreinformation becomes available. Litigation loss provisions, when made, arereflected within general and administrative expenses in the Statement ofOperations and are included within accrued legal expenses in the accompanyingbalance sheet. Based on the information presently available, managementbelieves that there are no outstanding claims or actions pending or threatenedagainst Caliper, the ultimate resolution of which will have a material adverse effecton our financial position, liquidity or results of operations, although theresults of litigation are inherently uncertain, and adverse outcomes arepossible.

 

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

 

***Stock-Based Compensation***

 

Caliper recognizes allshare-based payments, including grants of stock options, in the incomestatement as an operating expense, based on their fair values. Caliperestimates the fair value of each option award on the date of grant using aBlack-Scholes-Merton based option-pricing model.  Stock-based compensationexpense is included within costs and expenses as follows (in thousands):

 
| ** **                          | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                          | ** ** | **2010**                                                   | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Cost of product revenue             |       | $                                                          | 65         |                                                      | $          | 86 |   | $ | 216 |   | $ | 245 |   |
| Cost of service revenue             |       | 11                                                         |       | 31                                                        |       | 39 |   | 75 |   |
| Research and development            |       | 127                                                        |       | 144                                                       |       | 397 |   | 439 |   |
| Selling, general and administrative |       | 594                                                        |       | 751                                                       |       | 1,947 |   | 2,157 |   |
| Total                               |       | $                                                          | 797        |                                                      | $          | 1,012 |   | $ | 2,599 |   | $ | 2,916 |   |

 

Caliper has severalshare-based compensation plans (the “Plans”), which are described inNote 12 to the consolidated financial statements included in Caliper’sAnnual Report on Form 10-K for the year ended December 31, 2009 filedwith the SEC on March 12, 2010.  NoPlan modifications have occurred during the nine month period ended September 30,2010.  Year-to-date activity in 2010under the Plans is summarized below.

 

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

 

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

 

***Options and Restricted Stock Activity***

 

A summary of stock optionand restricted stock activity under the Plans as of September 30, 2010,and changes during the nine months then ended is as follows:

 
| **Stock Options**                                  | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise   Price** | ** ** | **Weighted  Average  Remaining  Contractual   Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------|------------|
|                                                    |       |       |       |                                         |       |                                                      |       | **(in thousands)**             |       |
|                                                    |       |       |       |                                         |       |                                                      |       |                                |       |
| Outstanding  at December 31, 2009                  |       | 7,922,392  |       | $                                            | 4.67       |                                                      | 6.43       |                                | $          | 1,854 |   |
| Granted                                                 |       | 1,118,194  |       | 3.61                                         |       | —                                                    |       | —                              |       |
| Exercised                                               |       | (46,656    | )          | 2.13                                         |       | —                                                    |       | 87                                  |       |
| Canceled                                                |       | (192,306   | )          | 12.08                                        |       | —                                                    |       | —                              |       |
| Outstanding  at September 30, 2010                 |       | 8,801,624  |       | 4.38                                         |       | 6.17                                                      |       | 5,220                               |       |
| Exercisable  at September 30, 2010                 |       | 6,025,363  |       | 5.04                                         |       | 5.04                                                      |       | 2,030                               |       |
| Vested  and expected to vest at September 30, 2010 |       | 8,665,319  |       | 4.41                                         |       | 6.13                                                      |       | 8,757                               |       |
|                                                         |            |            |            |                                              |            |                                                           |            |                                     |            |  |  |

 
| **Restricted Stock Units**                   | ** ** | **Shares** | ** ** | **Weighted Average   Grant Date   Fair Market per   Share Value** | ** ** |
|--------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| Outstanding  and non-vested at December 31, 2009  |       | 2,134,449  |       | $                                                                                                         | 1.52       |   |
| Granted                                                |       | 356,000    |       | 3.48                                                                                                      |       |
| Vested                                                 |       | (1,073,500 | )          | 1.71                                                                                                      |       |
| Cancelled                                              |       | (1,192     | )          | 2.72                                                                                                      |       |
| Outstanding  and non-vested at September 30, 2010 |       | 1,415,757  |       | 1.87                                                                                                      |       |
|                                                        |            |            |            |                                                                                                           |            |  |

 

Restricted stock units donot carry an exercise price and typically vest over a four-year period,although the vesting period of certain awards may vary. As ofSeptember 30, 2010, the weighted average remaining vesting term is2.47 years and the aggregate intrinsic value of outstanding and non-vestedrestricted stock is approximately $5.6 million.

 

During the nine months endedSeptember 30, 2010, Caliper granted 1,118,194 options at a weightedaverage grant date fair value, using the Black-Scholes-Merton option pricingmodel, of $2.32 per share, and 356,000 restricted stock units at a weightedaverage grant date fair value of $3.48 per share. The total grant date fairvalue of restricted stock that vested during the nine months endedSeptember 30, 2010 was approximately $1.8 million.

 

As of September 30, 2010,there was $5.5 million of total unrecognized compensation cost related tounvested stock-based compensation arrangements granted under the Plans. Thatcost is expected to be recognized over a weighted-average remaining serviceperiod of approximately 2.7 years.

 

***Common Shares Outstanding***

 

During the nine months endedSeptember 30, 2010, Caliper issued 956,323 shares of common stock as aresult of purchases under Caliper’s Employee Stock Purchase Plan and activityrelated to stock option exercises and vesting of restricted stock.

