Table of Contents

** **

 

** **

**UNITEDSTATES SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

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

 

**forthe quarterly period ended March 31, 2009.**

 

**Or**

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

 

**forthe transition period from                 to                 .**

 

**Commissionfile # 000-28229**

 

**CALIPERLIFE SCIENCES, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**68Elm Street**

**Hopkinton,Massachusetts 01748**

(Address and zipcode of principal executive offices)

 

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

 

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

 

Indicate by check markwhether the registrant 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   x     No   o

 

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

 

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

 

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

 

**NUMBEROF SHARES OF COMMON STOCK OUTSTANDING ON April 30, 2009:  48,713,421**

 

 

 

----

Table of Contents

 

**CALIPERLIFE SCIENCES, INC.**

 

**TABLEOF CONTENTS**

 
| ** **                                                                                                | **Page** |
|-----------------------------------------------------------------------------------------------------------|----------|
| PART I   FINANCIAL  INFORMATION                                                                 | 2        |
|                                                                                                      |     |
| Item 1. Financial Statements  (unaudited)                                                            | 2        |
| Condensed Consolidated Balance  Sheets as of March 31, 2009 and December 31, 2008               | 2        |
| Condensed Consolidated  Statements of Operations for the Three Months Ended March 31, 2009 and  2008 | 3        |
| Condensed Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2009 and  2008 | 4        |
| Notes to  Condensed Consolidated Financial Statements                                                     | 5        |
|                                                                                                      |     |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 14       |
|                                                                                                      |     |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  | 20       |
|                                                                                                      |     |
| Item 4.  Controls and Procedures                                                                     | 20       |
|                                                                                                      |     |
| PART II   OTHER INFORMATION                                                                     | 21       |
|                                                                                                      |     |
| Item 1. Legal  Proceedings                                                                                | 21       |
|                                                                                                      |     |
| Item 1A. Risk Factors                                                                                     | 21       |
|                                                                                                      |     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 | 21       |
|                                                                                                      |     |
| Item 3.  Defaults Upon Senior Securities                                                             | 21       |
|                                                                                                      |     |
| Item 4.  Submission of Matters to a Vote of Security Holders                                         | 21       |
|                                                                                                      |     |
| Item 5. Other  Information                                                                           | 21       |
|                                                                                                      |     |
| Item 6. Exhibits                                                                                     | 22       |
|                                                                                                      |     |
| SIGNATURES                                                                                                | 23       |
|                                                                                                      |     |
| EXHIBIT INDEX                                                                                             |     |
| Ex-31.1  Section 302 Certification of CEO                                                            |     |
| Ex-31.2  Section 302 Certification of CFO                                                            |     |
| Ex-32.1  Section 906 Certification of CEO                                                            |     |
| Ex-32.2  Section 906 Certification of CFO                                                            |     |

 

1

----

Table of Contents

 

**PART I. FINANCIAL INFORMATION**

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(unaudited,in thousands)**

 

**Item1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** | ** **              | ** ** | ** **                      | ** ** |
| Current assets:                                                                                                                                         |       |                    |       |                            |       |
| Cash and cash  equivalents                                                                                                                              |       | $                       | 19,533     |                            | $          | 23,667 |   |
| Marketable  securities                                                                                                                                  |       | 4,316                   |       | 3,034                           |       |
| Accounts  receivable, net                                                                                                                               |       | 22,311                  |       | 27,396                          |       |
| Inventories                                                                                                                                             |       | 17,323                  |       | 17,579                          |       |
| Prepaid expenses  and other current assets                                                                                                              |       | 3,326                   |       | 2,481                           |       |
| Total current  assets                                                                                                                                   |       | 66,809                  |       | 74,157                          |       |
| Property and  equipment, net                                                                                                                            |       | 10,455                  |       | 10,735                          |       |
| Intangible  assets, net                                                                                                                                 |       | 32,830                  |       | 34,399                          |       |
| Goodwill                                                                                                                                                |       | 22,905                  |       | 22,905                          |       |
| Other assets                                                                                                                                            |       | 882                     |       | 882                             |       |
| Total assets                                                                                                                                            |       | $                       | 133,881    |                            | $          | 143,078 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                           | ** ** | ** **              | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                   |       |                    |       |                            |       |
| Accounts payable                                                                                                                                        |       | $                       | 7,014      |                            | $          | 8,377 |   |
| Accrued  compensation                                                                                                                                   |       | 5,207                   |       | 5,175                           |       |
| Other accrued  liabilities                                                                                                                              |       | 8,623                   |       | 9,725                           |       |
| Deferred revenue  and customer deposits                                                                                                                 |       | 13,813                  |       | 14,284                          |       |
| Current portion  of accrued restructuring                                                                                                               |       | 1,818                   |       | 1,806                           |       |
| Borrowings under  credit facility                                                                                                                       |       | 14,900                  |       | 14,900                          |       |
| Total current  liabilities                                                                                                                              |       | 51,375                  |       | 54,267                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 2,207                   |       | 2,670                           |       |
| Other noncurrent  liabilities                                                                                                                           |       | 8,588                   |       | 8,275                           |       |
| 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, 48,695,671 and 48,596,233  shares issued and outstanding in 2009 and 2008, respectively |       | 49                      |       | 49                              |       |
| Additional  paid-in capital                                                                                                                             |       | 379,763                 |       | 378,919                         |       |
| Accumulated  deficit                                                                                                                                    |       | (309,057                | )          | (302,412                        | )          |
| Accumulated  other comprehensive income (loss)                                                                                                          |       | (172                    | )          | 182                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 70,583                  |       | 76,738                          |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                       | 133,881    |                            | $          | 143,078 |   |

 

*Seeaccompanying notes.*

 

2

----

Table of Contents

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Revenues:                                                              |       |                                             |       |   |   |
| Product revenue                                                        |       | $                                                | 18,309     |   | $ | 17,665 |   |
| Service revenue                                                        |       | 7,657                                            |       | 9,008 |   |
| License fees and  contract revenue                                     |       | 2,506                                            |       | 2,614 |   |
| Total revenue                                                          |       | 28,472                                           |       | 29,287 |   |
| Costs and  expenses:                                                   |       |                                             |       |   |   |
| Cost of product  revenue                                               |       | 11,253                                           |       | 11,105 |   |
| Cost of service  revenue                                               |       | 5,707                                            |       | 6,098 |   |
| Cost of license  revenue                                               |       | 392                                              |       | 284 |   |
| Research and  development                                              |       | 4,551                                            |       | 5,532 |   |
| Selling, general  and administrative                                   |       | 11,185                                           |       | 13,932 |   |
| Amortization of  intangible assets                                     |       | 1,557                                            |       | 2,490 |   |
| Restructuring  charges, net                                            |       | 23                                               |       | 6 |   |
| Total costs and  expenses                                              |       | 34,668                                           |       | 39,447 |   |
| Operating loss                                                         |       | (6,196                                           | )          | (10,160 | ) |
| Interest  expense, net                                                 |       | (212                                             | )          | (155 | ) |
| Other (expense)  income, net                                           |       | (183                                             | )          | 407 |   |
| Loss before  income taxes                                              |       | (6,591                                           | )          | (9,908 | ) |
| Provision for  income taxes                                            |       | (54                                              | )          | (28 | ) |
| Net loss                                                               |       | $                                                | (6,645     | ) | $ | (9,936 | ) |
|                                                                   |       |                                             |       |   |   |
| Net loss per  common share, basic and diluted                          |       | $                                                | (0.14      | ) | $ | (0.21 | ) |
| Shares used in  computing net loss per common share, basic and diluted |       | 48,626                                           |       | 47,683 |   |

 

*Seeaccompanying notes.*

 

3

----

Table of Contents

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited,in thousands)**

 
| ** **                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| **Operating  activities**                                                 |       |                                                 |       |   |   |
| Net loss                                                                  |       | $                                                    | (6,645     | ) | $ | (9,936 | ) |
| Adjustments to  reconcile net loss to net cash from operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                            |       | 2,376                                                |       | 3,452 |   |
| Stock-based  compensation expense, net                                    |       | 915                                                  |       | 1,010 |   |
| Non-cash  restructuring charges, net                                      |       | 23                                                   |       | 6 |   |
| Foreign currency  exchange losses (gains)                                 |       | 174                                                  |       | (428 | ) |
| Changes in  operating assets and liabilities:                             |       |                                                 |       |   |   |
| Accounts  receivable                                                      |       | 4,621                                                |       | 4,021 |   |
| Inventories                                                               |       | 22                                                   |       | (3,479 | ) |
| Prepaid expenses  and other current assets                                |       | (902                                                 | )          | (857 | ) |
| Accounts payable  and other accrued liabilities                           |       | (2,391                                               | )          | 170 |   |
| Accrued  compensation                                                     |       | 36                                                   |       | 1,049 |   |
| Deferred revenue  and customer deposits                                   |       | (368                                                 | )          | 3,099 |   |
| Other noncurrent  liabilities                                             |       | 314                                                  |       | 135 |   |
| Payments of  accrued restructuring obligations, net                       |       | (470                                                 | )          | (998 | ) |
| Net cash from  operating activities                                       |       | (2,295                                               | )          | (2,756 | ) |
|                                                                      |       |                                                 |       |   |   |
| **Investing  activities**                                                 |       |                                                 |       |   |   |
| Purchases of  marketable securities                                       |       | (2,832                                               | )          | (1,232 | ) |
| Proceeds from  sales of marketable securities                             |       | 400                                                  |       | — |   |
| Proceeds from  maturities of marketable securities                        |       | 1,156                                                |       | 1,883 |   |
| Other assets                                                              |       | 6                                                    |       | 9 |   |
| Purchases of  property and equipment                                      |       | (535                                                 | )          | (417 | ) |
| Net cash from  investing activities                                       |       | (1,805                                               | )          | 243 |   |
| **Financing  activities**                                                 |       |                                                 |       |   |   |
| Borrowings under  credit facility                                         |       | —                                               |       | 2,000 |   |
| Payments of  credit facility and other obligations                        |       | —                                               |       | (2,000 | ) |
| Proceeds from  issuance of common stock                                   |       | 22                                                   |       | 48 |   |
| Net cash from  financing activities                                       |       | 22                                                   |       | 48 |   |
| Effect of  exchange rates on changes in cash and cash equivalents         |       | (56                                                  | )          | 399 |   |
| Net decrease in  cash and cash equivalents                                |       | (4,134                                               | )          | (2,066 | ) |
| Cash and cash  equivalents at beginning of period                         |       | 23,667                                               |       | 15,709 |   |
| Cash and cash  equivalents at end of period                               |       | $                                                    | 19,533     |   | $ | 13,643 |   |

