Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE**

**COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **x**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                          |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                      |
| ** ** | **for  the quarterly period ended June 30, 2009.**                                                                                                                                                                         |
| ** ** | ** **                                                                                                                                                                                                                      |
| ** ** | **Or**                                                                                                                                                                                                                          |
| ** ** | ** **                                                                                                                                                                                                                      |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                         |
| ** ** | ** **                                                                                                                                                                                                                      |
| ** ** | **for the transition period from                   to                 .** |

 

**Commission file # 000-28229**

 

**CALIPER LIFE SCIENCES, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**68 Elm Street**

**Hopkinton,Massachusetts 01748**

(Address and zipcode of principal executive offices)

 

Registrant’s telephone 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  o   No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” 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

 

**NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON JULY 31,2009:  48,998,469**

 

 

 

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**CALIPER LIFE SCIENCES, INC.**

 

**TABLE OF CONTENTS**

 
| ** **                                                                                                       | **Page** |
|------------------------------------------------------------------------------------------------------------------|----------|
| PART I   FINANCIAL  INFORMATION                                                                        | 2        |
|                                                                                                             |     |
| Item 1. Financial Statements  (unaudited)                                                                   | 2        |
| Condensed Consolidated Balance  Sheets as of June 30, 2009 and December 31, 2008                       | 2        |
| Condensed  Consolidated Statements of Operations for the Three and Six Months Ended  June 30, 2009 and 2008 | 3        |
| Condensed Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 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                                         | 21       |
|                                                                                                             |     |
| Item 4.  Controls and Procedures                                                                            | 21       |
|                                                                                                             |     |
| PART II   OTHER INFORMATION                                                                            | 22       |
|                                                                                                             |     |
| Item 1. Legal  Proceedings                                                                                       | 22       |
|                                                                                                             |     |
| Item 1A. Risk Factors                                                                                            | 22       |
|                                                                                                             |     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                        | 22       |
|                                                                                                             |     |
| Item 3.  Defaults Upon Senior Securities                                                                    | 23       |
|                                                                                                             |     |
| Item 4.  Submission of Matters to a Vote of Security Holders                                                | 23       |
|                                                                                                             |     |
| Item 5. Other  Information                                                                                  | 23       |
|                                                                                                             |     |
| Item 6. Exhibits                                                                                            | 24       |
|                                                                                                             |     |
| SIGNATURES                                                                                                       | 25       |
|                                                                                                             |     |
| EXHIBIT INDEX                                                                                                    | 26       |
| Ex-31.1  Section 302 Certification of CEO                                                                   |     |
| Ex-31.2  Section 302 Certification of CFO                                                                   |     |
| Ex-32.1  Section 906 Certification of CEO                                                                   |     |
| Ex-32.2  Section 906 Certification of CFO                                                                   |     |

 

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**PART I. FINANCIAL INFORMATION**

 

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(unaudited,in thousands)**

 

**Item1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **June 30,  2009** | ** ** | **December 31, 2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** | ** **              | ** ** | ** **                      | ** ** |
| Current  assets:                                                                                                                                        |       |                    |       |                            |       |
| Cash  and cash equivalents                                                                                                                              |       | $                       | 19,964     |                            | $          | 23,667 |   |
| Marketable  securities                                                                                                                                  |       | 3,503                   |       | 3,034                           |       |
| Accounts  receivable, net                                                                                                                               |       | 25,166                  |       | 27,396                          |       |
| Inventories                                                                                                                                             |       | 14,395                  |       | 17,579                          |       |
| Prepaid  expenses and other current assets                                                                                                              |       | 2,420                   |       | 2,481                           |       |
| Total  current assets                                                                                                                                   |       | 65,448                  |       | 74,157                          |       |
| Property  and equipment, net                                                                                                                            |       | 9,948                   |       | 10,735                          |       |
| Intangible  assets, net                                                                                                                                 |       | 31,273                  |       | 34,399                          |       |
| Goodwill                                                                                                                                                |       | 22,905                  |       | 22,905                          |       |
| Other  assets                                                                                                                                           |       | 776                     |       | 882                             |       |
| Total  assets                                                                                                                                           |       | $                       | 130,350    |                            | $          | 143,078 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                          | ** ** | ** **              | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                   |       |                    |       |                            |       |
| Accounts  payable                                                                                                                                       |       | $                       | 6,223      |                            | $          | 8,377 |   |
| Accrued  compensation                                                                                                                                   |       | 6,057                   |       | 5,175                           |       |
| Other  accrued liabilities                                                                                                                              |       | 8,687                   |       | 9,725                           |       |
| Deferred  revenue and customer deposits                                                                                                                 |       | 13,296                  |       | 14,284                          |       |
| Current  portion of accrued restructuring                                                                                                               |       | 1,780                   |       | 1,806                           |       |
| Borrowings  under credit facility                                                                                                                       |       | 14,900                  |       | 14,900                          |       |
| Total  current liabilities                                                                                                                              |       | 50,943                  |       | 54,267                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 1,794                   |       | 2,670                           |       |
| Other  noncurrent liabilities                                                                                                                           |       | 8,165                   |       | 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, 48,996,919 and  48,596,233 shares issued and outstanding in 2009 and 2008, respectively |       | 49                      |       | 49                              |       |
| Additional  paid-in capital                                                                                                                             |       | 381,039                 |       | 378,919                         |       |
| Accumulated  deficit                                                                                                                                    |       | (313,110                | )          | (302,412                        | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 342                     |       | 182                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 68,320                  |       | 76,738                          |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                       | 130,350    |                            | $          | 143,078 |   |

 

*See accompanying notes.*

 