 

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

 

Basic net income (loss) pershare is calculated based upon net income (loss) divided by theweighted-average number of common shares outstanding during the period. Thecalculation of diluted net income per share gives effect to the dilutive effectof common stock equivalents consisting of stock options, unvested restrictedstock, unvested restricted stock units and warrants (calculated using thetreasury stock 

 

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method).  Potentiallydilutive securities are excluded from the diluted earnings per sharecomputation to the extent they have an antidilutive effect due to Caliper’s netloss.

 

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

 
| ** **                                                                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2010**                                             | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Weighted-average  shares of common stock outstanding, basic                      |       | 50,277                                               |       | 49,013                                              |       | 49,945 |   | 48,816 |   |
| Dilutive  options and restricted stock — based on the treasury stock method |       | —                                               |       | —                                              |       | 1,943 |   | — |   |
| Weighted-average  shares used in dilutive computations of net income per share   |       | 50,277                                               |       | 49,013                                              |       | 51,888 |   | 48,816 |   |

 

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

 
| ** **                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                    | ** ** | **2010**                                             | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Options  and restricted stock |       | 10,217                                               |       | 10,530                                              |       | 6,603 |   | 10,530 |   |
| Warrants                      |       | 5,029                                                |       | 6,174                                               |       | 5,029 |   | 6,174 |   |

 

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**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations as of September 30, 2010, and for the three and nine monthsended September 30, 2010, should be read in conjunction with our financialstatements included in this Quarterly Report on Form 10-Q and Management’sDiscussion and Analysis of Financial Condition and Results of Operations andour financial statements included in our Annual Report on Form 10-K forthe year ended December 31, 2009, filed with the SEC on March 12,2010.*

 

*Thediscussion in this report contains forward-looking statements that involverisks and uncertainties, such as statements of our plans, objectives,expectations and intentions. Our actual results could differ materially fromthose discussed here. Factors that could cause or contribute to these differencesinclude those discussed under the caption “Risk Factors” below, as well asthose discussed elsewhere. The cautionary statements made in this report shouldbe read as applying to all related forward-looking statements wherever theyappear in this report.*

 

**ExecutiveSummary**

 

***Business***

 

Caliper develops and sellsinnovative and enabling products and services to the life sciences researchcommunity, a customer base that includes pharmaceutical and biotechnologycompanies, and government and other not-for-profit research institutions. Webelieve our integrated systems, consisting of instruments, software andreagents, our laboratory automation tools and our assay development anddiscovery services enable researchers to better understand the basis fordisease and more effectively discover safe and effective drugs. Our strategy isto transform drug discovery and development by offering technologies andservices that ultimately enhance the ability to predict the effects that newdrug candidates will have on humans. Our offerings leverage our extensiveportfolio of imaging, microfluidics, automation and liquid handlingtechnologies, and scientific applications expertise to address keyopportunities and challenges in the drug discovery and developmentprocess—namely, the complex and costly process to conceive of and bring a newdrug to market.

 

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

 

We offer an array ofproducts and services, many of which are based on our own proprietarytechnologies, to address critical experimental needs in drug discovery andpreclinical development. Our technologies are also enabling for other lifesciences research and applications beyond drug discovery, such asenvironmental-related testing, and in applied markets such as agriculture andforensics. We also believe that our technology platforms may be able to provideease of use, cost and data quality benefits for certain in vitro and in vivodiagnostic applications.

 

We have multiple channels ofdistribution for our products: direct to customers, indirect through ourinternational network of distributors, through partnership channels under ourCaliper Driven program and through joint marketing agreements. Through ourdirect and indirect channels, we sell products, services and complete systemsolutions, developed by us, to end customers. Our Caliper Driven program iscomplementary to our direct sales and distribution network activities, as itenables us to extend the commercial potential of our LabChip technology intonew industries and new applications with both experienced commercial partnersand earlier stage companies with their own proprietary technologies. We alsoutilize joint marketing agreements to enable others to market and distributeour products. By using direct and indirect distribution, and out-licensing ourtechnology under our Caliper Driven program, we seek to maximize penetration ofour products and technologies into the marketplace and position Caliper as aleader in the life sciences tools market.

 

Our product and serviceofferings are organized into three core business areas—Imaging, DiscoveryResearch (Research), and Caliper Discovery Alliances and Services (CDAS)—withthe goal of creating a more scalable infrastructure while putting increasedfocus on growth and profitability.

 

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

 

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

 

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

 

***Third Quarter Key Highlights***

 

*SummaryFinancial Performance*

 

·                  Our total revenues duringthe third quarter of 2010 decreased by approximately $2.4 million to$29.7 million, from $32.2 million in the third quarter of 2009, whichwas the result of a $2.7 million increase in revenue from our ongoing businessoperations, offset by a reduction of $5.1 million of revenue as a result ofdivested product lines, as described in Note 2 to our consolidated financialstatements and summarized in the non-GAAP revenue reconciliation as set forthbelow. Total revenue derived from ongoing business operations increased 10%during the quarter.  Key changes in revenue on a strategic business unitbasis are discussed below (see non-GAAP revenue table and related discussion).

 

·                  Product gross marginsincreased to 49% in 2010 versus 43% in 2009 in the third quarter. The six pointimprovement resulted primarily from favorable product mix shifts, resultingfrom increased revenue on higher margin instruments such as the LabChip GX IIand IVIS instruments, in contrast to lower product margin sales experienced inthe third quarter of 2009.