 

*Seeaccompanying notes.*

 

4

----

Table of Contents

 

**CALIPERLIFE SCIENCES, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**March 31,2009**

**(Unaudited)**

 

**1. Basisof Presentation and Summary of Significant Accounting Policies**

 

***Basis of Presentation***

 

The accompanyingunaudited consolidated financial statements of Caliper Life Sciences, Inc.and its wholly owned subsidiaries (collectively, the “Company” or “Caliper”)have been prepared by the Company pursuant to the rules and regulations ofthe Securities and Exchange Commission (“SEC”) and generally acceptedaccounting principles for interim financial information. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles (“GAAP”) havebeen condensed or omitted pursuant to such rules or regulations. The December 31,2008 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. In the opinion of management, all adjustments(consisting of normal recurring entries) considered necessary for a fairpresentation have been included. However, these unaudited consolidatedfinancial statements should be read in conjunction with Caliper’s Annual Reporton Form 10-K for the year ended December 31, 2008.

 

Operating results for thethree months ended March 31, 2009 are not necessarily indicative of theresults that may be expected for the full fiscal year or for any futureperiods. For example, the Company typically experiences higher revenue in thefourth quarter of its fiscal year due to spending patterns of its customers,and may realize significant periodic fluctuations in license and contractrevenue depending on the timing and circumstances of underlying individualtransactions.

 

Caliper currentlyoperates in one business segment: the development and commercialization of lifescience instruments and related consumables and services for use in drugdiscovery and development and other life sciences research.

 

As shown in theconsolidated financial statements, at March 31, 2009, Caliper has a totalcash, cash equivalents and marketable securities balance of $23.8 million andan accumulated deficit of $309.1 million. On March 6, 2009, Caliper entered into a Second Amended andRestated Loan and Security Agreement (the “Credit Facility”) with a bank. Theaccompanying financial statements assume that Caliper’s cash, cash equivalentsand marketable securities balance at March 31, 2009 and access toavailable capital under its Credit Facility are sufficient to fund operationsthrough at least January 1, 2010, based upon its current operating plan.Caliper’s ability to fund its operations will depend on many factors, includingparticularly its ability to increase product and service sales, control marginsand operating costs and maintain its borrowing capacity and compliance with thecovenants of its Credit Facility. As more fully described in Note 8, the amountof available capital that Caliper is able to access under the Credit Facilityat any particular time is dependent upon a borrowing base formula, whichultimately relies on the underlying performance of the business. The Credit Facilityalso contains certain rights which, if exercised by the lender, could result inany or all of the following: an acceleration of the maturity date of anyoutstanding debt, a reduction in borrowing capacity, and a termination ofadvances. If economic conditions worsen and Caliper’s business performance isnot as strong as anticipated, then Caliper could experience an event of defaultor a reduction in its borrowing capacity under the Credit Facility, which ifnot cured to the bank’s satisfaction, could potentially have a material adverseimpact on its ability to access capital under its Credit Facility in order tofund planned 2009 operations. If such events were to occur, Caliper’s businesswould be adversely affected.

 

***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 ended December 31,2008, filed with the SEC on March 13, 2009. Those policies are notpresented herein, except to the extent that new policies have been adopted orthat the description of existing policies has been meaningfully updated.

 

In November 2007,the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-1 (“EITF No. 07-1”),*Accounting for Collaborative ArrangementsRelated to the Development and Commercialization of Intellectual Property.*  EITF No. 07-1 requires collaborators insuch an arrangement to present the result of activities for which they act asthe principal on a gross basis and report any payments received from (orpayments made to) other collaborators based on other applicable GAAP or, in theabsence of other applicable GAAP, based on analogy to authoritative accountingliterature or a reasonable, rational, and consistently applied accountingpolicy election. During the first quarter of 2009, Caliper adopted EITF No. 07-1.  The effect of adoption did not have amaterial impact on Caliper’s financial statements and therefore did not requireretroactive application as Caliper’s collaborative agreements do notincorporate such revenue- and cost-sharing arrangements.

 

5

----

Table of Contents

 

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

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157,*Fair Value Measurements* (“SFAS No. 157”) effective forfinancial statements issued for fiscal years beginning after November 15,2007.  SFAS No. 157 replaces multiple existing definitions of fairvalue with a single definition, establishes a consistent framework formeasuring fair value and expands financial statement disclosures regarding fairvalue measurements.  SFAS No. 157 applies only to fair valuemeasurements that already are required or permitted by other accountingstandards and does not require any new fair value measurements.  In February 2008,the FASB issued FASB Staff Position (“FSP”) No. 157-2 (“FSP No. 157-2”),which delayed the effective date of SFAS No. 157 until the first quarterof 2009 for nonfinancial assets and liabilities that are not recognized ordisclosed at fair value in the financial statements on a recurring basis. During the first quarter we adopted the provisions of SFAS No. 157 relatedto our nonfinancial assets and liabilities that include goodwill, intangibleassets and property, plant and equipment, and it did not have a material impacton our nonfinancial assets and liabilities in the first quarter.

 

In October 2008, theFASB issued FSP No. FAS 157-3,*Determining the Fair Value of a Financial Asset When the Market for That AssetIs Not Active*(“FAS 157-3”),which clarifies the application of Statement No. 157 in an inactive marketand illustrates how an entity would determine fair value when the market for afinancial asset is not active. The Staff Position is effective immediately andapplies to prior periods for which financial statements have not been issued,including interim or annual periods ending on or before September 30,2008. The implementation of FAS 157-3 did not have a material impact on ourconsolidated financial position, results of operations and cash flows.

 

In accordance with theprovisions of SFAS No. 157, Caliper measures fair value at the price thatwould be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The Statement prioritizes the assumption that market participants would use inpricing the asset or liability (the “inputs”) into a three-tier fair valuehierarchy.  This fair value hierarchy gives the highest priority (Level 1)to quoted prices in active markets for identical assets or liabilities and thelowest priority (Level 3) to unobservable inputs in which little or no marketdata exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quotedprices for similar assets or liabilities in active markets or quoted prices foridentical assets and liabilities in markets that are not active, arecategorized as Level 2.  Level 3 inputs are those that reflect ourestimates about the assumptions market participants would use in pricing theasset or liability, based on the best information available in thecircumstances.  Valuation techniques for assets and liabilities measuredusing Level 3 inputs may include methodologies such as the market approach, theincome approach or the cost approach, and may use unobservable inputs such asprojections, estimates and management’s interpretation of current marketdata.  These unobservable inputs are only utilized to the extent thatobservable inputs are not available or cost-effective to obtain.

 

On March 31, 2009,Caliper’s investments were valued in accordance with the fair value hierarchyas follows (in thousands):

 
| ** **                      | ** ** | **Total  Fair**

**Value** | ** **   | **Quoted**

**Prices  in**

**Active**

**Markets**

**(Level  1)** | ** ** | **Observable**

**Inputs**

**(Level  2)** | ** ** | **Unobservable**

**Inputs**

**(Level  3)** | ** **   |
|---------------------------------|------------|----------------------------|--------------|---------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------------|--------------|
| Money  market funds             |       | $                          |  8,583  |                                                                | $          |  8,583                                |       | $                                            |  — |   | $ |  — |   |
| Commercial  paper               |       | 4,048                      |         | —                                                              |       | 4,048                                      |       | —                                       |         |
| U.S.  corporate notes and bonds |       | 1,204                      |         | —                                                              |       | 1,204                                      |       | —                                       |         |
| Other                           |       | 2,570                      |         | —                                                              |       | 2,570                                      |       | —                                       |         |
| Total                           |       | $                          |  16,405 |                                                                | $          |  8,583                                |       | $                                            |  7,822  |   | $ |  — |   |

 

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

 

Caliper held fivepositions in debt securities that were in an unrealized loss position as of March 31,2009.  During the three months ended March 31, 2009, a totalunrealized loss of $22,000 was recorded to accumulated other comprehensiveincome within the accompanying balance sheet.  Based on Caliper’sevaluation of its investments, management does not believe any individualunrealized loss at March 31, 2009 represents an other-than-temporaryimpairment as these unrealized losses are primarily attributable to changes inthe interest rates and the ongoing credit crisis which has created volatilemarket conditions. Caliper currently has both the intent and ability to holdthe securities for a time necessary to recover the amortized cost.

 

6

----

Table of Contents

 

***Income Taxes***

 

Caliper accounts forincome taxes in accordance with FAS 109,*Accounting for Income Taxes*, and accounts for uncertainty in incometaxes recognized in financial statements in accordance with FIN 48,*Accounting for Uncertainty in Income Taxes* (“FIN 48”)*.*  FIN 48 prescribes a comprehensive model for the recognition,measurement, and financial statement disclosure of uncertain tax positions.Unrecognized tax benefits are the differences between tax positions taken, orexpected to be taken, in tax returns, and the benefits recognized foraccounting purposes pursuant to FIN 48. Caliper classifies uncertain taxpositions as short-term liabilities within accrued expenses.  During thethree month period in each of 2009 and 2008, Caliper’s tax provisions primarilyrelate to foreign taxes in jurisdictions where its wholly owned subsidiariesare profitable.