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** **

**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                                             | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                             | ** ** | **2009**                                              | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenues:                                                              |       |                                                  |       |                                                |       |   |   |   |   |
| Product  revenue                                                       |       | $                                                     | 21,499     |                                                | $          | 22,024 |   | $ | 39,808 |   | $ | 39,689 |   |
| Service  revenue                                                       |       | 7,905                                                 |       | 9,290                                               |       | 15,562 |   | 18,298 |   |
| License  fees and contract revenue                                     |       | 2,707                                                 |       | 2,717                                               |       | 5,213 |   | 5,331 |   |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Total  revenue                                                         |       | 32,111                                                |       | 34,031                                              |       | 60,583 |   | 63,318 |   |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Costs  and expenses:                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Cost  of product revenue                                               |       | 12,830                                                |       | 13,232                                              |       | 24,083 |   | 24,337 |   |
| Cost  of service revenue                                               |       | 5,331                                                 |       | 6,447                                               |       | 11,038 |   | 12,544 |   |
| Cost  of license revenue                                               |       | 310                                                   |       | 282                                                 |       | 702 |   | 566 |   |
| Research  and development                                              |       | 4,634                                                 |       | 5,041                                               |       | 9,185 |   | 10,573 |   |
| Selling,  general and administrative                                   |       | 11,264                                                |       | 12,757                                              |       | 22,449 |   | 26,690 |   |
| Amortization  of intangible assets                                     |       | 1,557                                                 |       | 2,490                                               |       | 3,114 |   | 4,979 |   |
| Restructuring  charges (credits), net                                  |       | 29                                                    |       | (27                                                 | )          | 52 |   | (20 | ) |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Total  costs and expenses                                              |       | 35,955                                                |       | 40,222                                              |       | 70,623 |   | 79,669 |   |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Operating  loss                                                        |       | (3,844                                                | )          | (6,191                                              | )          | (10,040 | ) | (16,351 | ) |
| Interest  expense, net                                                 |       | (179                                                  | )          | (203                                                | )          | (391 | ) | (358 | ) |
| Other  income (expense), net                                           |       | 66                                                    |       | (87                                                 | )          | (117 | ) | 319 |   |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Loss  before income taxes                                              |       | (3,957                                                | )          | (6,481                                              | )          | (10,548 | ) | (16,390 | ) |
| Provision  for income taxes                                            |       | (96                                                   | )          | (201                                                | )          | (150 | ) | (228 | ) |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Net  loss                                                              |       | $                                                     | (4,053     | )                                                   | $          | (6,682 | ) | $ | (10,698 | ) | $ | (16,618 | ) |
|                                                                   |       |                                                  |       |                                                |       |   |   |   |   |
| Net  loss per share, basic and diluted                                 |       | $                                                     | (0.08      | )                                                   | $          | (0.14 | ) | $ | (0.22 | ) | $ | (0.35 | ) |
| Shares  used in computing net loss per common share, basic and diluted |       | 48,806                                                |       | 47,897                                              |       | 48,716 |   | 47,790 |   |

 

*See accompanying notes.*

 

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**CALIPER LIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited,in thousands)**

 
| ** **                                                                | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                | ** ** | **2009**                                          | ** ** | **2008** | ** ** |
| **Operating activities**                                                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net  loss                                                                 |       | $                                                 | (10,698    | ) | $ | (16,618 | ) |
| Adjustments  to reconcile net loss to net cash from operating activities: |       |                                              |       |   |   |
| Depreciation  and amortization                                            |       | 4,700                                             |       | 6,880 |   |
| Stock-based  compensation expense, net                                    |       | 1,904                                             |       | 1,997 |   |
| Non-cash  restructuring (credits), net                                    |       | 52                                                |       | (20 | ) |
| Foreign  currency exchange (gains) losses                                 |       | 196                                               |       | (292 | ) |
| Changes  in operating assets and liabilities:                             |       |                                              |       |   |   |
| Accounts  receivable                                                      |       | 2,315                                             |       | 3,879 |   |
| Inventories                                                               |       | 3,230                                             |       | (1,864 | ) |
| Prepaid  expenses and other current assets                                |       | 171                                               |       | 202 |   |
| Accounts  payable and other accrued liabilities                           |       | (3,209                                            | )          | (3,348 | ) |
| Accrued  compensation                                                     |       | 829                                               |       | (1,350 | ) |
| Deferred  revenue and customer deposits                                   |       | (1,077                                            | )          | 2,004 |   |
| Other  noncurrent liabilities                                             |       | (110                                              | )          | 583 |   |
| Payments  of accrued restructuring obligations, net                       |       | (951                                              | )          | (2,002 | ) |
|                                                                      |       |                                              |       |   |   |
| Net  cash from operating activities                                       |       | (2,648                                            | )          | (9,949 | ) |
|                                                                      |       |                                              |       |   |   |
| **Investing activities**                                                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Purchases  of marketable securities                                       |       | (2,833                                            | )          | (1,933 | ) |
| Proceeds  from sales of marketable securities                             |       | 400                                               |       | — |   |
| Proceeds  from maturities of marketable securities                        |       | 2,002                                             |       | 2,536 |   |
| Other  assets                                                             |       | (4                                                | )          | 32 |   |
| Purchases  of property and equipment                                      |       | (781                                              | )          | (1,376 | ) |
|                                                                      |       |                                              |       |   |   |
| Net  cash from investing activities                                       |       | (1,216                                            | )          | (741 | ) |
|                                                                      |       |                                              |       |   |   |
| **Financing activities**                                                  | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Borrowings  under credit facility                                         |       | 7,500                                             |       | 4,000 |   |
| Payments  of credit facility                                              |       | (7,500                                            | )          | (2,000 | ) |
| Proceeds  from issuance of common stock                                   |       | 264                                               |       | 866 |   |
|                                                                      |       |                                              |       |   |   |
| Net  cash from financing activities                                       |       | 264                                               |       | 2,866 |   |
|                                                                      |       |                                              |       |   |   |
| Effect  of exchange rates on changes in cash and cash equivalents         |       | (103                                              | )          | 84 |   |
| Net  decrease in cash and cash equivalents                                |       | (3,703                                            | )          | (7,740 | ) |
| Cash  and cash equivalents at beginning of period                         |       | 23,667                                            |       | 15,709 |   |
|                                                                      |       |                                              |       |   |   |
| Cash  and cash equivalents at end of period                               |       | $                                                 | 19,964     |   | $ | 7,969 |   |

 

*See accompanying notes.*

 

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** **

**CALIPERLIFE SCIENCES, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**June 30,2009**

**(unaudited)**

 

**1.Basis of 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 consolidated financialstatements should be read in conjunction with Caliper’s Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

Operating results for thethree and six months ended June 30, 2009 are not necessarily indicative ofthe results that may be expected for the full fiscal year or for any futureperiods. For example, the Company typically experiences higher revenue in thefourth quarter of its fiscal year due to spending patterns of its customers,and may realize significant periodic fluctuations in license and contractrevenue depending on the timing and circumstances of underlying individualtransactions.

 

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 June 30, 2009, Caliper has a totalcash, cash equivalents and marketable securities balance of $23.5 million andan accumulated deficit of $313.1 million.  On March 6, 2009, Caliperentered into a Second Amended and Restated Loan and Security Agreement (the “CreditFacility”) with a bank. The accompanying financial statements assume thatCaliper’s cash, cash equivalents and marketable securities balance at June 30,2009 and access to available capital under its Credit Facility are sufficientto fund operations through at least November 30, 2010, based upon itscurrent operating plan. Caliper’s ability to fund its operations will depend onmany factors, including particularly its ability to increase product andservice sales, control margins and operating costs and maintain its borrowingcapacity and compliance with the covenants of its Credit Facility. As more fullydescribed in Note 8, the amount of available capital that Caliper is able toaccess under the Credit Facility at any particular time is dependent upon aborrowing base formula, which ultimately relies on the underlying performanceof the business. The Credit Facility also contains certain rights which, ifexercised by the lender, could result in any or all of the following: anacceleration of the maturity date of any outstanding debt, a reduction inborrowing capacity, and a termination of advances. If economic conditionsworsen and Caliper’s business performance is not as strong as anticipated, thenCaliper could experience an event of default or a reduction in its borrowingcapacity under the Credit Facility, which if not cured to the bank’ssatisfaction, could potentially have a material adverse impact on its abilityto access capital under its Credit Facility in order to fund planned 2009operations. If such events were to occur, Caliper’s business would be adverselyaffected.