 

·                  Service gross marginsincreased to 50% in 2010 from 34% in 2009 due principally to theDecember 2009 divestiture of the XenBio service business, whichcontributed only 20% in service gross margin in the third quarter of 2009 aswell as incremental contribution from the Environmental Protection Agency (EPA)ToxCast screening program.

 

·                  Net loss for the thirdquarter of 2010 was $1.3 million, or $(0.03) per share, compared to netloss of $3.4 million, or $(0.07) per share, in 2009. The decrease in thenet loss of $2.1 million was primarily related to the increase in gross margincontribution.

 

*RevenuePerformance by Strategic Business Unit*

 

The table below provides areconciliation of our GAAP basis revenue to pro forma non-GAAP revenue resultsfor the third quarters of 2010 and 2009, after giving effect to the divesturesdescribed in Note 2 to our consolidated financial statements. We believe this reconciliation,and the discussion that follows, provide meaningful comparisons for evaluatingrevenue performance between fiscal periods and understanding our ongoingbusiness operations.  These non-GAAP comparisons are not intended tosubstitute for GAAP financial measures.

 
| ** **      | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------|------------|----------------------------------------------------------|------------|
| ** **      | ** ** | **(in thousands)**                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **      | ** ** | **GAAP**                                                 | ** ** | **Adjustments (1)** | ** ** | **Non-GAAP** | ** ** | **GAAP** | ** ** | **Non-GAAP** | ** ** |
| ** **      | ** ** | **2010**                                                 | ** ** | **2009** | ** ** | **2009** | ** ** | **2009** | ** ** | **% Chg** | ** ** | **% Chg(2)** | ** ** |
| Imaging         |       | $                                                        | 14,476     |   | $ | 12,189 |   | $ | (15 | ) | $ | 12,174 |   | 19 | % | 19 | % |
|            |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| LabChip         |       | 7,771                                                    |       | 6,964 |   | — |   | 6,964 |   | 12 | % | 12 | % |
| Automation      |       | 5,219                                                    |       | 8,744 |   | (2,296 | ) | 6,448 |   | (40 | )% | (19 | )% |
| Research        |       | 12,990                                                   |       | 15,708 |   | (2,296 | ) | 13,412 |   | (17 | )% | (3 | )% |
|            |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Services (CDAS) |       | 2,280                                                    |       | 4,276 |   | (2,820 | ) | 1,456 |   | (47 | )% | 57 | % |
| Total revenue   |       | $                                                        | 29,746     |   | $ | 32,173 |   | $ | (5,131 | ) | $ | 27,042 |   | (8 | )% | 10 | % |

 

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

 

Imaging revenues increasedby 19% to $14.5 million during the third quarter of 2010 from $12.2million in the third quarter of 2009. The Imaging revenue increase was primarily driven by a 21% increase ininstrument placements within the quarter compared to the same period in 2009due to continued adoption of our optical imagers and the incremental impact ofour anatomical imaging instruments, Lumina XR and Quantum FX μCT, which wereintroduced after the third quarter of 2009.

 

Research revenuesattributable to ongoing product lines decreased by 3% on a non-GAAP basis to$13.0 million during the third quarter of 2010 from $13.4 million inthe third quarter of 2009.  WithinResearch revenues, LabChip product family revenues increased by 12%, or $0.8million, as a result of customer demand for LabChip GX instruments resultingfrom increased market investment in genomics and targeted therapeutic researchapplications and the third quarter 2010 launch of the LabChip XT, an automatednucleic acid fractionation instrument which eliminates a key bottleneck innext-generation sequencing.  Automationproduct family revenue decreased by 19% on a non-GAAP basis, or $1.2 million,as a result of weakness in demand for non-application specific liquid handlingsolutions.  We are repositioning ourAutomation tools to support the rapidly growing biotherapeutic research andnext-generation sequencing sample-preparation markets, including automating ourLabChip instrument platforms, and expect to see improving trends in Automationbeginning in the fourth quarter of 2010.

 

CDAS revenues increased by57% on a non-GAAP basis to $2.3 million during the third quarter of 2010 from$1.5 million in the third quarter of 2009. The net increase resulted fromcompound screening and analysis performed upon Phase II task orders under ourcontract with the EPA for its ToxCast screening program.  At the start ofthe third quarter of 2010, CDAS had received Phase II task orders of $4.7 millionand completed approximately $1.2 million of work under these task orders duringthe third quarter.  CDAS expects tocomplete at least a similar level of work under these task orders in the fourthquarter of 2010.

 

**CriticalAccounting Policies and Estimates**

 

The critical accountingpolicies that we believe impact significant judgments and estimates used in thepreparation of our consolidated financial statements presented in this reportare described in our Management’s Discussion and Analysis of FinancialCondition and Results of Operations and in the Notes to the ConsolidatedFinancial Statements, each included in our Annual Report on Form 10-K forthe fiscal year ended December 31, 2009, filed with the SEC onMarch 12, 2010.

 

**Results ofOperations for the Three and Nine Months Ended September 30, 2010**

 

Operating results for thethree and nine months ended September 30, 2010 are not necessarilyindicative of the results that may be expected for the year endingDecember 31, 2010. For example, we typically experience higher revenues inthe fourth quarter of our fiscal year as a result of the capital spendingpatterns of our customers.