 

***Goodwill***

 

 In accordance withSFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill andOther Intangible Assets, goodwill and certain other intangibles are notamortized but are instead subject to periodic impairment assessments. Caliperperforms a test for the impairment of goodwill annually following the relatedacquisition, or more frequently if events or circumstances indicate thatgoodwill may be impaired. Because Caliper has a single operating segment whichis the sole reporting unit, Caliper performs this test by comparing the fairvalue of Caliper with its carrying value, including goodwill. If the fair valueexceeds the carrying value, goodwill is not impaired. If the book value exceedsthe carrying value, Caliper would calculate the potential impairment loss bycomparing the implied fair value of goodwill with the book value of goodwill.If the implied fair value of goodwill is less than the book value, animpairment charge would be recorded equal to the difference. Caliper recorded agoodwill impairment charge of $43.4 million in 2008, as described morefully in Note 7 to our consolidated financial statements in our AnnualReport on Form 10-K for the year ended December 31, 2008 filed withthe SEC on March 13, 2009.

 

As of March 31, 2009, Caliper analyzed itsgoodwill for indicators of impairment. There were no indicators, other than the fact Caliper’s fair value wasless than its book value.  Calipercompleted an assessment of the implied fair value of it’s goodwill inconnection with the audit of it’s 2008 financial statements, as more fullydescribed in Note 7 to the consolidated financial statements in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31,2008.  Due to the fact Caliper’s stockprice has remained relatively consistent as of March 31, 2009 compared to December 31,2008 and Caliper achieved its planned financial results within the quarter, itbelieves there is not an impairment within the period.

 

***Recent Accounting Pronouncements***

 

In December 2007,the FASB issued SFAS No. 141(R) (SFAS 141R), *Business Combinations*. This Standard willrequire an acquiring company to measure all assets acquired and liabilitiesassumed, including contingent considerations and all contractual contingencies,at fair value as of the acquisition date. In addition, an acquiring company isrequired to capitalize IPR&D and either amortize it over the life of theproduct, or write it off if the project is abandoned or impaired. The Standardis effective for transactions occurring on or after January 1, 2009.

 

InApril 2009, the FASB issued Staff Position No. 107-1 and APB 28-1, *Interim Disclosures About Fair Value of FinancialInstruments*, effective for interim and annual periods ending after June 15,2009. The staff position requires fair value disclosures of financialinstruments on a quarterly basis, as well as new disclosures regarding themethodology and significant assumptions underlying the fair value measures andany changes to the methodology and assumptions during the reporting period.Caliper will apply the disclosure provisions as appropriate in future filings.

 

**2.  Product Line Divestitures**

 

***PDQ Product Line Divestiture***

 

On October 29, 2008,Caliper entered into an Asset Sale and Purchase Agreement (the “PurchaseAgreement”) with Sotax Corporation (“Sotax”), a Virginia corporation and aprivately owned subsidiary of SOTAX Holding A.G. based in Switzerland. ThePurchase Agreement provided for the sale of Caliper’s PharmaceuticalDevelopment and Quality (“PDQ”) product line to Sotax for a purchase price ofapproximately $15.8 million, including $13.8 million in cash togetherwith certain assumed liabilities upon closing which were approximately$2.0 million (the “Purchase Price”). In addition, $1.0 million of thePurchase Price was placed into an escrow account until the first anniversary ofNovember 10, 2008, the closing date. The escrow secures Caliper’sindemnification obligations to Sotax, if any, under the Purchase Agreement. ThePurchase Agreement also contains representations, warranties and indemnitiesthat are customary in asset sale transactions. Caliper realized approximately$12.6 million in net cash proceeds from the sale of its PDQ product lineupon closing, after the escrow account deposit and transaction expenses. Aspart of this transaction, Caliper sold approximately $0.5 million in netassets, which consisted primarily of inventory net of deferred revenue andaccrued expenses. Caliper recorded a $1.4 million gain on the sale of the PDQproduct line based upon the net proceeds in excess of total divested netassets, which included $10.5 million of goodwill that was allocated to theproduct line on a relative fair value basis. During the three months ended March 31, 2008 there was $2.2 millionin revenue attributable to the PDQ product line in the accompanying statementof operations.

 

7

----

Table of Contents

 

***AutoTrace Product Line Divestiture***

 

On November 10,2008, Caliper entered into an Asset Purchase Agreement (the “Asset PurchaseAgreement”) with Dionex Corporation (“Dionex”), a publicly traded Delawarecorporation. The Asset Purchase Agreement provided for the sale of Caliper’sAutoTrace product line to Dionex for a purchase price of approximately$5.0 million. As part of this transaction, Caliper sold approximately$0.3 million in net assets, which consisted primarily of inventory net ofdeferred revenue and accrued expenses. Caliper recorded a $0.7 million gain onthe sale of the AutoTrace product line based upon the net proceeds in excess oftotal divested net assets, which included $3.8 million of goodwill thatwas allocated to the product line on a relative fair value basis. Duringthe three months ended March 31, 2009 and 2008 there was $0.3 million and$0.7 million, respectively, in revenue attributable to the AutoTrace productline in the accompanying statement of operations.  The $0.3 million of 2009 revenue includedremaining revenues associated with the transition services arrangement thatended during the quarter.

 

8

----

Table of Contents

 

**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):

 
| ** **      | ** ** | **March 31,  2009** | ** **   | **December 31,**

** 2008** | ** ** |
|-----------------|------------|--------------------------|--------------|---------------------------------------|------------|
| Raw  material   |       | $                        |  10,092 |                                  | $          |  10,173 |   |
| Work-in-process |       | 928                      |         | 907                                   |       |
| Finished  goods |       | 6,303                    |         | 6,499                                 |       |
| Inventories     |       | $                        |  17,323 |                                  | $          |  17,579 |   |

 

**4.Intangibles**

 

Intangibles, net, consistof the following assets acquired in connection with previous businesscombinations (in thousands):

 
| ** **                                   | ** ** | **March 31,  2009** | ** **   | **December 31,**

**2008** | ** ** |
|----------------------------------------------|------------|--------------------------|--------------|---------------------------------|------------|
| Core  technologies                           |       | $                        |  21,019 |                            | $          |  21,880 |   |
| Developed  and contract technologies         |       | 5,387                    |         | 5,884                           |       |
| Customer  contracts, lists and relationships |       | 3,526                    |         | 3,724                           |       |
| Trade  names                                 |       | 2,898                    |         | 2,898                           |       |
| Other  intangibles                           |       | —                   |         | 13                              |       |
|                                         |       | $                        |  32,830 |                            | $          |  34,399 |   |

 

**5****. Warranty Obligations**

 

Caliper provides forestimated warranty expenses as a component of cost of revenue at the timeproduct revenue is recognized in accordance with FAS 5,*  Accountingfor Contingencies,*  and FASBInterpretation No. 45,*Guarantor’sAccounting and Disclosure Requirements for Guarantees, including IndirectGuarantees of Indebtedness of Others*.  Caliper offers aone-year limited warranty on most products, which is included in the sellingprice. Caliper’s standard limited warranty covers repair or replacement ofdefective goods, a preventative 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.

 

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

 
| ** **                           | ** ** | **Three  Months Ended March 31,** | ** **  |
|--------------------------------------|------------|--------------------------------------------------|-------------|
| ** **                           | ** ** | **2009**                                         | ** **  | **2008** | ** ** |
| Balance  at beginning of period      |       | $                                                |  1,362 |   | $ |  1,684 |   |
| Warranties  issued during the period |       | 611                                              |        | 114 |   |
| Settlements  made during the period  |       | (423                                             | )           | (342 | ) |
| Balance  at end of period            |       | $                                                |  1,550 |   | $ |  1,456 |   |

 

**6.Comprehensive Loss**

 

Comprehensive loss is asfollows (in thousands):

 
| ** **                                       | ** ** | **Three Months Ended**

**March 31,** | ** **   |
|--------------------------------------------------|------------|------------------------------------------------------|--------------|
| ** **                                       | ** ** | **2009**                                             | ** **   | **2008** | ** ** |
| Net  loss                                        |       | $                                                    |  (6,645 | ) | $ |  (9,936 | ) |
| Unrealized  gain (loss) on marketable securities |       | 7                                                    |         | (8 | ) |
| Foreign  currency translation gain (loss)        |       | (361                                                 | )            | 446 |   |
|                                             |       |                                                 |         |   |   |
| Comprehensive  loss                              |       | $                                                    |  (6,999 | ) | $ |  (9,498 | ) |

 

9

----

Table of Contents

 

**7.Accrued Restructuring Costs**

 

Caliper’s accruedrestructuring costs as of March 31, 2009 were comprised of futurecontractual obligations pursuant to facility operating leases covering certainidle space as further described below. The following table summarizes changes in accrued restructuringobligations during the three months ended March 31, 2009 (in thousands):

 
|                                  |   | **Total** |        |
|---------------------------------------|--------|-----------|-------------|
| Balance,  December 31, 2008      |   | $         |  4,476 |   |
| Restructuring  charge                 |   | —    |        |
| Adjustments  to estimated obligations |   | (4        | )           |
| Interest  accretion                   |   | 23        |        |
| Payments                              |   | (470      | )           |
| Balance,  March 31, 2009         |   | $         |  4,025 |   |

 

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

 
| **Years Ended December 31:** | ** ** | ** ** | ** **  |
|---------------------------------------------|------------|------------|-------------|
| 2009  (remainder of fiscal year)            |       | $          |  1,462 |   |
| 2010                                        |       | 1,781      |        |
| 2011                                        |       | 421        |        |
| 2012                                        |       | 433        |        |
| 2013                                        |       | 406        |        |
| Total  minimum payments                     |       | 4,503      |        |
| Less:  Amount representing interest         |       | (478       | )           |
| Present  value of future payments           |       | 4,025      |        |
| Less:  Current portion of obligations       |       | 1,818      |        |
| Non-current  portion of obligations         |       | $          |  2,207 |   |

 

The restructuringobligations reflected above resulted from the following actions:

 

        Duringthe first quarter of 2008, Caliper initiated the consolidation of its WestCoast business operations to reduce overall facility costs and improveproductivity and effectiveness of its research and development spending. Theconsolidation plan entailed vacating approximately 36,500 square feet ofcurrently occupied space in Mountain View, California, which was completed in September 2008.This facility closure was accounted for in accordance with SFAS 146, *Accounting for Costs Associated with Exit or Disposal Activities*,pursuant to which Caliper recorded a liability equal to the fair value of theremaining lease payments as of the cease-use date. Fair value was determinedbased upon the discounted present value of remaining lease rentals (using adiscount rate of 5.5%) for the space no longer occupied, considering futureestimated sublease income, estimated broker fees and required tenantimprovements. Caliper calculated the fair value as $4.6 million andrecorded this amount within restructuring charges in the second half of fiscal2008.  The lease term expires November 30,2013.