 

***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.

 

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

 

Statement of FinancialAccounting Standards (“SFAS”) No. 157,*Fair Value Measurements* (“SFAS No. 157”) was adopted by Caliperin the first quarter of 2009 without material impact to our nonfinancial assetsand liabilities.

 

Pursuant to SFAS No. 157,Caliper measures fair value at the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date.  The Statement prioritizes theassumption that market participants would use in pricing the asset or liability(the “inputs”) into a three-tier fair value hierarchy.  This fair valuehierarchy gives the highest priority (Level 1) to quoted prices in activemarkets for identical assets or liabilities and the lowest priority (Level 3)to unobservable inputs in which little or no market data exists, requiringcompanies to develop their own assumptions.  

 

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

 

On June 30, 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             |       | $                            | 4,466      |                                                                      | $          | 4,466                                         |       | $                                               | —     |   | $ | — |   |
| Commercial  paper               |       | —                       |       | —                                                                    |       | —                                        |       | —                                          |       |
| U.S.  corporate notes and bonds |       | 1,033                        |       | —                                                                    |       | 1,033                                         |       | —                                          |       |
| Other                           |       | 2,447                        |       | —                                                                    |       | 2,447                                         |       | —                                          |       |
| Total                           |       | $                            | 7,946      |                                                                      | $          | 4,466                                         |       | $                                               | 3,480      |   | $ | — |   |

 

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.

 

***Income Taxes***

 

Caliper accounts forincome taxes in accordance with SFAS 109,*Accounting for Income Taxes*, and accounts for uncertainty in incometaxes recognized in financial statements in accordance with FASB InterpretationNo. 48,*Accounting for Uncertainty inIncome Taxes* (“FIN 48”)*.*  FIN 48 prescribes a comprehensive model forthe recognition, measurement, and financial statement disclosure of uncertain taxpositions. Unrecognized tax benefits are the differences between tax positionstaken, or expected 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 thesix-month period ended June 30, 2009 and 2008, Caliper’s tax provisionsprimarily relate to foreign taxes in jurisdictions where its wholly-ownedsubsidiaries are profitable.

 

***Goodwill***

 

In accordance with SFAS No. 141,*Business Combinations*, and SFAS No. 142,*Goodwill and Other Intangible Assets*,goodwill and certain other intangibles are not amortized but are insteadsubject to periodic impairment assessments. Caliper performs a test for theimpairment of goodwill annually following the related acquisition, or morefrequently if events or circumstances indicate that goodwill may be impaired.Because Caliper has a single operating segment, which is the sole reportingunit, Caliper performs this test by comparing the fair value of Caliper withits carrying value, including goodwill. If the fair value exceeds the carryingvalue, goodwill is not impaired. If the book value exceeds the carrying value,Caliper would calculate the potential impairment loss by comparing the impliedfair value of goodwill with the book value of goodwill. If the implied fairvalue of goodwill is less than the book value, an impairment charge would berecorded equal to the difference. Caliper recorded a goodwill impairment chargeof $43.4 million in 2008, as described more fully in Note 7 to ourconsolidated financial statements in our Annual Report on Form 10-K forthe year ended December 31, 2008 filed with the SEC on March 13,2009.

 

As of June 30,2009, Caliper analyzed its goodwill for indicators of impairment, and concludedthat there were none.

 

***Recent Accounting Pronouncements***

 

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 in such an arrangement topresent the result of activities for which they act as the principal on a grossbasis and report any payments received from (or payments made to) othercollaborators based on other applicable GAAP or, in the absence of otherapplicable GAAP, based on analogy to authoritative accounting literature or areasonable, rational, and consistently applied accounting policy election. Caliperadopted EITF No. 07-1 during the first quarter of 2009.  The effectof adoption did not have a material impact on Caliper’s financial statementsand therefore did not require retroactive application as Caliper’scollaborative agreements do not incorporate such revenue- and cost-sharingarrangements.

 

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In December 2007,the FASB issued SFAS No. 141(R),*Business Combinations*. This Standard will require an acquiringcompany to measure all assets acquired and liabilities assumed, includingcontingent considerations and all contractual contingencies, at fair value asof the acquisition date. In addition, an acquiring company is required tocapitalize In-Process Research and Development and either amortize it over thelife of the product, or write it off if the project is abandoned or impaired.The Standard is effective for transactions occurring on or after January 1,2009.

 

In April 2009, theFASB 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.

 

In April 2009, theFASB issued Staff Position No. 115-2 (“FSP FAS 115-2”) and Staff Position No. 124-2(“FSP FAS 124-2”),*Recognition andPresentation of Other-Than-Temporary Impairments*, which amends theother-than-temporary impairment guidance for debt and equity securities. FSPFAS 115-2 and FSP FAS 124-2 shall be effective for interim and annual reportingperiods ending after June 15, 2009. Caliper believes that adoption willnot have a material impact on its results of operations, financial position orcash flows.

 

In April 2009, theFASB issued FSP Issue No. FAS No. 157-4 (“FSP FAS 157-4”),*Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions that are not Orderly* . FSP FAS No. 157-4provides additional guidance for estimating fair value in accordance with SFAS No. 157.FSP No. 157-4 is effective for reporting periods ending after June 15,2009.  Caliper believes that adoption will not have a material impact onits results of operations, financial position or cash flows.

 

In May 2009, theFASB issued SFAS No. 165, *Subsequent Events*.  SFAS No. 165 provides authoritativeaccounting literature for the evaluation and disclosure of subsequentevents.  SFAS No. 165 is effectivefor reporting periods ending after June 15, 2009.  Caliper believes that adoption will not havea material impact on its results of operations, financial position or cash flows.

 

**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 six months ended June 30,2008 there was $4.8 million in revenue attributable to the PDQ product line inthe accompanying statement of operations.

 

***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 six months ended June 30, 2009 and 2008 there was $0.3 million and$1.5 million, respectively, in revenue attributable to the AutoTrace productline in the accompanying statement of operations.  The $0.3 million of2009 revenue included remaining revenues associated with the transitionservices arrangement that ended during the first quarter of 2009.