 

***Revenue***

 
| ** **                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                        | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| **(In thousands)**           | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **$  Change** | ** ** | **%  Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
| Product revenue                   |       | $                                | 20,066     |                            | $          | 20,952 |   | $ | (886 | ) | (4 | )% | $ | 60,920 |   | $ | 60,760 |   | $ | 160 |   | — | % |
| Service revenue                   |       | 6,590                            |       | 8,200                           |       | (1,610 | ) | (20 | )% | 17,013 |   | 23,761 |   | (6,748 | ) | (28 | )% |
| License fees and contract revenue |       | 3,090                            |       | 3,021                           |       | 69 |   | 2 | % | 9,514 |   | 8,234 |   | 1,280 |   | 16 | % |
|                              |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Revenues                    |       | $                                | 29,746     |                            | $          | 32,173 |   | $ | (2,427 | ) | (8 | )% | $ | 87,447 |   | $ | 92,755 |   | $ | (5,308 | ) | (6 | )% |

 

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*ProductRevenue.   *Product revenue decreasedduring the three months ended September 30, 2010, by $0.9 millioncompared to the same period in 2009, due primarily to revenues of $2.2 millionfrom divested product lines that we realized during the third quarter of2009.  Product revenues from ongoing product lines increased $1.3 millionduring the period, including an increase in Imaging product sales of $1.6million, or approximately 20%, and a decrease in Research product sales of $0.3million, or 3%, compared to the third quarter of 2009.  The increase inImaging product sales was primarily due to a 21% increase in IVIS instrumentplacements (41 units in 2010 compared to 34 units in 2009) driven by sales ofLumina XR and Quantum FX μCT in addition to continued adoption of our opticalimagers. Research product sales in the quarter decreased due to a $1.1 milliondecrease in liquid handling instrument sales, offset by a $0.8 million increasein microfluidic product sales which were primarily comprised of an increase inLabChip GX unit sales and the initial commercial sales of the LabChip XTproduct line following its launch during the third quarter of 2010.

 

Product revenue increased by$0.2 million during the nine months ended September 30, 2010,including a $3.9 million decrease in product revenues from divested productlines.  Product revenues from ongoing product lines increased $4.1 millionduring the period, including an increase in Imaging product sales of $5.2million, or 21%, and a decrease in Research revenues of $1.2 million, or 4%,compared to the nine months ended September 30, 2009.  The Imagingproduct sales increase was due to an 18% increase in IVIS instrument placementsas well as an increase in overall average selling price which was favorablyimpacted by Spectrum and Lumina XR sales. Within Research product revenues during the nine months endedSeptember 30, 2010, microfluidic (LabChip) product revenues increased$2.1 million, or 13%, compared to the same period in 2009 primarily due togrowth in LabChip GX instrument placements and an increase in microfluidicsconsumables (chips, kits and reagents) related to both the LabChip GX andLabChip EZ Reader instrument platforms which was partially offset by a decreasein EZ Reader instrument sales.  Alsowithin Research, Automation product sales decreased 25%, or $3.2 million,during the nine months ended September 30, 2010 compared to the sameperiod in 2009.  The decrease inautomation product revenues during the nine months ended September 30,2010 compared to 2009 was primarily due to lower sales of non-applicationspecific liquid handling instruments and systems and the ongoing repositioningof our remaining Automation platforms as discussed above.

 

*ServiceRevenue.*   Total service revenue decreased$1.6 million during the three months ended September 30, 2010,compared to the same period in 2009, including a decrease of $2.8 million as aresult of the divestiture of XenBio in December 2009 and a decrease of $0.1million due to the divestiture of the Specialty product lines.  Service revenues from ongoing product linesincreased $1.3 million during the period, including an increase of $0.8 millionin CDAS service revenues and a $0.5 million increase in instrument servicerevenues.  The CDAS increase wascomprised of a $1.0 million increase in revenues from services under the EPAToxCast screening program, offset in part by a $0.2 million decline in othergovernment contract services and alliance revenues.  The increase in instrument service revenueswas primarily related to the increasing installed base within the Imagingproduct lines and the resulting increase in revenues from annual maintenanceprograms.

 

Total service revenuedecreased $6.7 million during the nine months ended September 30,2010, compared to the same period in 2009, including a decrease of $8.2 millionas a result of the divestiture of XenBio and service revenue from divestedproduct lines.  Service revenues fromongoing product lines increased $1.5 million during the period, including anincrease of $1.4 million in instrument service revenues associated withImaging and Research instrument offerings and a $0.1 million increase in CDASservice revenue.  The $1.5 millionincrease in instrument service revenues was primarily due to an increase inservice revenues generated from the Imaging and microfluidic instrumentinstalled bases, offset in part by a decrease in automation servicerevenue.  The CDAS increase was comprised of an increase of $1.2 millionin service revenues under the EPA ToxCast screening program and a $0.5 millionincrease in core services with commercial customers. These increases at CDASwere offset by a $1.5 million decline attributed to the completion of alarge oncology project with a single customer, and a $0.1 million decrease inother government contract services and alliance revenues.