 

        Caliperalso assumed a $1.0 million obligation related to Xenogen’sSt. Louis, Missouri facility. The facility closure was previouslyaccounted for by Xenogen in accordance with EITF 94-3,*Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (Including CertainCosts Incurred in a Restructuring)*. The fair value of the assumedobligation was determined based upon the discounted present value of remaininglease rentals (using a discount rate of 8.75%) for the space no longer occupied,net of sublease income expected to be derived from the property. The lease termexpires April 30, 2011.

 

**8.Revolving Credit Facility**

 

On March 6, 2009,Caliper entered into the Credit Facility which permits Caliper to borrow up to$25 million in the form of revolving loan advances, including up to$5 million in the form of letters of credit.  Principal borrowings under the CreditFacility accrue interest at a floating annual rate equal to the Base Rate (ashereafter defined) plus one percent if Caliper’s unrestricted cash held at thebank exceeds or is equal to $20 million, or the Base Rate plus two percent ifCaliper’s unrestricted cash held at the bank is below $20 million.  The “Base Rate” is the greater of:  (i) the bank’s announced “prime rate”and (ii) four and one-half of one percent (4.5%).  Under the Credit Facility, Caliper ispermitted to borrow up to $25 million, subject to a borrowing base limitconsisting of (a) 80% of eligible accounts receivable plus (b) thelesser of 70% of Caliper’s unrestricted cash at the bank or $12 million;provided that on each of the first three business days and each of the lastthree business days of each fiscal quarter, the borrowing base is (a) 80%of eligible accounts receivable plus (b) the lesser of 90% of Caliper’sunrestricted cash at the bank or $12 million. Eligible accounts receivable donot include internationally billed receivables, unbilled receivables, andreceivables aged over 90 days from invoice date. The Credit Facilitymatures on November 30, 2010.  TheCredit Facility serves as a source of capital for ongoing operations andworking capital needs.

 

10

----

Table of Contents

 

The Credit Facilityincludes customary lending and reporting covenants, including certain financialcovenants regarding Caliper’s required levels of liquidity and earnings thatare tested as of the last day of each quarter. As of March 31, 2009, Caliper was in compliance with itscovenants.  The Credit Facility alsoincludes a net liquidity clause.  Underthis clause, if Caliper’s total cash, cash equivalents and marketablesecurities, held at the bank, net of debt outstanding under the CreditFacility, are less than $0.5 million (the “Net Liquidity Limit”), the bank willapply all of Caliper’s accounts receivable collections, received within itslockbox arrangement with the bank to the outstanding principal.  Such amounts would be eligible to bere-borrowed by Caliper subject to the borrowing base limit.  Based on Caliper’s current forecast, itexpects to fall below the Net Liquidity Limit at certain times during thesecond half of 2009.

 

The Credit Facility alsoincludes certain rights for the bank to accelerate the maturity of the debt,modify the borrowing base or stop making advances, upon the occurrence ofcertain customary events of default, some of which may be viewed asdeterminable based on the Bank’s discretion. Caliper does not believe the bank will exercise these rights as long asCaliper is meeting its covenants and achieving its forecast.  The Credit Facility also includes customaryevents of default, such as payment default, material adverse change conditionsand insolvency conditions that could cause interest to be charged at theinterest rate in effect as of the date of default plus two percentage points,or in the event of any uncured events of default (including non-compliance withliquidity and earnings financial covenants), that could result in the bank’sright to declare all outstanding obligations immediately due and payable.  Should an event of default occur, includingthe occurrence of a material adverse change, and based on such default the bankwere to declare all outstanding obligations immediately due and payable,Caliper may be required to significantly reduce its costs and expenses, selladditional equity or debt securities, or restructure portions of its businesswhich could involve the sale of certain business assets.  In such case, the sale of additional equityor convertible debt securities may result in additional dilution to Caliper’sstockholders.  Furthermore, additionalcapital may not be available on terms favorable to Caliper, if at all.  In this circumstance, if Caliper could notsignificantly reduce its costs and expenses, obtain adequate financing onacceptable terms when such financing is required or restructure portions of itsbusiness, Caliper’s business would be adversely affected.  In addition, the amount of available capitalthat Caliper is able to access under the Credit Facility at any particular timeis dependent upon the borrowing base formula, which relies on the ability ofits business to generate accounts receivable that are eligible according to theCredit Facility.  If economic conditionsworsen and its business performance is not as strong as anticipated, thenCaliper could experience an event of default or a reduction in borrowingcapacity under the Credit Facility, which if not cured to the bank’s satisfaction,could potentially have a material adverse impact on its ability to accesscapital under its Credit Facility in order to fund 2009 operations.  If such events were to occur, Caliper’sbusiness would be adversely affected.

 

Outstanding obligationsunder the Credit Facility were $14.9 million as of March 31, 2009.  The Credit Facility is classified asshort-term consistent with Caliper’s intent to utilize the Credit Facility tofund operations and working capital needs on a revolving loan basis, includingthe mechanics of the Net Liquidity Limit described above.  Interest is due monthly and has ranged from3.75% to 8.75% in 2009 and 2008.  At March 31,2009, Caliper had approximately $5.7 million of additional amounts that itcould borrow based on the borrowing formula.

 

**9. LegalProceedings**

 

Commencing on June 7,2001, Caliper and three of its then officers and directors (David V. Milligan,Daniel L. Kisner and James L. Knighton) were named as defendants in threesecurities class action lawsuits filed in the United States District Court forthe Southern District of New York. The cases have been consolidated under thecaption, In re Caliper Technologies Corp. Initial Public Offering SecuritiesLitigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were filed againstapproximately 300 other public companies that conducted initial publicofferings of their common stock during the late 1990s (the “IPO Lawsuits”). On August 8,2001, the IPO Lawsuits were consolidated for pretrial purposes before UnitedStates Judge Shira Scheindlin of the Southern District of New York. Together,those cases are denominated In re Initial Public Offering SecuritiesLitigation, 21 MC 92(SAS). On April 19, 2002, a Consolidated AmendedComplaint was filed alleging claims against Caliper and the individualdefendants under Sections 11 and 15 of the Securities Act of 1933, andunder Sections 10(b) and 20(a) of the Securities Exchange Act of1934, as well as Rule 10b-5 promulgated thereunder. The ConsolidatedAmended Complaint also names certain underwriters of Caliper’s December 1999initial public offering of common stock as defendants. The Complaint allegesthat these underwriters charged excessive, undisclosed commissions to investorsand entered into improper agreements with investors relating to aftermarkettransactions. The Complaint seeks an unspecified amount of money damages.Caliper and the other issuers named as defendants in the IPO Lawsuits moved on July 15,2002, to dismiss all claims on multiple grounds. By Stipulation and Order datedOctober 9, 2002, the claims against Messrs. Milligan, Kisner andKnighton were dismissed without prejudice. On February 19, 2003, the Courtgranted Caliper’s motion to dismiss all claims against it. Plaintiffs were notgiven the right to replead the claims against Caliper. The time to appeal thedismissal has not yet expired. In March 2009, all of the plaintiffs,underwriters and issuers involved in this litigation entered into a new globalsettlement agreement.  This settlementagreement is still subject to approval by Judge Scheindlin, and will not beconsidered final until this approval is obtained.  The hearing for final approval of thesettlement has not yet been scheduled. The settlement agreement, if approved byJudge Scheindlin, will provide Caliper with a release of all claims against it,and will not require any payments from Caliper. The final resolution of thislitigation is not expected to have a material impact on Caliper.

 

On January 23, 2009,Caliper filed and served a patent infringement suit against ShimadzuCorporation and its U.S. subsidiary, Shimadzu Scientific Instruments, Inc.,in the United States District Court for the Eastern District of Texas. Thecomplaint was 

 

11

----

Table of Contents

 

promptly served uponShimadzu’s U.S. subsidiary.  In thissuit, Caliper alleges that Shimadzu’s MCE-202 MultiNA instrument system, whichperforms electrophoretic separations analysis of nucleic acids, infringes 11different U.S. patents owned by Caliper. Shimadzu filed an answer to thiscomplaint on March 24, 2009.  In itsanswer, Shimadzu denied infringement of any valid claim of any of the 11patents asserted against Shimadzu by Caliper, and alleged that each patentasserted by Caliper is invalid and/or unenforceable.  A scheduling conference for this litigationhas been scheduled for no later than May 8, 2009.

 

From time to time Caliperis involved in litigation arising out of claims in the normal course ofbusiness, and when a probable loss contingency arises, records a loss provisionbased upon actual or possible claims and assessments. The amount of possibleclaim recorded is determined on the basis of the amount of the actual claim,when the amount 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.

 

**10.Stock-Based Compensation, Options and Restricted Stock Activity and Net Lossper Weighted Average Common Share Outstanding**

 

***Stock-Based Compensation***

 

Caliper accounts forstock-based compensation in accordance with Statement of Financial AccountingStandard No. 123R,*Share-Based Payment*  (“SFAS 123R”), which requires all share-based payments, includinggrants of stock options, to be recognized in the income statement as anoperating expense, based on their fair values. Caliper estimates the fair valueof each option award on the date of grant using a Black-Scholes-Merton based option-pricingmodel.