 

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**3.Inventories**

 

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

 
| ** **      | ** ** | **June 30,  2009** | ** ** | **December 31,******** 2008** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------------------|------------|
| Raw  material   |       | $                       | 7,575      |                                    | $          | 10,173 |   |
| Work-in-process |       | 1,014                   |       | 907                                     |       |
| Finished  goods |       | 5,806                   |       | 6,499                                   |       |
| Inventories     |       | $                       | 14,395     |                                    | $          | 17,579 |   |

 

**4.Intangibles**

 

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

 
| ** **                                   | ** ** | **June 30,  2009** | ** **   | **December 31,********2008** | ** ** |
|----------------------------------------------|------------|-------------------------|--------------|-----------------------------------|------------|
| Core  technologies                           |       | $                       | 20,159       |                              | $          | 21,880 |   |
| Developed  and contract technologies         |       | 4,889                   |         | 5,884                             |       |
| Customer  contracts, lists and relationships |       | 3,327                   |         | 3,724                             |       |
| Trade  names                                 |       | 2,898                   |         | 2,898                             |       |
| Other  intangibles                           |       | —                  |         | 13                                |       |
|                                         |       | $                       |  31,273 |                              | $          | 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,*Accounting for 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, andtelephone-based technical support. Factors that affect Caliper’s warrantyliability include the number of installed units, historical and anticipatedrates of warranty claims, and cost per claim. Caliper periodically assesses theadequacy of its recorded warranty liabilities and adjusts amounts as necessary.

 

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

 
| ** **                           | ** ** | **Six  Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                      | ** ** | **2008** | ** ** |
| Balance  at beginning of period      |       | $                                             | 1,362      |   | $ | 1,684 |   |
| Warranties  issued during the period |       | 1,016                                         |       | 555 |   |
| Settlements  made during the period  |       | (811                                          | )          | (737 | ) |
| Balance  at end of period            |       | $                                             | 1,567      |   | $ | 1,502 |   |

 

**6.Comprehensive Loss**

 

Comprehensive loss is asfollows (in thousands):

 
| ** **                                       | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                       | ** ** | **2009**                                              | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net  loss                                        |       | $                                                     | (4,053     | )                                                   | $          | (6,682 | ) | $ | (10,698 | ) | $ | (16,618 | ) |
| Unrealized  gain (loss) on marketable securities |       | 31                                                    |       | (3                                                  | )          | 38 |   | (11 | ) |
| Foreign  currency translation gain (loss)        |       | 483                                                   |       | (198                                                | )          | 121 |   | 248 |   |
|                                             |       |                                                  |       |                                                |       |   |   |   |   |
| Comprehensive  loss                              |       | $                                                     | (3,539     | )                                                   | $          | (6,883 | ) | $ | (10,539 | ) | $ | (16,381 | ) |

 

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** **

**7.Accrued Restructuring Costs**

 

Caliper’s accruedrestructuring costs as of June 30, 2009 were comprised of futurecontractual obligations pursuant to facility operating leases covering certainidle space as further described below.  The following table summarizeschanges in accrued restructuring obligations during the six months ended June 30,2009 (in thousands):

 
|                                  |   | **Total** |   |
|---------------------------------------|--------|-----------|--------|
| Balance,  December 31, 2008      |   | $         | 4,476  |   |
| Restructuring  charge                 |   | —    |   |
| Adjustments  to estimated obligations |   | (3        | )      |
| Interest  accretion                   |   | 52        |   |
| Payments                              |   | (951      | )      |
| Balance,  June 30, 2009          |   | 3,574     |   |
|                                       |        |           |        |  |

 

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

 
| **Years Ended December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2009  (remainder of fiscal year)            |       | $          | 976        |   |
| 2010                                        |       | 1,781      |       |
| 2011                                        |       | 420        |       |
| 2012                                        |       | 433        |       |
| 2013                                        |       | 406        |       |
| Thereafter                                  |       | —     |       |
| Total  minimum payments                     |       | 4,016      |       |
| Less:  Amount representing interest         |       | (442       | )          |
| Present  value of future payments           |       | 3,574      |       |
| Less:  Current portion of obligations       |       | 1,780      |       |
| Non-current  portion of obligations         |       | $          | 1,794      |   |

 

The restructuringobligations reflected above resulted from the following actions:

 

During the first quarterof 2008, Caliper initiated the consolidation of its West Coast business operationsto reduce overall facility costs and improve productivity and effectiveness ofits research and development spending. The consolidation plan entailedabandoning approximately 36,500 square feet of space in Mountain View,California, which was completed in September 2008. This partial facilityabandonment was accounted for in accordance with SFAS No. 146,*Accounting for Costs Associated with Exit orDisposal Activities*, pursuant to which Caliper recorded a liabilityequal to the fair value of the remaining lease payments as of the cease-usedate. Fair value was determined based upon the discounted present value ofremaining lease rentals (using a discount rate of 5.5%) for the space no longeroccupied, considering future estimated sublease income, estimated broker feesand required tenant improvements. Caliper calculated the fair value as$4.6 million and recorded this amount within restructuring charges in thesecond half of fiscal 2008.  The lease term expires November 30,2013.

 

Caliper also assumed a$1.0 million obligation related to Xenogen’s St. Louis, Missourifacility. This facility had been fully abandoned by Xenogen prior to itsacquisition by Caliper and was previously accounted for by Xenogen inaccordance 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 longeroccupied, net of sublease income expected to be derived from the property. Thelease term expires April 30, 2010.

 

**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 borrowingsunder the Credit Facility accrue interest at a floating annual rate equal tothe Base Rate (as hereafter defined) plus one percent if Caliper’s unrestrictedcash held at the bank exceeds or is equal to $20 million, or the Base Rate plustwo percent if Caliper’s unrestricted cash held at the bank is below $20million.  The “Base Rate” is the greater of:  (i) the bank’sannounced “prime rate” and (ii) four and one-half of one percent(4.5%).  Under the Credit Facility, Caliper is permitted to borrow up to$25 million, subject to a borrowing base limit consisting of (a) 80% of eligibleaccounts receivable plus (b) the lesser of 70% of Caliper’s unrestrictedcash at the bank or $12 million; provided that on each of the first threebusiness days and each of the last three business days of each fiscal quarter,the borrowing base is (a) 80% of eligible accounts receivable plus (b) thelesser of 90% of Caliper’s unrestricted cash at the bank or $12 million.Eligible

 

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accounts receivable donot include internationally billed receivables, unbilled receivables, andreceivables aged over 90 days from invoice date. The Credit Facilitymatures on November 30, 2010.  The Credit Facility serves as a sourceof capital for ongoing operations and working capital needs.

 

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 June 30, 2009,Caliper was in compliance with its covenants.  The Credit Facility alsoincludes a net liquidity clause.  Under this clause, if Caliper’s totalcash, cash equivalents and marketable securities, held at the bank, net of debtoutstanding under the Credit Facility, are less than $0.5 million (the “NetLiquidity Limit”), the bank will apply all of Caliper’s accounts receivablecollections, received within its lockbox arrangement with the bank, to theoutstanding principal.  Such amounts would be eligible to be re-borrowedby Caliper subject to the borrowing base limit.