 

*LicenseFees and Contract Revenue.*    Licensefees and contract revenue increased slightly during the three months endedSeptember 30, 2010, compared to the same period in 2009, primarily as aresult of a 6% increase in Imaging license revenue, offset by a decrease inmicrofluidic license and contract revenues.  License fees and contract revenue increased $1.3 million during the ninemonths ended September 30, 2010, compared to the same period in 2009,primarily as a result of an increase in microfluidic license and contractrevenues received from new licensees secured after the third quarter of 2009and an increase in Imaging license revenue of $0.6 million during the ninemonths ended September 30, 2010.

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| **(In thousands)** | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **$  Change** | ** ** | **%********Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
| Product                 |       | $                                | 10,179     |                            | $          | 11,947 |   | $ | (1,768 | ) | (15 | )% | $ | 30,575 |   | $ | 36,030 |   | $ | (5,455 | ) | (15 | )% |
| Service                 |       | 3,270                            |       | 5,393                           |       | (2,123 | ) | (39 | )% | 9,778 |   | 16,431 |   | (6,653 | ) | (40 | )% |
| License                 |       | 478                              |       | 356                             |       | 122 |   | 34 | % | 1,404 |   | 1,057 |   | 347 |   | 33 | % |
| Total Costs             |       | $                                | 13,927     |                            | $          | 17,696 |   | $ | (3,769 | ) | (21 | )% | $ | 41,757 |   | $ | 53,518 |   | $ | (11,761 | ) | (22 | )% |

 

*Cost of Product Revenue.*    Costof product revenue decreased $1.8 million during the three months endedSeptember 30, 2010, compared to 

 

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the same period in 2009 as aresult of recent product line divestitures ($0.8 million of the decrease)combined with lower product costs related to ongoing product sales.  Theoverall decrease in cost of product revenue for ongoing product revenueincludes (a) lower material costs of $0.4 million due to sourcinginitiatives and favorable changes in product mix; (b) reduced excess andobsolete inventory provisions of $0.3 million resulting from the improvedinventory turnover; and (c) a $0.3 million decrease in other costs,including warranty provisions, royalties and manufacturing variances.

 

Cost of product revenuedecreased $5.5 million during the nine months ended September 30, 2010,compared to the same period in 2009, despite flat product revenue within theperiod.  The overall decrease in cost of product revenue is due to a 4.8%reduction in the cost of materials as a percent of product revenue, orapproximately $2.9 million, as well as (a) a $0.8 million decrease inwarranty expenses related to both materials and labor which are related to thesuccess of quality initiatives implemented in 2009; (b) reduced excess andobsolete inventory provisions of $1.1 million resulting from improved inventoryturnover and a decrease in need for provisions related to obsolete productofferings, which were previously recorded in 2009; and (c) other costreductions of approximately $0.7 million, including a reduction in royaltyobligations and manufacturing variances.

 

*Cost ofService Revenue.*    Cost of service revenuedecreased during the three and nine months ended September 30, 2010, ascompared to the same periods in 2009, primarily due to our divestiture ofXenBio in 2009, which had $2.2 million and $6.9 million, respectively, in costsduring 2009.  All other service costs increased by $0.1 million and $0.2million during the three and nine months ended September 30, 2010,respectively, primarily related to increased spending on materials within ourCDAS business.

 

*Cost ofLicense Revenue.*     Cost of license revenueincreased during the three and nine months ended September 30, 2010compared to the same periods in 2009 due primarily to an increase in cost ofroyalties related to the corresponding increase in Imaging license revenues.

 

*GrossMargins.*     Product gross marginsincreased to 49% in the quarter ended September 30, 2010, versus 43% inthe same quarter in 2009. The six point improvement resulted from growth amonghigher margin instruments such as the LabChip GX II and IVIS instruments,together with manufacturing efficiencies and lower material costs.  Grossmargin on service revenue was 50% for the three months ended September 30,2010, as compared to 34% for the same period in 2009. This increased servicemargin resulted primarily from the divestiture of XenBio, which had a servicemargin of only 20% in the third quarter of 2009, as well as an increase incontribution from CDAS related to the volume of work performed under the EPAToxCast screening program.

 

Product gross marginsincreased to 50% in the nine months ended September 30, 2010, versus 41%in 2009. The nine point improvement resulted from growth among higher margininstruments such as the LabChip GX II and IVIS instruments, in contrast to lowerproduct margin sales experienced in 2009 together with manufacturingefficiencies and lower material costs.  The favorable product mix shiftaccounted for approximately 4 points of gross margin improvement, andefficiencies related to manufacturing, procurement, warranty and distributioncosts accounted for approximately 5 points of gross margin improvement comparedto the nine months ended September 30, 2009. Gross margin on servicerevenue was 43% for the nine months ended September 30, 2010, as comparedto 31% for the same period in 2009. This increased service margin resultedprimarily from the divestiture of XenBio, which had a service margin of only14% in the same period of 2009.

 

***Expenses***

 
| ** **                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                          | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **$  Change** | ** ** | **%******** Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
| ** **                          | ** ** | **(In thousands)**          | ** ** |
| Research and development            |       | $                                | 4,416      |                            | $          | 4,221 |   | $ | 195 |   | 5 | % | $ | 13,061 |   | $ | 13,406 |   | $ | (345 | ) | (3 | )% |
| Selling, general and administrative |       | 11,046                           |       | 10,786                          |       | 260 |   | 2 | % | 32,650 |   | 33,235 |   | (585 | ) | (2 | )% |
| Amortization of intangible assets   |       | 1,169                            |       | 1,548                           |       | (379 | ) | (24 | )% | 3,648 |   | 4,662 |   | (1,014 | ) | (22 | )% |
| Restructuring charges, net          |       | 741                              |       | 1,044                           |       | (303 | ) | (29 | )% | 1,375 |   | 1,096 |   | 279 |   | 25 | % |
|                                     |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Researchand Development Expenses.*    Research anddevelopment spending increased by $0.2 million during the three months endedSeptember 30, 2010, compared to the same period in 2009, primarily as aresult of a $0.2 million increase in materials and supplies utilized within theperiod.