 

Stock-based compensationexpense is included within costs and expenses as follows (in thousands):

 
| ** **                           | ** ** | **Three Months Ended**

**March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Cost  of product revenue             |       | $                                                    |  78   |   | $ |  81 |   |
| Cost  of service revenue             |       | 15                                                   |       | 21 |   |
| Research  and development            |       | 129                                                  |       | 93 |   |
| Selling,  general and administrative |       | 693                                                  |       | 815 |   |
| Total                                |       | $                                                    |  915  |   | $ |  1,010 |   |

 

On March 31, 2009,Caliper had five share-based compensation plans (the “Plans”), which aredescribed within Note 12 to the consolidated financial statements includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2008 filed with the SEC on March 13, 2009.

 

The fair value of eachoption award issued under Caliper’s equity plans is estimated on the date ofgrant using a Black-Scholes-Merton based option pricing model that uses theassumptions noted in the following table. Expected volatilities are based onhistorical volatility of Caliper’s stock. The expected term of the options isbased on Caliper’s historical option exercise data taking into considerationthe exercise patterns of the option holders during the option’s life. Therisk-free interest rate is based on the U.S. Treasury yield curve in effect onthe date of the grant.

 
| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Expected  volatility (%)     |       | 74.8                                                 |       | 42.5 |   |
| Risk-free  interest rate (%) |       | 1.7-2.3                                              |       | 2.3 |   |
| Expected  term (years)       |       | 4.5                                                  |       | 4.2 |   |
| Expected  dividend yield (%) |       | —                                               |       | — |   |

 

***Options and Restricted Stock Activity***

 

A summary of stock optionand restricted stock activity under the Plans as of March 31, 2009, andchanges during the three months then ended is as follows:

 

12

----

Table of Contents

 
| **Stock Options**                              | ** ** | **Shares** | ** ** | **Weighted**

**Average**

**Exercise**

**Price** | ** ** | **Weighted**

**Average**

**Remaining**

**Contractual**

**Term** | ** ** | **Aggregate**

**Intrinsic Value** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | ** **                                         | ** ** | ** **                                                          | ** ** | **(in thousands)**                 | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | ** **                                         | ** ** | ** **                                                          | ** ** | ** **                              | ** ** |
| Outstanding  at December 31, 2008              |       | 7,666,461  |       | $                                                  |  5.45 |                                                                | 6.35       |                                    | $          |  567 |   |
| Granted                                             |       | 1,057,000  |       | 1.30                                               |       | —                                                              |       | —                                  |       |
| Exercised                                           |       | (22,598    | )          | 0.97                                               |       | —                                                              |       | 3                                       |       |
| Canceled                                            |       | (413,908   | )          | 4.18                                               |       | —                                                              |       | —                                  |       |
| Outstanding  at March 31, 2009                 |       | 8,286,955  |       | $                                                  |  5.00 |                                                                | 6.83       |                                    | $          |  178 |   |
| Exercisable  at March 31, 2009                 |       | 5,013,952  |       | $                                                  |  5.98 |                                                                | 5.41       |                                    | $          |  178 |   |
| Vested  and expected to vest at March 31, 2009 |       | 8,129,391  |       | $                                                  |  5.02 |                                                                | 6.78       |                                    | $          |  172 |   |

 
| **Restricted Stock Units**                  | ** ** | **Shares** | ** ** | **Weighted Average**

**Grant Date**

**Fair Market per  Share  Value** | ** ** |
|-------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| Outstanding  and non-vested at December 31, 2008 |       | 601,720    |       | $                                                                                                     |  5.01 |   |
| Granted                                               |       | 1,529,786  |       | 0.78                                                                                                  |       |
| Vested                                                |       | (130,485   | )          | 5.06                                                                                                  |       |
| Cancelled                                             |       | (2,167     | )          | 4.29                                                                                                  |       |
| Outstanding  and non-vested at March 31, 2009    |       | 1,998,854  |       | 1.77                                                                                                  |       |
|                                                       |            |            |            |                                                                                                       |            |  |

 

 During the threemonths ended March 31, 2009, Caliper granted its employees 1,057,000options.  Such options were valued using a Black-Scholes-Merton based optionpricing model employing the assumptions reflected above which resulted in aweighted average grant date fair value of $0.38 per option. The total fairvalue of restricted stock that vested during the three months ended March 31,2009 was approximately $0.7 million.

 

As of March 31,2009, there was $6.3 million of total unrecognized compensation costrelated to unvested stock-based compensation arrangements granted under thePlans. That cost is expected to be recognized over a weighted-average remainingservice (vesting) period of approximately 2.4 years.

 

***Common Shares Outstanding***

 

During the three monthsended March 31, 2009, Caliper issued 99,438 shares of common stock as aresult of stock option exercises and vesting of restricted stock.

 

***Net Loss per Weighted Average Common Share Outstanding***

 

Basic net loss per shareis calculated based upon net loss divided by the weighted-average number ofcommon shares outstanding during the period. The calculation of diluted netloss per share excludes common stock equivalents consisting of stock options,unvested restricted stock, unvested restricted stock units and warrants(calculated using the treasury stock method) which would have an anti-dilutiveeffect.

 

The weighted averagenumber of shares used to compute both basic and diluted net loss per shareconsists of the following (in thousands):

 
| ** **                                                                                                                                               | ** ** | **Three Months Ended  March 31, 2009,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                                               | ** ** | **2009**                                                    | ** ** | **2008** | ** ** |
| Basic and  diluted                                                                                                                                       |       | 48,626                                                      |       | 47,683 |   |
| Anti-dilutive  common stock equivalents excluded from calculation of diluted net loss per  share (prior to the application of the treasury stock method) |       | 16,460                                                      |       | 14,955 |   |

 

13

----

Table of Contents

 

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

 

*ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations as of March 31, 2009 and for the three months ended March 31,2009 should be read in conjunction with our financial statements included inthis Quarterly Report on Form 10-Q and Management’s Discussion andAnalysis of Financial Condition and Results of Operations and our financialstatements included in our Annual Report on Form 10-K for the year ended December 31,2008 filed with the SEC on March 13, 2009.*

 

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

 

**ExecutiveSummary**

 

***Business***

 

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

 

We believe thatincreasing the clinical relevance of drug discovery experimentation, whether atearly stage, lower cost, in vitro (artificial environment) testing or laterstage, more expensive preclinical in vivo (in a living organism) testing, willhave a profound impact in helping our customers to determine the ultimatelikelihood of success of drugs in treating humans. We expect that our enablingofferings in both the in vitro and in vivo testing arenas, and a unique strategyof enhancing the “bridge” or linkages between in vitro, in vivo and the clinicin order to optimize the cost of the experiment versus the clinical insightgained, will allow us to continue to address growing, unmet needs in the marketand drive ongoing demand for our products and services. These market needs areunderscored by key challenges that face the pharmaceutical and biotechnologyindustry, including late-stage drug failures and unforeseen side effects comingto light late in the development process or after drugs are on the market.

 

We presently offer anarray of products and services, many based on highly enabling proprietarytechnologies that address critical experimental needs in drug discovery andpreclinical development and related processes. Our technologies are alsoenabling for other life sciences 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 channelsof distribution for our products: direct to customers, indirect through ourinternational network of distributors, through partnership channels under ourCaliper Driven program and through joint marketing agreements. Through ourdirect and indirect channels, we sell products, services and complete systemsolutions, developed by us, to end customers. Our Caliper Driven program iscore to our business strategy and complementary to our direct sales anddistribution network activities, as it enables us to extend the commercialpotential of our LabChip and advanced liquid handling technologies into newindustries and new applications with experienced commercial partners. We alsoutilize joint marketing agreements to enable others to market and distributeour products. By using direct and indirect distribution, and out-licensing ourtechnology under our Caliper Driven program, we seek to maximize penetration ofour products and technologies into the marketplace and position Caliper as aleader in the life sciences tools market.

 

Our product and serviceofferings are organized into three core business areas—Optical Molecular Imaging(Imaging), Discovery Research (Research), and Caliper Discovery Alliances andServices (“CDAS”)—with the goal of creating a more scalable infrastructurewhile putting increased focus on growth and profitability.

 

·                  The Imaging business area is focused onpreclinical imaging, where Caliper holds a global leadership position in thehigh growth imaging market. Principal activities of this business area includethe expansion of the IVIS imaging instrument and related reagent product lines,development of new therapeutic area applications and facilitating additionalimaging modalities.

 

·                  The Research business area is responsiblefor utilizing Caliper’s core automation and microfluidic technologies toaddress an expanding array of opportunities in drug discovery and life scienceresearch, including molecular biology sample preparation 

 

14

----

Table of Contents

 

                        for genomics, proteomics, cellular screening andforensics.

 

·                  The CDAS business area is responsible forexpanding drug discovery collaborations and alliances, and increasing sales ofdrug discovery services. The focus of CDAS is to capitalize on market “outsourcing”trends and to maximize the large contract opportunity with the EnvironmentalProtection Agency under its ToxCast® screening program.

 

***First Quarter Overview***

 

Our revenues during thethree months ended March 31, 2009 were $28.5 million compared to $29.3million for the three months ended March 31, 2008.  In comparing ourfirst quarter performance in 2009 to the same period in 2008, it is importantto take into account the effect of the divestitures of our PDQ and AutoTraceproduct lines that occurred in the fourth quarter of 2008.  On an “organic” growth basis (i.e., excludingthe effects of the divested product lines and exchange rate fluctuations uponrevenues), we experienced growth of 11% in the first quarter of 2009 comparedto the same period in 2008.  We believethat this strong quarter-on-quarter growth comparison benefited, in part, froma favorable timing of orders as a result of customer demand that was held backdue to widespread market uncertainties in 2008, as well as from unanticipatedservice orders within our CDAS business.