 

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 thebank will exercise these rights as long as Caliper is meeting its covenants andachieving its forecasts.  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, including the occurrence of a materialadverse change, and based on such default the bank were to declare alloutstanding obligations immediately due and payable, Caliper may be required tosignificantly reduce its costs and expenses, sell additional equity or debtsecurities, or restructure portions of its business, which could involve thesale of certain business assets.  In such case, the sale of additionalequity or convertible debt securities may result in additional dilution toCaliper’s stockholders.  Furthermore, additional capital may not beavailable on terms favorable to Caliper, if at all.  In this circumstance,if Caliper could not significantly reduce its costs and expenses, obtainadequate financing on acceptable terms when such financing is required orrestructure portions of its business, Caliper’s business would be adverselyaffected.  In addition, the amount of available capital that Caliper isable to access under the Credit Facility at any particular time is dependentupon the borrowing base formula, which relies on the ability of its business togenerate accounts receivable that are eligible according to the CreditFacility.  If economic conditions worsen and its business performance isnot as strong as anticipated, then Caliper could experience an event of defaultor a reduction in borrowing capacity under the Credit Facility, which if notcured to the bank’s satisfaction, could potentially have a material adverseimpact on Caliper’s ability to access capital under its Credit Facility inorder to fund its operations.  If such events were to occur, Caliper’sbusiness would be adversely affected.

 

Outstanding obligationsunder the Credit Facility were $14.9 million as of June 30, 2009. The Credit Facility is classified as short-term consistent with Caliper’sintent to utilize the Credit Facility to fund operations and working capitalneeds on a revolving loan basis, including the mechanics of the Net LiquidityLimit described above.  Interest is due monthly and has ranged from 4.5%to 7.5% in 2009 and 2008.

 

**9.Legal Proceedings**

 

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, underwritersand issuers involved in this litigation entered into a new global settlementagreement, and in July 2009 notices of the proposed settlement were mailedto members of the plaintiff class.  This settlement agreement is stillsubject to approval by Judge Scheindlin, and will not be considered final untilthis approval is obtained.  The hearing for final approval of thesettlement has been scheduled for September 10, 2009. The settlementagreement, if approved by Judge Scheindlin, will provide Caliper with a releaseof all claims against it, and will not require any payments from 

 

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Caliper. The final resolutionof this litigation is not expected to have a material impact on Caliper.

 

On January 23, 2009,Caliper filed a patent infringement suit against Shimadzu Corporation and itsU.S. subsidiary, Shimadzu Scientific Instruments, Inc., in the UnitedStates District Court for the Eastern District of Texas. The complaint waspromptly served upon Shimadzu’s U.S. subsidiary, and Caliper is in the processof serving the complaint on Shimadzu Corporation in Japan.  In this suit,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 its answer, Shimadzu denied infringementof any valid claim of any of the 11 patents asserted against Shimadzu byCaliper, and alleged that each patent asserted by Caliper is invalid and/orunenforceable.   Caliper filed itspreliminary infringement contentions with the Court on February 10, 2009,and Shimadzu filed its preliminary invalidity contentions with the Court on July 23,2009.  The Markman hearing for this casehas not yet been scheduled by the Court.

 

On July 13, 2009,HandyLab, Inc., a private company based in Ann Arbor, Michigan, filed acomplaint against Caliper in United States District for the Court EasternDistrict of Michigan, Southern Division, seeking declaratory judgment thateither (i) HandyLab’s RaiderTM and JaguarTM systems and related consumableproducts do not infringe 13 patents owned or licensed by Caliper and/or (ii) theclaims of the 13 patents identified in HandyLab’s complaint are invalid.  The complaint filed by HandyLab did notcontain any other claims against Caliper. On August 6, 2009, HandyLab and Caliper entered into a Standstill andTolling Agreement pursuant to which the parties agreed to postpone the formalservice of the complaint filed by HandyLab or the filing or commencement of newclaims concerning HandyLab’s products or either party’s microfluidic technologyfor an agreed upon period of time while the parties discuss a potentiallicensing arrangement.

 

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, whenthe 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 SFAS No. 123R,*Share-Based Payment*, which requires allshare-based payments, including grants of stock options, to be recognized inthe income statement as an operating expense, based on their fair values.Caliper estimates the fair value of each option award on the date of grantusing a Black-Scholes-Merton based option-pricing model.

 

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

 
| ** **                           | ** ** | **Three Months Ended********June 30** | ** ** | **Six Months Ended********June 30** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                             | ** ** | **2008**                                           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Cost  of product revenue             |       | $                                                    | 82         |                                               | $          | 84 |   | $ | 159 |   | $ | 165 |   |
| Cost  of service revenue             |       | 29                                                   |       | 21                                                 |       | 44 |   | 42 |   |
| Research  and development            |       | 165                                                  |       | 95                                                 |       | 295 |   | 188 |   |
| Selling,  general and administrative |       | 713                                                  |       | 787                                                |       | 1,406 |   | 1,602 |   |
| Total                                |       | $                                                    | 989        |                                               | $          | 987 |   | $ | 1,904 |   | $ | 1,997 |   |

 

On June 2, 2009,Caliper’s stockholders approved a new 2009 Equity Incentive Plan (the “2009Equity Incentive Plan”), and Caliper reserved an aggregate of 10 million sharesof common stock for issuance pursuant to the 2009 Equity Incentive Plan. The2009 Equity Incentive Plan replaced Caliper’s 1999 Equity Incentive Plan (the “1999Plan”) and 1999 Non-Employee Directors’ Equity Incentive Plan (the “1999Directors’ Plan” and, collectively with the 1999 Plan, the “Existing Plans”),which were due to terminate on September 30, 2009. Collectively, the 2009Equity Incentive Plan and Existing Plans are referred to as the “Plans.”  The Existing Plans are described inNote 12 to the consolidated financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2008 filedwith the SEC on March 13, 2009.  The2009 Equity Incentive Plan provides for the grant of incentive stock options,nonqualified stock options, restricted stock, restricted stock units, and othertypes of stock-based awards to officers, employees, non-employee directors andconsultants. Of the 10 million shares reserved under the 2009 Equity IncentivePlan, Caliper has established a 2.5 million share limit on the number ofshares that may be granted as “full value” awards. A full value award is anaward which is a one-for-one common stock equivalent, such as a restrictedstock grant that does not require the 

 

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individual to pay apurchase or exercise price to receive the shares of common stock.  The 2009 Equity Incentive Plan has a ten-yearterm through June 2, 2019, and stock options granted under the 2009 EquityIncentive Plan have a maximum term of ten years.

 

As of June 30, 2009,an aggregate of 10,881,463 shares of the Company’s common stock were subject tooutstanding awards previously granted under the Existing Plans. To the extentthat any of these awards terminate, expire or lapse, the shares subject to suchterminated awards will not become available for issuance under either theExisting Plans or the 2009 Equity Incentive Plan.  No new equity awards will be made under theExisting Plans.