 

Research and developmentspending decreased by $0.3 million during the nine months endedSeptember 30, 2010, compared to the same period in 2009, primarily as aresult of a $0.2 million reduction in miscellaneous personnel-related costscompared to 2009 and a $0.1 million reduction as a result of divestedoperations.

 

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*Selling, General and Administrative Expenses.*    Selling,general and administrative expenses increased by $0.3 million during thethree months ended September 30, 2010, compared to the same period in2009. The divestiture of XenBio in December 2009 resulted in a $0.4million decrease in such expenses within the period, resulting in a netincrease $0.7 million which was primarily attributable to legal costs ofon-going litigation matters.

 

Selling, general andadministrative expenses decreased by $0.6 million during the nine monthsended September 30, 2010, compared to the same period in 2009 including a$1.3 million decrease in such expenses due to the divestiture of XenBio.  Excluding the impact of the XenBiodivestiture, selling and marketing expenses increased $0.3 million primarilydue to increases in travel and related costs, and general and administrativeexpenses increased $0.4 million primarily due to a $0.8 million increase inlegal expenses due to ongoing litigation, partially offset by a $0.2 millionreduction within office and operating costs and a $0.2 million reduction instock based compensation expense.

 

*Amortizationof Intangible Assets.*  The amortization of intangibleassets for the three and nine months ended September 30, 2010, relates toassets acquired in our previous business combinations. Amortization is computedbased upon the estimated timing of the undiscounted cash flows used to valueeach respective asset over the estimated useful life of the particularintangible asset, or using the straight-line method over the estimated usefullife of the intangible asset when the pattern of cash flows is not necessarilyreflective of the true consumption rate of the particular intangibleasset.  The decrease in amortization during the three and nine monthsended September 30, 2010, is the result of certain intangibles related tothe XenBio business that was divested in December 2009 and to a lesserextent reduced amortization from our NovaScreen intangibles for which animpairment charge was recorded in the fourth quarter of 2009.

 

*RestructuringCharges.*    We incurred restructuringcharges in 2008 and prior periods related to acquisition and integrationactivities that are more fully discussed in Note 7 to the accompanyingfinancial statements.  In September 2010, we secured a sublease forapproximately 13,200 square feet of the second floor of our Mountain View,California facility.  In connection withthis sublease we recorded an additional restructuring charge of approximately$0.7 million in the third quarter as a result of revised sublease estimates comparedto our initial estimates at the time this space was vacated. InApril 2010, we vacated approximately 5,400 square feet of the first floorof our Mountain View, California facility in connection with improving certainaspects of our chip manufacturing operations and in order to increase thelikelihood of securing a sub-tenant for already existing vacant space.  Werecorded a restructuring charge of approximately $0.6 million related to thisaction in the second quarter of 2010.  Additional restructuring chargesduring the three and nine months ended September 30, 2010, and 2009 relateto accretion of interest related to idle facility rent obligations.

 

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

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| **(In thousands)**     | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **$  Change** | ** ** | **%********Change** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
| Interest expense, net       |       | $                                | (75        | )                               | $          | (144 | ) | 69 |   | 48 | % | $ | (277 | ) | $ | (535 | ) | 258 |   | 48 | % |
| Gain  (loss) on divestiture |       | (37                              | )          | —                          |       | (37 | ) | nm |   | 11,387 |   | — |   | 11,387 |   | nm |   |
| Other income (expense), net |       | 320                              |       | (85                             | )          | 405 |   | 476 | % | (69 | ) | (202 | ) | 133 |   | 66 | % |
|                             |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*InterestExpense, Net.*    Net interest expensedecreased during the three and nine months ended September 30, 2010,compared to the same periods in 2009, as a result of a decrease in average borrowingsunder our credit facility during the periods. There were no amounts outstanding under our credit facility during thethird quarter of 2010 but continue to incur interest expense in the form ofunused facility fees and the amortization of origination fees related to thecredit facility.

 

*Gain(loss) on Divestitures.*    In May 2010, wedivested our TurboVap and RapidTrace product lines and recorded a gain of $11.4million, which is more fully discussed in Note 2 of the accompanying financialstatements.  A tax provision estimate of $0.3 million was provided inconnection with this gain and was recorded within the benefit (provision) forincome taxes line within the accompanying statement of operations.

 

*OtherIncome (Expense), Net.*    Other income(expense), net, increased on a three-month basis compared to 2009 due totransaction gains upon foreign denominated accounts receivable resultingprimarily from a weakening of the U.S. dollar compared to the Euro whichaffected unsettled accounts receivable during the third quarter of 2010. Duringthe three months ended September 30, 2010, we incurred net foreigncurrency transaction gains of approximately $0.4 million, compared to nonefor the same period in 2009.