 

 During the threemonths ended March 31, 2009, the effect on revenues related to foreignexchange resulted in a 4% unfavorable impact as compared to the prioryear.  The effect of foreign exchange on net loss was less than 1% due tooffsetting foreign denominated expenses.

 

The table below providesa reconciliation of our GAAP basis revenue to pro forma revenue results for thequarters ended March 31, 2009 and 2008, after giving effect to ourdivestures of the PDQ and AutoTrace product lines during the fourth quarter of2008. We believe this is a useful measure in evaluating revenue performancebetween comparative periods; however, these non-GAAP comparisons are notintended to substitute for GAAP financial measures.

 
| ** **    | ** ** | **Quarter  Ended March 31,** | ** ** | ** **              | ** ** | ** **                    | ** ** |
|---------------|------------|-----------------------------------|------------|-------------------------|------------|-------------------------------|------------|
| ** **    | ** ** | ** **                        | ** ** | ** **              | ** ** | **Non-GAAP  Adjustments (1)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **    | ** ** | **GAAP**                          | ** ** | **(in thousands)** | ** ** | **Non-GAAP**                  | ** ** | **GAAP** | ** ** | **Non-GAAP** | ** ** |
| ** **    | ** ** | **2009**                          | ** ** | **2008**                | ** ** | **2009**                      | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** | **% Chg** | ** ** | **% Chg** | ** ** |
| Research      |       | $                                 | 13,521     |                    | $          | 14,980                        |       | $ | (343 | ) | $ | (2,893 | ) | $ | 13,178 |   | $ | 12,087 |   | (10 | )% | 9 | % |
| Imaging       |       | 10,741                            |       | 9,774                   |       | —                        |       | — |   | 10,741 |   | 9,774 |   | 10 | % | 10 | % |
| CDAS          |       | 4,210                             |       | 4,533                   |       | —                        |       | — |   | 4,210 |   | 4,533 |   | (7 | )% | (7 | )% |
| Total Revenue |       | $                                 | 28,472     |                    | $          | 29,287                        |       | $ | (343 | ) | $ | (2,893 | ) | $ | 28,129 |   | $ | 26,394 |   | (3 | )% | 7 | % |
|               |            |                                   |            |                         |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

| *(1)* | For purposes of  comparing growth rates for each of the three principal areas of our business,  the above non-GAAP table reconciliations exclude revenues related to the PDQ  and AutoTrace product lines divested in November 2008. The $0.3 million  of first quarter 2009 revenue included remaining revenues associated with the  AutoTrace product line in the early part of the quarter. We anticipate no  further revenue from either of the former PDQ or AutoTrace product lines  after March 31, 2009. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*Revenue Highlights by Strategic BusinessUnit*

 

Research revenuesassociated with ongoing product lines (i.e., excluding revenue of divestedproduct lines), comprised primarily of microfluidics and laboratory automationproducts and services, increased by 9% on a non-GAAP basis, to $13.2 millionduring the first quarter of 2009 from $12.1 million during the first quarter of2008.  This increase included a 6%unfavorable impact as a result of currency translation based upon currencyrates in effect during the first quarter of 2009 compared to the first quarterof 2008. Research growth was strong, primarily due to sales of our proprietaryLabChip GX instrument, which we believe is the “best-in-class” proprietarysolution for characterizing proteins in the fast growing biologics market, andincreased sales of our Profiler Pro reagent plates, which are consumableproducts used for kinase screening in connection with our EZ Reader instrument.

 

Imaging revenuesincreased by 10%, to $10.7 million during the first quarter of 2009 from $9.8million during the first quarter of 2008. This increase included a 5% unfavorable impact from foreign currencytranslation compared to the first quarter of 2008.  Imaging growth was driven by continued strongglobal demand for our IVIS instruments and accessories, reagents and services.

 

CDAS revenuesdecreased by 7% to $4.2 million during the first quarter of 2009 from $4.5million during the first quarter of 2008. The net decrease resulted from adecrease in *in vitro* services revenues partiallyoffset by *in vivo* services revenueimprovement.  We anticipate revenue fromCDAS services to grow over the second half of 2009 based on our expectationthat our CDAS unit will receive an additional task order under theEnvironmental Protection Agency’s ToxCast program.

 

*First Quarter FinancialPerformance*

 

Total gross margindecreased by approximately 1% during the first quarter of 2009 compared to thesame period in 2008 primarily due to the overall service revenue decline whichresulted primarily from the product lines that were divested in the fourthquarter of 2008.

 

Operating expenses (research and development plusselling, general and administrative expenses) decreased by 19% to $15.7 millionduring the first quarter of 2009 from $19.5 million in the first quarter of2008.  This reduction included $2.8million of selling, 

 

15

----

Table ofContents

 

general andadministrative expense reduction and $1.0 million of research and developmentexpense reduction resulting from streamlining and cost-reduction initiativesimplemented over 2008.  Of the overallreduction, approximately $0.6 million related to the divested product lines andeffects of exchange rate movements.

 

Net loss narrowed by $3.3 million, or 33%, to $6.6million ($0.14 per share) during the first quarter of 2009 from $9.9 million ($0.21per share) during the first quarter of 2008. The overall reduction in net loss reflected the benefit of costreductions implemented in 2008 to coincide with our strategic reconfigurationaround our high growth proprietary products and services.

 

 **Critical Accounting 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, 2008 filed with the SEC on March 13,2009.

 

**Resultsof Operations for the Three Months Ended March 31, 2009**

 

Operating results for thethree months ended March 31, 2009 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2009. Forexample, we typically experience higher revenues in the fourth quarter of ourfiscal year as a result of the capital spending patterns of our customers.

 

***Revenue***

 
| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**            | ** ** | **2009**                                         | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product revenue                    |       | $                                                | 18,309     |   | $ | 17,665 |   | $ | 644 |   | 4 | % |
| Service revenue                    |       | 7,657                                            |       | 9,008 |   | (1,351 | ) | (15 | )% |
| License fees and  contract revenue |       | 2,506                                            |       | 2,614 |   | (108 | ) | (4 | )% |
| Total Revenues                     |       | $                                                | 28,472     |   | $ | 29,287 |   | $ | (815 | ) | (3 | )% |

 

*ProductRevenue.    *Product revenue increased $0.6 million during thethree months ended March 31, 2009, compared to the same period in 2008 dueprimarily to strong imaging and microfluidic instrument and consumablesales.  Imaging product sales increasedby $0.8 million, or approximately 12%, compared to the first quarter of2008.  This increase was due to a 19% increase in IVIS instrumentplacements compared to the first quarter of 2008. The IVIS instrument productmix during the quarter was more heavily comprised of lower-priced IVIS Luminainstruments, resulting in a lower average selling price. Research product sales decreased $0.2 million, or 2%, during the firstquarter of 2009 compared to the same quarter in 2008.  This decrease was a net result of $1.3million of product revenue for the first quarter of 2008 related to divestedproduct lines, partially offset by a $1.1 million net revenue increase in thefirst quarter of 2009 from ongoing product lines.  This $1.1 million net increase was made up of(a) sales increases in our LabChip GX and LabChip GXII microfluidicbenchtop instruments (the “LabChip GX series”) which were launched in July 2008in response to strong market demand for systems capable of performing fast,automated, 1-D electrophoretic separations of protein, DNA, and RNA samples, (b) continuedgrowth in revenues from microfluidic consumables (chips, kits and reagents)within our direct and original equipment manufacturer (“OEM”) channels, and (c) alast time purchase by an automation OEM partner. These increases were partiallyoffset by sales decreases caused by (a) reduced instrument sales of ourTurboVap product line primarily within our European distribution channel, and (b) ashortfall in liquid handling instrument sales and OEM Twister sales within theperiod.

 

*ServiceRevenue.*   Servicerevenue decreased during the three months ended March 31, 2009, comparedto the same period in 2008 primarily from $1.2 million in service contract andbillable revenue associated with the divested PDQ and AutoTrace productlines.  The remaining decline consisted ofa $0.1 million decrease in all other instrument services and a $0.1 milliondecrease in CDAS service revenues.  CDASservice revenues were down on a net basis in the first quarter of 2009 ascompared to the same period in 2008 and within this minor net change weredecreases of $0.9 million related to in vitro government contracts, with themajority of the decline related to a contract that ended in 2008, and a $0.5million decrease in in vitro and in vivo standard service offerings by the CDASbusiness.  These CDAS revenue decreaseswere partially offset by a $0.6 million increase in phenotyping revenue relatedto a single customer contract that experienced contractual delays over thefirst half of 2008, and $0.7 million related to new in vitro screening contractswith a single customer.

 

*LicenseFees and Contract Revenue.*    License fees and contractrevenue decreased during the three months ended March 31, 2009 compared tothe same period in 2008 primarily as a result of CDAS in vitro Small BusinessInnovation Research grants to the CDAS business which ended in August 2008.  All other license fees and royaltiesincreased $0.1 million during the quarter.

 

16

----

Table of Contents

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)** | ** ** | **2009**                                         | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                                | 11,253     |   | $ | 11,105 |   | $ | 148 |   | 1 | % |
| Service                 |       | 5,707                                            |       | 6,098 |   | (391 | ) | (6 | )% |
| License and  contract   |       | 392                                              |       | 284 |   | 108 |   | 38 | % |
| Total Costs             |       | $                                                | 17,352     |   | $ | 17,487 |   | $ | (135 | ) | (1 | )% |

 

*Costof Product Revenue.*    Costof product revenue increased slightly during the three months ended March 31,2009 as a result of the overall increase in product sales.  The increase is primarily as a result of anincrease in warranty parts and other variable manufacturing costs, as apercentage of sales, by approximately 400 basis points, or $0.8 million.  This increase was offset in part by reducedmaterial cost spending as a percentage of sales resulting from mix and a $0.1million decrease in overall manufacturing spending comprised primarily ofreduced labor costs incurred with respect to manufacturing operations.