 

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.

 
| ** **                              | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                          | ** ** | **2008** | ** ** |
| Expected  volatility (%)                |       | 75-91                                             |       | 40-43 |   |
| Risk-free  interest rate (%)            |       | 1.60-1.95                                         |       | 2.20-3.20 |   |
| Expected  term (years)                  |       | 3.4-4.5                                           |       | 3.4-4.2 |   |
| Expected  dividend yield (%)            |       | —                                            |       | — |   |
| Weighted  average grant date fair value |       | $                                                 | 0.55       |   | $ | 1.47 |   |
|                                         |            |                                                   |            |  |  |  |  |

 

***Options and Restricted Stock Activity***

 

A summary of stock optionand restricted stock activity under the Plans as of June 30, 2009, andchanges during the six months then ended is as follows:

 
| **Stock Options**                             | ** ** | **Shares** | ** ** | **Weighted********Average********Exercise********Price** | ** ** | **Weighted********Average********Remaining********Contractual********Term** | ** ** | **Aggregate********Intrinsic Value** | ** ** |
|----------------------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                         | ** ** | ** ** | ** ** | ** **                                               | ** ** | ** **                                                                  | ** ** | **(in thousands)**                   | ** ** |
| ** **                                         | ** ** | ** ** | ** ** | ** **                                               | ** ** | ** **                                                                  | ** ** | ** **                                | ** ** |
| Outstanding  at December 31, 2008             |       | 7,666,461  |       | $                                                        | 5.45       |                                                                        | 6.35       |                                      | $          | 567 |   |
| Granted                                            |       | 1,635,754  |       | 1.33                                                     |       | —                                                                      |       | —                                    |       |
| Exercised                                          |       | (22,598    | )          | 0.97                                                     |       | —                                                                      |       | 3                                         |       |
| Canceled                                           |       | (670,996   | )          | 4.76                                                     |       | —                                                                      |       | —                                    |       |
| Outstanding  at June 30, 2009                 |       | 8,608,621  |       | $                                                        | 4.73       |                                                                        | 6.86       |                                      | $          | 731 |   |
| Exercisable  at June 30, 2009                 |       | 5,084,817  |       | $                                                        | 5.92       |                                                                        | 5.39       |                                      | $          | 4 |   |
| Vested  and expected to vest at June 30, 2009 |       | 8,439,403  |       | $                                                        | 4.76       |                                                                        | 6.82       |                                      | $          | 916 |   |

 
| **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                                               |       | 1,848,570  |       | 0.84                                                                                          |       |
| Vested                                                |       | (173,283   | )          | 4.79                                                                                          |       |
| Cancelled                                             |       | (4,165     | )          | 2.82                                                                                          |       |
| Outstanding  and non-vested at June 30, 2009     |       | 2,272,842  |       | 1.64                                                                                          |       |
|                                                       |            |            |            |                                                                                               |            |  |

 

The total fair value ofrestricted stock that vested during the six months ended June 30, 2009 wasapproximately $0.8 million.  As of June 30,2009, there was $6.2 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 2.2 years.

 

***Common Shares Outstanding***

 

During the six monthsended June 30, 2009, Caliper issued 400,686 shares of common stock as aresult of purchases under Caliper’s employee stock purchase plan, and activityrelated to options and vesting of restricted stock.

 

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***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********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                               | ** ** | **2009**                                              | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Basic  and diluted                                                                                                                                       |       | 48,806                                                |       | 47,897                                              |       | 48,716 |   | 47,790 |   |
| Anti-dilutive  common stock equivalents excluded from calculation of diluted net loss per  share (prior to the application of the treasury stock method) |       | 17,055                                                |       | 14,740                                              |       | 17,055 |   | 14,740 |   |

 

**11.Subsequent Event**

 

In July 2009,Caliper abandoned approximately 19,000 square feet of its Hopkinton, Massachusettsfacilities.  This facility consolidationwas due to the product line divestitures completed in the fourth quarter of2008 and continued efforts to control and/or to reduce operating costs.  Caliper expects to record a restructuringcharge of approximately $1.0 million related to this action in the thirdquarter of 2009.  This partial facilityabandonment will be accounted for in accordance with SFAS No. 146, *Accounting for Costs Associated with Exit or Disposal Activities*,pursuant to which Caliper will record a liability equal to the fair value ofthe remaining lease payments as of the cease-use date.  Fair value was determined based upon thediscounted present value of remaining lease payments (using a discount rate of6.5%) for the space no longer occupied, considering future estimated subleaseincome, estimated broker fees and required tenant improvements.  Caliper calculated the fair value based onthe best known assumptions at the date of this filing.  The amount of the charge could change if theassumptions used to calculate the fair value of the liability change betweenthe date of this filing and the date that we record the charge in accordancewith SFAS No. 146.  The lease termexpires December 31, 2015.

 

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**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 June 30, 2009 and for the three and six months ended June 30,2009 should be read in conjunction with our financial statements included inthis Quarterly Report on Form 10-Q and Management’s Discussion and Analysisof Financial Condition and Results of Operations and our financial statementsincluded 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 assaydevelopment and discovery services enable researchers to better understand thebasis for disease and more effectively discover safe and effective drugs. Ourstrategy is to transform drug discovery and development by offeringtechnologies and services that ultimately enhance the ability to predict theeffects that new drug candidates will have on humans. Our offerings leverageour extensive portfolio of molecular imaging, microfluidics, automation andliquid handling technologies, and scientific applications expertise to addresskey opportunities and challenges in the drug discovery and development process—namely,the complex and costly process 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 believe our enablingofferings in both the in vitro and in vivo testing arenas, and a uniquestrategy of enhancing the “bridge” or linkages between in vitro, in vivo andthe clinic in order to optimize the cost of the experiment versus the clinicalinsight gained, allow us to address growing, unmet needs in the market anddrive 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—Imaging, DiscoveryResearch (Research), and Caliper Discovery Alliances and Services (CDAS)—withthe goal of creating a more scalable infrastructure while putting increasedfocus on growth and profitability.

 

·                     The Imaging business area is focused onpreclinical imaging, where Caliper believes it holds a global leadershipposition. Principal activities of this business area include the expansion ofthe IVIS imaging instrument and related reagent product lines, development ofnew therapeutic area applications and facilitating additional imagingmodalities.

·                 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

 

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preparationand analysis for genomics, proteomics, diagnostics, cellular screening andforensics.

·                 The CDASbusiness area is responsible for expanding drug discovery collaborations andalliances, and increasing sales of drug discovery services. The focus of CDASis to capitalize on market “outsourcing” trends, and to offer complementaryservices to Caliper’s Imaging and Research platform solutions.

 

***Second Quarter Overview***

 

Ourrevenues during the three months ended June 30, 2009 were $32.1 millioncompared to $34.0 million for the three months ended June 30, 2008. Divestitures of the PDQ and AutoTrace product lines in the fourth quarter of2008 and foreign currency translation negatively impacted comparative revenuesby $3.3 million, or 10%, and $1 million, or 3%, respectively, in the secondquarter of 2009.  On an “organic” growth basis (i.e., excluding theeffects of the divested product lines and exchange rate fluctuations uponrevenues), we experienced revenue growth of 8% in the second quarter of 2009compared to the same period in 2008 led by strong Imaging growth.