 

Other income (expense), net,increased on a nine-month basis compared to 2009 due to a decrease intransaction losses on foreign denominated accounts receivable resulting from aweakening of the U.S. dollar compared to the Euro and the British Pound whichaffected unsettled accounts receivable with our subsidiaries during the ninemonths ended September 30, 2010. During the nine months endedSeptember 30, 2010, we incurred net foreign currency transaction losses ofapproximately $0.1 million, compared to losses of approximately 0.2million for the same period in 2009.

 

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**Liquidityand Capital Resources**

 

As of September 30,2010, we had $38.8 million in cash, cash equivalents and marketablesecurities, compared to $38.0 million as of December 31, 2009, and wehad no outstanding debt under our credit facility compared to $14.9 million atDecember 31, 2009.  The credit facility matures on April 1, 2011and serves as a source of capital for ongoing operations and working capitalneeds.  As of September 30, 2010, we were in compliance with ourcovenants under the credit facility. We expect to remain in compliance with thecovenants through the credit facility’s maturity date based on currentforecasts. The terms of our credit facility are more fully discussed under Item7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2009, filed with the SEC on March 12, 2010.

 

On November 21, 2007,we filed, and the SEC subsequently declared effective, a universal shelfregistration statement on Form S-3 that will permit us to raise up to$100 million of any combination of common stock, preferred stock, debtsecurities, warrants or units, either individually or in units. The shelfregistration will expire in December 2010 unless we extend it. The sale ofadditional equity or convertible debt securities may result in additionaldilution to our stockholders. Furthermore, additional capital may not beavailable on terms favorable to us, if at all. Accordingly, no assurances canbe given that we will be successful in these endeavors.

 

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

 

***Cash Flows***

 
| ** **                 | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|
| **(In thousands)**    | ** ** | **2010**                                                | ** ** | **2009** | ** ** | **$ Change** | ** ** |
| Cash provided by (used in) |       |                                                    |       |   |   |   |   |
| Operating Activities       |       | $                                                       | 115        |   | $ | 152 |   | $ | (37 | ) |
| Investing Activities       |       | 8,562                                                   |       | 281 |   | 8,281 |   |
| Financing Activities       |       | (14,453                                                 | )          | 270 |   | (14,723 | ) |
|                            |            |                                                         |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*    During the nine months endedSeptember 30, 2010, we generated $0.1 million in cash from operatingactivities, which has resulted from improved performance, offset by one timeworking capital effects in 2009.  In 2010, there was an improvement of$6.8 million in cash flows from operations; however this improvement was offsetby year on year comparative working capital changes.  The working capital changes were primarilyrelated to the payment of $3.5 million in bonuses in 2010, in contrast to nocash bonus payments in 2009, as well as one time improvements in 2009 relatedto reductions in the carrying value of working inventory.

 

*InvestingActivities.*    In May 2010, wegenerated $16.5 million in cash from the divestiture of the TurboVap andRapidTrace product lines.  These proceeds were offset during the ninemonths ended September 30, 2010 by net purchases of marketablesecurities.  Our other primary investing activity during this period wasthe use of cash for the purchase of property and equipment of $1.5 millioncovering miscellaneous manufacturing, research and development, and informationsystems needs.

 

*FinancingActivities.*    During the nine months endedSeptember 30, 2010, we utilized $14.9 million in cash that was generatedfrom the divestiture of the TurboVap and RapidTrace product lines to pay downour credit facility.  In addition, we realized approximately $0.5 millionin cash proceeds related to option exercises and investments within ouremployee stock purchase plan.

 

**ContractualObligations**

 

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

 

***Capital Requirements***

 

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

 

·                  continued market acceptanceof our in vivo imaging, microfluidic and lab automation products and services;

·                  the magnitude and scope ofour research and product development programs;

·                  our ability to maintainexisting, and establish additional, corporate partnerships;

 

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·                  the time and costs involvedin expanding and maintaining our manufacturing facilities;

·                  the potential need todevelop, acquire or license new technologies and products; and

·                  other factors not within ourcontrol.

 

**Item3.            Quantitative and Qualitative Disclosures About Market Risk**

 

***Interest Rate Sensitivity***

 

Our primary market riskexposures are foreign currency fluctuation and interest rate sensitivity.During the nine months ended September 30, 2010, there have been nomaterial changes to the information included under Item 7A, “Quantitative andQualitative Disclosures About Market Risk,” in our Annual Report onForm 10-K for the fiscal year ended December 31, 2009, filed with theSEC on March 12, 2010.

 

**Item4.            Controls and Procedures**

 

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

 

Based on their evaluation asof September 30, 2010, our principal executive officer and principalfinancial officer have concluded that our disclosure controls and proceduresare effective to provide reasonable assurance that information we are requiredto disclose in reports that we file or submit under the Securities Exchange Actof 1934 is recorded, processed, summarized and reported within the time periodsspecified in SEC rules and forms.