 

*Costof Service Revenue.*    Costof service revenue decreased during the three months ended March 31, 2009as compared to the same period in 2008 primarily as a result of headcountreductions resulting from divested product lines and the strategic businessunit consolidation we implemented in the third quarter of 2008.

 

*Costof License Revenue.*    Costof license revenue increased during the three months ended March 31, 2009compared to the same period in 2008 due primarily to an increase in amicrofluidic contractual royalty obligation with a third party.

 

*GrossMargins.*    Grossmargin on product revenue was 39% for the three months ended March 31,2009 which was an increase of 200 basis points compared to the same period in2008, reflecting the effect of incremental margin contribution associated withincreased sales volumes and improved product mix, partially offset by highermaterial and other variable costs incurred.  Gross margin on servicerevenue was 25% for the three months ended March 31, 2009 as compared to32% for the same period in 2008. This decreased service margin resultedprimarily from the reduced leverage of the service contract and billablerevenues related to the divested product lines.

 

***Expenses***

 
| ** **                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**             | ** ** | **2009**                                         | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Research and  development           |       | $                                                | 4,551      |   | $ | 5,532 |   | $ | (981 | ) | (18 | )% |
| Selling, general and administrative |       | 11,185                                           |       | 13,932 |   | (2,747 | ) | (20 | )% |
| Amortization of  intangible assets  |       | 1,557                                            |       | 2,490 |   | (933 | ) | (37 | )% |
| Restructuring  charges, net         |       | 23                                               |       | 6 |   | 17 |   | 283 | % |
|                                     |            |                                                  |            |  |  |  |  |  |  |  |  |  |

 

*Researchand Development Expenses.*    Research and development spending decreased by$1.0 million during the three months ended March 31, 2009 compared to thesame period in 2008 primarily as a result of a reduction in personnel-relatedcosts of $0.3 million, relating to the consolidation and cost reduction effortsinitiated in 2008, a $0.4 million reduction in severance costs which related toactions taken in the first quarter of 2008, and $0.3 million in reducedmaterial and operating supplies.

 

*Selling,General and Administrative Expenses.*    Selling, general andadministrative expenses decreased by $2.7 million during the three monthsended March 31, 2009 compared to the same period in 2008 due to equalreductions in both general selling and marketing expenses and general andadministrative expenses.  Selling and marketing expenses decreased by $1.4million during the three months ended March 31, 2009 as compared to thesame period in 2008 primarily due to a $0.7 million reduction in salaries andrelated costs due to reduced headcount from the divested product lines as wellas cost reduction initiatives in 2008 to align our business along strategicbusiness units, a $0.3 million reduction in travel and related costs and areduction of $0.4 million in all other costs. General and administrative expenses decreased by $1.3 million during thethree months ended March 31, 2009 as compared to the same period in 2008primarily due to a $0.5 million reduction in legal costs as a result oflitigation that was settled in the first quarter of 2008, a $0.2 millionreduction in salaries and related costs, $0.2 million in reduced severancerelated primarily to the consolidation of responsibilities within our financedepartment, and a $0.4 million reduction in all other costs.

 

*Amortizationof Intangible Assets.*  The amortization of intangible assets for the three monthsended March 31, 2009 relates to assets acquired in our previous businesscombinations. Amortization is computed based upon the estimated timing of theundiscounted cash flows used to value each respective asset over the estimateduseful life of the particular intangible asset, or using the straight-linemethod over the estimated useful life of the intangible asset when the patternof cash flows is not necessarily reflective of the true consumption rate of theparticular intangible asset.  The decrease in amortization during thethree months ended March 31, 2009 is the 

 

17

----

Table of Contents

 

result of certainintangibles from our acquisition of Zymark Corporation in July 2003 thathad a five-year life and therefore were fully amortized as of July 13,2008.

 

*RestructuringCharges.*    Weincurred restructuring charges in 2008 and prior periods related to acquisitionand integration activities that are more fully discussed in Note 7 to theaccompanying financial statements. Other restructuring charges during thethree months ending March 31, 2009 and 2008 relate to accretion ofinterest related to idle facility rent obligations.

 

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

 
| ** **                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------|------------|--------------------------------------------------|------------|
| **(In thousands)**      | ** ** | **2009**                                         | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest  expense, net       |       | $                                                | (212       | ) | $ | (155 | ) | $ | (57 | ) | (37 | )% |
| Other (expense)  income, net |       | (183                                             | )          | 407 |   | (590 | ) | (145 | )% |
|                              |            |                                                  |            |  |  |  |  |  |  |  |  |  |

 

*InterestExpense, Net.*    Netinterest expense increased during the three months ended March 31, 2009compared to the same period in 2008 as a result of lower interest income due toreduced yield rates on our investments.

 

*OtherIncome (Expense), Net.*    Other income (expense), net, decreased on athree-month basis compared to 2008 due to transaction losses on foreigndenominated accounts receivable resulting from a stronger U.S. dollar incomparison to primarily the Euro and the British Pound. During the three monthsended March 31, 2009, we incurred foreign currency transaction losses ofapproximately $0.2 million, compared to gains of approximately $0.4million for the same period in 2008.

 

**Liquidityand Capital Resources**

 

As of March 31,2009, we had $23.8 million in cash, cash equivalents and marketablesecurities, as compared to $26.7 million as of December 31, 2008.

 

        OnMarch 6, 2009, we entered into the Credit Facility, which permits us toborrow up to $25 million in the form of revolving loan advances, includingup to $5 million in the form of letters of credit. Principal borrowingsunder the Credit Facility accrue interest at a floating annual rate equal tothe Base Rate (as hereafter defined) plus one percent if our unrestricted cashheld at the bank exceeds or is equal to $20 million, or the Base Rate plustwo percent if our unrestricted cash held at the bank is below$20 million.  The Base Rate is thegreater of:  (i) the bank’sannounced “prime rate” and (ii) four and one-half of one percent(4.5%).   Under the Credit Facility, weare permitted to borrow up to $25 million, subject to a borrowing baselimit consisting of (a) 80% of eligible accounts receivable plus (b) thelesser of 70% of our unrestricted cash at the bank or $12 million;provided that on each of the first three business days and each of the lastthree business days of each fiscal quarter, the borrowing base is (a) 80%of eligible accounts receivable plus (b) the lesser of 90% of ourunrestricted cash at the bank or $12 million. Eligible accounts receivabledo not include internationally billed receivables, unbilled receivables, andreceivables aged over 90 days from invoice date. The Credit Facilitymatures on November 30, 2010. As of March 31, 2009, $14.9 millionwas outstanding under the Credit Facility. The Credit Facility serves as asource of capital for ongoing operations and working capital needs.

 

        TheCredit Facility includes customary lending and reporting covenants, includingcertain financial covenants regarding our required levels of liquidity andearnings that are tested as of the last day of each quarter. The CreditFacility also includes a net liquidity clause. Under this clause, if our total cash, cash equivalents and marketablesecurities held at the bank, net of debt outstanding under the Credit Facility,are less than $0.5 million (the Net Liquidity Limit), then the bank willapply all of our accounts receivable collections, received within our lockboxarrangement with the bank, to the outstanding principal. Such amounts would beeligible to be re-borrowed by us subject to the borrowing base limit. Based onour current forecast, we expect to fall below the net liquidity limit atcertain times during the second half of 2009. As of March 31, 2009, wewere in compliance with our covenants. We expect to remain in compliance withthe covenants through the Credit Facility’s maturity date based on currentforecasts.

 

        TheCredit Facility also includes certain rights for the bank to accelerate thematurity date of the debt, modify the borrowing base or stop making advancesupon the occurrence of certain customary events of default, some of which maybe viewed as determinable based on the Bank’s discretion. We do not believe thebank will exercise these rights as long as we are meeting our covenants and areachieving our forecasts. The Credit Facility also includes customary events ofdefault such as payment default, material adverse change conditions andinsolvency conditions that could cause interest to be charged at the interestrate in effect as of the date of default plus two percentage points, or in theevent of any uncured events of default (including non-compliance with liquidityand earnings financial covenants), that could result in the bank’s right todeclare all outstanding obligations immediately due and payable. Should anevent of default occur, including the occurrence of a material adverse change,and based on such default the bank were to either (i) declare alloutstanding obligations immediately due and payable, (ii) reduce ourborrowing base, or (iii) stop making credit advances to us, we may berequired to significantly reduce our costs and expenses, sell additional equityor debt securities, or restructure portions of our business which could involvethe sale of certain assets. In such case, the sale of additional equity orconvertible debt securities may result in additional dilution to ourstockholders.  We believe, based on ourcurrent projections that the 

 

18

----

Table of Contents

 

bank will continue tolend to us subject to the terms and conditions of the Credit Facility.Furthermore, additional capital may not be available on terms favorable to us,if at all. In this circumstance, if we could not significantly reduce our costsand expenses, obtain adequate financing on acceptable terms when such financingis required or restructure portions of our business, our business would beadversely affected. In addition, the amount of available capital that we areable to access under the Credit Facility at any particular time is dependentupon the borrowing base formula, which relies on the ability of our business togenerate accounts receivable that are eligible according to the CreditFacility. If economic conditions worsen and our business performance is weakerthan anticipated, then we could experience an event of default or a reductionin borrowing capacity under the Credit Facility, which if not cured to the bank’ssatisfaction, could have a material adverse impact on our ability to accesscapital under our Credit Facility in order to fund 2009 operations. If suchevents were to occur, our business would be adversely affected.

 

        Webelieve our cash balance, working capital on hand at March 31, 2009 andaccess to available capital under our Credit Facility will be sufficient tofund continuing operations through at least January 1, 2010. Nevertheless,our actual cash needs could vary considerably, depending on opportunities andcircumstances that arise over time. If, at any time, cash generated byoperations is insufficient to satisfy our liquidity requirements, we may needto reduce our costs and expenses, sell additional equity or debt securities ordraw down on our current Credit Facility if we have borrowing capacity. Theinability to obtain additional financing may force other actions such as thesale of certain assets, or, ultimately, cause us to cease operations.