 

Thetable below provides a reconciliation of our GAAP basis revenue to pro formarevenue results for the quarters ended June 30, 2009 and 2008, aftergiving effect to our divestures of the PDQ and AutoTrace product lines duringthe fourth quarter of 2008. We believe this is a useful measure in evaluatingrevenue performance between comparative periods; however, these non-GAAPcomparisons are not intended to substitute for GAAP financial measures.

 
| ** **    | ** ** | **Quarter  Ended June 30,** | ** ** | ** **              | ** ** | ** **                             | ** ** |
|---------------|------------|----------------------------------|------------|-------------------------|------------|----------------------------------------|------------|
| ** **    | ** ** | ** **                       | ** ** | ** **              | ** ** | **Non-GAAP Adjustments (1)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **    | ** ** | **GAAP**                         | ** ** | **(in thousands)** | ** ** | **Non-GAAP**                           | ** ** | **GAAP** | ** ** | **Non-GAAP** | ** ** |
| ** **    | ** ** | **2009**                         | ** ** | **2008**                | ** ** | **2009**                               | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** | **% Chg** | ** ** | **% Chg** | ** ** |
| Research      |       | $                                | 15,082     |                    | $          | 18,226                                 |       | $ | — |   | $ | (3,299 | ) | $ | 15,082 |   | $ | 14,927 |   | (17 | )% | 1 | % |
| Imaging       |       | 12,906                           |       | 11,016                  |       | —                                 |       | — |   | 12,906 |   | 11,016 |   | 17 | % | 17 | % |
| CDAS          |       | 4,123                            |       | 4,789                   |       | —                                 |       | — |   | 4,123 |   | 4,789 |   | (14 | )% | (14 | )% |
| Total Revenue |       | $                                | 32,111     |                    | $          | 34,031                                 |       | $ | — |   | $ | (3,299 | ) | $ | 32,111 |   | $ | 30,732 |   | (6 | )% | 4 | % |

 

(1)                 For purposes of comparinggrowth rates for each of the three principal areas of our business, the abovenon-GAAP table reconciliations exclude revenues related to the PDQ andAutoTrace product lines divested in November 2008. We anticipate nofurther revenue from either of the former PDQ or AutoTrace product lines in2009.

 

*RevenueHighlights by Strategic Business Unit*

 

Researchrevenues (excluding revenue of divested product lines), which are comprisedprimarily of microfluidics and laboratory automation products and services,increased by 1% on a non-GAAP basis (or 5% after negative foreign currencyeffects) to $15.1 million during the second quarter of 2009 from $14.9 millionduring the second quarter of 2008.  Research growth was strong, primarilydue to increased sales of our proprietary EZ Reader platform, which was aresult of continued strong adoption of our ProfilerPro plates in response toindustry demand for rapid enzymatic profiling applications and medicinalchemistry lead optimization research, and sales of our proprietary LabChip GXinstrument, which we believe is the “best-in-class” proprietary solution forcharacterizing proteins in the fast growing biologicals market.

 

Imagingrevenues increased by 17% (or 21% after adjusting for negative foreign currencyeffects) to $12.9 million during the second quarter of 2009 from $11.0 millionduring the second quarter of 2008.  Imaging growth was driven by continuedstrong global demand for our IVIS instruments and accessories, reagents andservices.

 

CDASrevenues decreased by 14% to $4.1 million during the second quarter of 2009from $4.8 million during the second quarter of 2008. The net decrease resultedfrom the completion of a government services contract, which ended in 2008,partially offset by commercial service revenue growth as outsourced trends forprofiling services continue to be positive. We are anticipating an overall improving trend within CDAS in the secondhalf of 2009, as the result of our anticipated receipt of an additional taskorder under the Environmental Protection Agency’s ToxCast program during thethird or fourth quarter of 2009.

 

*Second Quarter Financial Performance*

 

Totalgross margin increased by approximately 1% during the second quarter of 2009compared to the same period in 2008 primarily due to improved service marginsof 2%, which were driven primarily by reductions in our instrument servicescost structure.

 

Operatingexpenses (research and development plus selling, general and administrativeexpenses) decreased by 11% to $15.9 million during the second quarter of 2009from $17.8 million in the second quarter of 2008.  This reduction included$1.5 million of selling, general and administrative expense reduction and $0.4million of research and development expense reduction resulting fromstreamlining and cost-reduction initiatives implemented throughout 2008. Of the overall reduction, approximately $0.3 million related to the divestedproduct lines and $0.3 million related to the effects of exchange ratemovements.

 

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Netloss narrowed by $2.6 million, or 39%, to $4.1 million ($0.08 per share) duringthe second quarter of 2009 from $6.7 million ($0.14 per share) during thesecond quarter of 2008.  The overall reduction in net loss reflected thebenefit of cost reductions implemented in 2008 to coincide with our strategicreconfiguration around our high growth proprietary products and services. Theeffect of foreign exchange rates on net loss was approximately 1% due tooffsetting local currency revenues and expenses.

 

**Critical Accounting Policies andEstimates**

 

Thecritical accounting policies that we believe impact significant judgments andestimates used in the preparation of our consolidated financial statementspresented in this report are described in our Management’s Discussion andAnalysis of Financial Condition and Results of Operations and in the Notes tothe Consolidated Financial Statements, each included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008 filed with the SEC on March 13,2009.

 

**Results of Operations for the Three and Six MonthsEnded June 30, 2009**

 

Operatingresults for the six months ended June 30, 2009 are not necessarilyindicative of the results that may be expected for the year ending December 31,2009. For example, we typically experience higher revenues in the fourthquarter of our fiscal year as a result of the capital spending patterns of ourcustomers.

 

***Revenue***

 
| ** **                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                        | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**           | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **$ Change** | ** ** | **%  Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **$ Change** | ** ** | **%  Change** | ** ** |
| Product revenue                   |       | $                                | 21,499     |                           | $          | 22,024 |   | $ | (525 | ) | (2 | )% | $ | 39,808 |   | $ | 39,689 |   | $ | 119 |   | — | % |
| Service revenue                   |       | 7,905                            |       | 9,290                          |       | (1,385 | ) | (15 | )% | 15,562 |   | 18,298 |   | (2,736 | ) | (15 | )% |
| License fees and contract revenue |       | 2,707                            |       | 2,717                          |       | (10 | ) | — | % | 5,213 |   | 5,331 |   | (118 | ) | (2 | )% |
|                              |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Revenues                    |       | $                                | 32,111     |                           | $          | 34,031 |   | $ | (1,920 | ) | (6 | )% | $ | 60,583 |   | $ | 63,318 |   | $ | (2,735 | ) | (4 | )% |

 