 

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

 

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

 

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**Part II—OTHER INFORMATION**

 

**Item1.            Legal Proceedings**

 

As reported previously, onFebruary 23, 2010, Caliper, its wholly owned subsidiary XenogenCorporation, and Stanford University filed a complaint for patent infringementagainst Carestream Health, Inc. (“Carestream”) in the U.S. District Courtfor the Eastern District of Texas.  Caliper, Xenogen and Stanford Universityseek a judgment that Carestream induced infringement of seven United Statespatents that Caliper, through Xenogen, exclusively licenses from StanfordUniversity.  Caliper and its co- plaintiffs seek an award of compensatorydamages, trebled damages due to Carestream’s willfulness, a permanentinjunction and attorneys’ fees against Carestream for its ongoing, indirectinfringement of the patents-in-suit. The complaint was served on Carestream onFebruary 26, 2010.  On April 20, 2010, Carestream filed itsanswer to the complaint, denying it induces infringement of the assertedpatents.  Carestream also counterclaimed for declaratory judgments ofnon-infringement and invalidity of the asserted patents.  Carestream alsofiled a motion to transfer the venue of the litigation to another DistrictCourt.  Caliper and Carestream subsequently agreed to the transfer of thiscase to the U.S. District Court for the Northern District of California, whereit is pending.  The claim construction hearing for this case is presentlyscheduled for May 2, 2011, and the trial is presently scheduled for April 2012.

 

On June 8, 2010, theU.S. Patent and Trademark Office (“PTO”) issued U.S. Patent Number 7,734,325 (“the‘325 Patent”) to Carestream.  The nextday, Caliper filed a request for reexamination of all claims of the ‘325Patent.  On August 12, 2010, the PTOissued an order granting reexamination of all claims of the ‘325 Patent.  On the same day, the PTO also issued anaction closing prosecution of the reexamination of the ‘325 Patent.  On September 29, 2010, the PTO issued aright of appeal notice notifying Caliper and Carestream of each party’s rightto appeal the examiner’s determinations in the reexamination.  Caliper filed a Notice of Appeal with the PTOon October 29, 2010.

 

On July 9, 2010,Carestream filed a complaint for patent infringement against Caliper in theU.S. District Court for the Western District of Wisconsin.  Carestream’scomplaint alleges that Caliper’s Lumina XR imaging system, which is amulti-modal imaging system with both optical and x-ray capabilities thatCaliper first introduced in September, 2009, infringes the ‘325 Patent and thatCaliper indirectly infringes the ‘325 Patent.  Caliper filed its answer toCarestream’s complaint on August 2, 2010. Carestream’s allegations of infringement do not involve any of Caliper’simaging products other than the Lumina XR.  Caliper believes that the ‘325Patent is invalid and that the Lumina XR system does not infringe the claims ofthe ‘325 Patent, and Caliper intends to defend against this lawsuitvigorously.  With its complaint for patent infringement, Carestream alsofiled with the Court a motion for preliminary injunction to prevent Caliperfrom selling the Lumina XR system during the pendency of this litigation. Caliper filed its opposition to Carestream’s motion for a preliminaryinjunction on October 20, 2010.  No hearing date for Carestream’spreliminary injunction motion has been set by the Court.  On October 20, 2010, Caliper also fileda motion for summary judgment based on non-infringement of the ‘325Patent.  No hearing date for Caliper’ssummary judgment motion has been set by the Court.  The claim construction hearing for this caseis presently scheduled for March 4, 2011 and the trial is presentlyscheduled for January 2012.

 

From time to time Caliper isinvolved in litigation arising out of claims in the normal course of business,and when a probable loss contingency arises, records a loss provision basedupon actual or possible claims and assessments. The amount of possible claimrecorded is determined on the basis of the amount of the actual claim, when theamount is both probable and the amount of the claim can be reasonablyestimated. If a loss is deemed probable, but the range of potential loss iswide, Caliper records a loss provision based upon the low end estimate of theprobable range and may adjust that estimate in future periods as moreinformation becomes available. Litigation loss provisions, when made, arereflected within general and administrative expenses in the Statement ofOperations and are included within accrued legal expenses in the accompanyingbalance sheet. Based on the information presently available, managementbelieves that there are no outstanding claims or actions pending or threatenedagainst Caliper, the ultimate resolution of which will have a material adverseeffect on our financial position, liquidity or results of operations, althoughthe results of litigation are inherently uncertain, and adverse outcomes arepossible.

 

**Item1A.          Risk Factors**

 

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

 

**Item2.            Unregistered Sales of Equity Securities and Use of Proceeds**

 

None.

 

**Item3.            Defaults Upon Senior Securities**

 

None.

 

**Item4.            Removed and Reserved**

 

**Item5.            Other Information**

 

None.

 

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**Item6.             Exhibits**

 

**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                    |
| 31.1                |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                                                                                    |
| 31.2                |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                                                                                    |
| 32.1*               |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                |       |                                                                                                                                                                                                                                    |
| 32.2*               |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of  the Securities Exchange Act of 1934, as amended, and 18 U.S.C.  Section 1350.                                    |

 

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

 

**SIGNATURES**

 

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

 
|                         | CALIPER LIFE  SCIENCES, INC. |
|------------------------------|-----------------------------------|
|                         |                              |   |
| Date: November 5,  2010 |                              |   |
|                         | By:                               | /s/ E. KEVIN  HRUSOVSKY |   |
|                         |                              | E. Kevin Hrusovsky |   |
|                         |                              | Chief Executive Officer  and President |   |
|                         |                              |   |   |
| Date: November 5,  2010 |                              |   |   |
|                         | By:                               | /s/ PETER F. MCAREE |   |
|                         |                              | Peter F. McAree |   |
|                         |                              | Senior Vice President and  Chief Financial Officer |   |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                    |
| 31.1                |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                                                                                    |
| 31.2                |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                                                                                    |
| 32.1*               |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                |       |                                                                                                                                                                                                                                    |
| 32.2*               |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |

 

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

 

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