 

        OnNovember 21, 2007, we filed, and the SEC subsequently declared effective,a universal shelf registration statement on Form S-3 that will permit usto raise up to $100 million of any combination of common stock, preferredstock, debt securities, warrants or units, either individually or in units. Thesale of additional equity or convertible debt securities may result inadditional dilution to our stockholders. Furthermore, additional capital maynot be available on terms favorable to us, if at all. Accordingly, noassurances can be given that we will be successful in these endeavors.

 

        Wemaintain cash balances in many subsidiaries through which we conduct ourbusiness. The repatriation of cash balances from certain of our subsidiariescould have adverse tax consequences. However, these cash balances are generallyavailable without legal restrictions to fund ordinary business operations. Wehave transferred, and will continue to transfer, cash from our subsidiaries tous and to other international subsidiaries when it is cost effective to do so.

 

***Cash Flows***

 
| ** **                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2009**                                             | ** ** | **2008** | ** ** | **$ Change** | ** ** |
| Cash provided by  (used in) |       |                                                 |       |   |   |   |   |
| Operating  Activities       |       | $                                                    | (2,295     | ) | $ | (2,756 | ) | $ | 461 |   |
| Investing Activities        |       | (1,805                                               | )          | 243 |   | (2,048 | ) |
| Financing  Activities       |       | 22                                                   |       | 48 |   | (26 | ) |
|                             |            |                                                      |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*    Duringthe three months ended March 31, 2009, we used $2.3 million of cashfor operating activities which included approximately $0.5 million related toour idle facilities.  We usedapproximately $1.8 million of cash to fund operations and working capitalneeds, which primarily related to materials used in production, salaries andrent obligations for our current facilities.

 

*InvestingActivities.*    Duringthe three months ended March 31, 2009, net proceeds from purchases, salesand maturities of marketable securities generated $1.3 million of cashwhich we used primarily for operations. Our other primary investing activitywas the purchase of property and equipment of $0.5 million primarilyrelated to facility improvements and information systems.

 

*FinancingActivities.*    Duringthe three months ended March 31, 2009, financing cash proceeds wererelated to proceeds from option exercises.

 

**ContractualObligations**

 

Our commitments underleases and other obligations are described in our Management’s Discussion andAnalysis of Financial Condition and Results of Operations and in the Notes tothe Consolidated Financial Statements included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008 filed with the SEC on March 13,2009.  There has been no material changeduring the three months ended March 31, 2009 in the contractualobligations disclosed as of December 31, 2008.

 

***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:

 

19

----

Table of Contents

 

·                       continued market acceptance of our invivo imaging, microfluidic and lab automation products and services;

·                       the magnitude and scope of our researchand product development programs;

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

·                       the time and costs involved in expandingand maintaining our manufacturing facilities;

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

·                       other factors not within our control.

** **

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

 

***Interest Rate Sensitivity***

 

Our primary market riskexposures are foreign currency fluctuation and interest rate sensitivity.During the three months ended March 31, 2009, there have been no materialchanges to the information included under Item 7A, “Quantitative andQualitative Disclosures About Market Risk,” in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008 filed with the SEC on March 13,2009.

 

**Item 4.            Controlsand Procedures**

 

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

 

Based on their evaluationas of March 31, 2009, 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.*    Our management,including our principal executive officer and principal financial officer, doesnot expect that our disclosure controls and procedures will prevent all errorand all fraud. A control system can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within Caliper have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Additionally, controls can be circumvented by the individual acts ofsome persons, by collusion of two or more people or by management override ofthe control. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.

 

*Changesin internal controls.*    There were no changes in our internal controlover financial reporting, identified in connection with the evaluation of suchinternal control that occurred during the first quarter of 2009 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

20

----

Table of Contents

 

**Part II—OTHER INFORMATION**

 

**Item 1.            LegalProceedings**

 

Commencing on June 7,2001, Caliper and three of its then officers and directors (David V. Milligan,Daniel L. Kisner and James L. Knighton) were named as defendants in threesecurities class action lawsuits filed in the United States District Court forthe Southern District of New York. The cases have been consolidated under thecaption, In re Caliper Technologies Corp. Initial Public Offering SecuritiesLitigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were filed againstapproximately 300 other public companies that conducted initial publicofferings of their common stock during the late 1990s (the “IPO Lawsuits”). On August 8,2001, the IPO Lawsuits were consolidated for pretrial purposes before UnitedStates Judge Shira Scheindlin of the Southern District of New York. Together,those cases are denominated In re Initial Public Offering Securities Litigation,21 MC 92(SAS). On April 19, 2002, a Consolidated Amended Complaint wasfiled alleging claims against Caliper and the individual defendants underSections 11 and 15 of the Securities Act of 1933, and underSections 10(b) and 20(a) of the Securities Exchange Act of 1934,as well as Rule 10b-5 promulgated thereunder. The Consolidated AmendedComplaint also names certain underwriters of Caliper’s December 1999initial public offering of common stock as defendants. The Complaint allegesthat these underwriters charged excessive, undisclosed commissions to investorsand entered into improper agreements with investors relating to aftermarkettransactions. The Complaint seeks an unspecified amount of money damages.Caliper and the other issuers named as defendants in the IPO Lawsuits moved on July 15,2002, to dismiss all claims on multiple grounds. By Stipulation and Order datedOctober 9, 2002, the claims against Messrs. Milligan, Kisner andKnighton were dismissed without prejudice. On February 19, 2003, the Courtgranted Caliper’s motion to dismiss all claims against it. Plaintiffs were notgiven the right to replead the claims against Caliper. The time to appeal thedismissal has not yet expired. In March, 2009, all of the plaintiffs,underwriters and issuers involved in this litigation entered into a new globalsettlement agreement.  This settlementagreement is still subject to approval by Judge Scheindlin, and will not beconsidered final until this approval is obtained.  The hearing for final approval of thesettlement has not yet been scheduled. The settlement agreement, if approved byJudge Scheindlin, will provide Caliper with a release of all claims against it,and will not require any payments from Caliper. The final resolution of thislitigation is not expected to have a material impact on Caliper.

 

On January 23, 2009,Caliper filed and served a patent infringement suit against ShimadzuCorporation and its U.S. subsidiary, Shimadzu Scientific Instruments, Inc.,in the United States District Court for the Eastern District of Texas. Thecomplaint was promptly served upon Shimadzu’s U.S. subsidiary.  In this suit, Caliper alleges that Shimadzu’sMCE-202 MultiNA instrument system, which performs electrophoretic separationsanalysis of nucleic acids, infringes 11 different U.S. patents owned byCaliper. Shimadzu filed an answer to this complaint on March 24,2009.  In its answer, Shimadzu deniedinfringement of any valid claim of any of the 11 patents asserted againstShimadzu by Caliper, and alleged that each patent asserted by Caliper isinvalid and/or unenforceable.  Ascheduling conference for this litigation has been scheduled for no later than May 8,2009.

 

From time to time Caliperis involved in litigation arising out of claims in the normal course ofbusiness.  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.

 

**Item 1A.         RiskFactors**

 

Our risk factors aredescribed in Part I, Item 1A of our Annual Report on Form 10-K forthe year ended December 31, 2008 filed with the SEC on March 13,2009. There have been no material changes in the risks affecting Caliper sincethe filing of such Annual Report on Form 10-K.

 

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

 

None.

 

**Item 3.            DefaultsUpon Senior Securities**

 

None.

 

**Item 4.            Submissionof Matters to a Vote of Security Holders**

 

None.

 

**Item 5.            OtherInformation**

 

None.

 

21

----

Table of Contents

 

**Item 6.            Exhibits**

 

**EXHIBITINDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                                                                     |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.1                      |       | Second Amended and  Restated Loan And Security Agreement, dated as of March 6, 2009, by and  among Caliper Life Sciences, Inc., Silicon Valley Bank, NovaScreen  Biosciences Corporation, Xenogen Corporation, Xenogen Biosciences  Corporation, and Caliper Life Sciences Ltd. |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.2                      |       | Caliper Performance  Bonus Plan.                                                                                                                                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.3                      |       | Non-Employee Director  Compensation Policy.                                                                                                                                                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 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.                                                                                      |

 

----

** *The certifications attached as Exhibits32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliperfor purposes of Section 18 of the Securities Exchange Act of 1934, asamended.

 

22

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                   | CALIPER LIFE SCIENCES,  INC. |
|------------------------|------------------------------|
|                   |                         |   |
| Date: May 8, 2009 |                         |   |
|                   | By:                          | /s/  E. KEVIN  HRUSOVSKY |
|                   |                         | E. Kevin Hrusovsky |
|                   |                         | Chief Executive Officer  and President |
|                   |                         |   |
| Date: May 8, 2009 |                         |   |
|                   | By:                          | /s/  PETER F.  MCAREE |
|                   |                         | Peter F. McAree |
|                   |                         | Senior Vice President  and Chief Financial Officer |

 

23

----

Table of Contents

 

**EXHIBITINDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                                                                     |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.1                      |       | Second Amended and  Restated Loan And Security Agreement, dated as of March 6, 2009, by and  among Caliper Life Sciences, Inc., Silicon Valley Bank, NovaScreen  Biosciences Corporation, Xenogen Corporation, Xenogen Biosciences  Corporation, and Caliper Life Sciences Ltd. |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.2                      |       | Caliper Performance  Bonus Plan.                                                                                                                                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 10.3                      |       | Non-Employee Director  Compensation Policy.                                                                                                                                                                                                                                               |
|                      |       |                                                                                                                                                                                                                                                                                      |
| 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.                                                                                      |

 

----

** *The certifications attached as Exhibits32.1 and 32.2 accompany this Quarterly Report on Form 10-Q pursuant to Section 906of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliperfor purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

24

----