*Product Revenue.    *Product revenuedecreased $0.5 million during the three months ended June 30, 2009,compared to the same period in 2008 due primarily to revenues of $2.1 millionfrom divested product lines that were included in our second quarter 2008revenues.  The increase in productrevenues from ongoing product lines was primarily related to Imaging productsales, which increased by $1.6 million, or approximately 21%, compared to thesecond quarter of 2008.  This increase was due to a 6% increase in IVISinstrument unit placements compared to the second quarter of 2008, as well as a43% increase in reagent sales related to the IVIS product lines. The IVIS instrumentproduct mix during the second quarter of 2009 was more heavily comprised ofIVIS Spectrum and Kinetic instruments, resulting in a higher average sellingprice of total units sold.   TotalResearch product sales of ongoing product lines were relatively unchangedduring the second quarter of 2009 compared to the same quarter in 2008.  However, within Research, microfluidicproduct revenues increased by $2.3 million, or 64%, while automation productrevenues decreased by $2.3 million, or 26%. The increase in microfluidic revenues during the three months ended June 30,2009, compared to the same period in 2008, was primarily due to (a) a $1.4million increase in sales of our EZ Reader platform, which was a result ofcontinued adoption of our ProfilerPro plates for rapid kinase profiling, aswell as favorable timing of initial instrument sales within the quarter, (b) a$0.5 million increase in our LabChip GX and LabChip GXII microfluidic benchtopinstruments (the “LabChip GX series”), and (c) $0.4 million from continuedgrowth in revenues from microfluidic consumables (chips, kits and reagents)within our direct sales channel, which increased by 30% within the 2008period.  The decrease in automationproduct revenues during the three months ended June 30, 2009, compared tothe same period in 2008, was primarily due to a $1.8 million decrease inrevenue from sales of our Staccato Automated Workstation instruments, which wasa result of a specific sale in 2008 that resulted in $1.4 million in productrevenues within the period, with the remaining decrease resulting primarilyfrom lower parts and accessories sales.

 

Productrevenue increased by $0.1 million during the six months ended June 30,2009, compared to the same period in 2008, including a decline of $3.4 millionfrom divested product lines. The resulting $3.5 million increase from ongoingproduct lines during the 2009 period included a $2.4 million, or 17%, increasein Imaging product sales compared to the six months ended June 30,2008.  The Imaging increase was due to a 15% increase in IVIS instrumentplacements as well as a 27% increase in reagent sales related to the IVISproduct lines. The increase in product revenues also included a $1.1 million,or 5%, increase in Research product sales compared to the first six monthsof 2008.  The Research increase wascomprised of an increase in microfluidic product revenues of $3.5 million, or52%, while automation product revenues decreased by $2.4 million, or 16%.  The increase in microfluidic revenues duringthe six months ended June 30, 2009, compared to the same period in 2008,was primarily due to (a) a $1.4 million increase in sales of ourEasyReader instrument discussed above, (b) a $1.0 million increase insales of our LabChip GX series, and (c) continued growth in revenues frommicrofluidic consumables (chips, kits and reagents) within our direct saleschannel, which increased by $0.8 million, or 36%, within the period.  The decrease in automation product revenuesduring the six months ended June 30, 2009, compared to the same period in2008, was primarily due to (a) a $1.7 million decrease in revenue fromsales of our Staccato Automated Workstation instruments, which was a result ofa specific sale in 2008 that resulted in $1.4 million in product revenues 

 

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withinthe 2008 period, and (b) $0.5 million in reduced instrument sales of ourTurboVap product line primarily within our European distribution channel.

 

*Service Revenue.*   Servicerevenue decreased during the three and six months ended June 30, 2009,compared to the same period in 2008, primarily from $1.2 million and $2.4million, respectively, in service contract and billable revenue associated withthe divested PDQ and AutoTrace product lines.  During the three monthsended June 30, 2009, the remaining service revenue decline of $0.2 millionconsisted of a $0.4 million decrease in CDAS service revenues, offset by a $0.2million increase in all other instrument services, primarily related to theincreasing installed base of our IVIS and microfluidic instruments.

 

Duringthe six months ended June 30, 2009, the remaining service revenue declineof $0.3 million, after excluding service revenues from the divested productlines, consisted of a $0.5 million decrease in CDAS service revenues, offset bya $0.2 million increase in all other instrument services, primarily related toour IVIS product line. CDAS service revenues were down on a net basis inthe six months ended June 30, 2009, as compared to the same period in2008, due to a $1.9 million decline in in vitro government contract services,partially offset by an increase in all other CDAS service revenues.

 

*License Fees and Contract Revenue.*    Licensefees and contract revenue was relatively unchanged for the three months ended June 30,2009, compared to the same period in 2008, and decreased $0.1 million duringthe six months ended June 30, 2009, compared to the same period in2008.   Within license fees and contractrevenue, government grant revenues decreased by $0.2 million during both thethree and six months ended June 30, 2009, but were offset in part byincreases in microfluidic and imaging license revenues.

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)** | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                | 12,830     |                           | $          | 13,232 |   | $ | (402 | ) | (3 | )% | $ | 24,083 |   | $ | 24,337 |   | $ | (254 | ) | (1 | )% |
| Service                 |       | 5,331                            |       | 6,447                          |       | (1,116 | ) | (17 | )% | 11,038 |   | 12,544 |   | (1,506 | ) | (12 | )% |
| License                 |       | 310                              |       | 282                            |       | 28 |   | 10 | % | 702 |   | 566 |   | 136 |   | 24 | % |
| Total Costs             |       | $                                | 18,471     |                           | $          | 19,961 |   | $ | (1,490 | ) | (7 | )% | $ | 35,823 |   | $ | 37,447 |   | $ | (1,624 | ) | (4 | )% |

 

*Cost of Product Revenue.*    Costof product revenue decreased slightly during the three months ended June 30,2009, compared to the three months ended June 30, 2008, as a result of theoverall decrease in product sales, which related to the divested productlines.  The remaining decrease in cost of product revenue is primarily asa result of a 3% reduction in material costs as a percentage of sales resultingfrom more favorable product sales, partially offset by a $0.3 million increasein inventory obsolescence reserve provisions for discontinued products.

 

Costof product revenue decreased during the six months ended June 30, 2009,compared to the six months ended June 30, 2008, as a result of a 3%reduction in material cost spending, as a percentage of sales, resulting fromproduct mix and a $0.2 million decrease in overall manufacturing spendingcomprised primarily of reduced labor costs incurred with respect tomanufacturing operations.  Thesedecreases were partially offset by an increase in warranty parts, inventoryprovisions and other variable manufacturing costs, as a percentage of sales, byapproximately 3%, or $1.3 million.

 

*Cost of Service Revenue.*    Costof service revenue decreased during the three and six months ended June 30,2009, as compared to the same periods in 2008, primarily due to personnel reductionsresulting from divested product lines and the strategic business unitconsolidation we implemented in the third quarter of 2008.  In addition, during the three months ended June 30,2009, cost of service revenue decreased by $0.4 million related to reducedspending within our in vitro services business primarily related to improvedpricing and reduced purchases of materials.

 

*Cost of License Revenue.*    Costof license revenue increased slightly during the three and six months ended June 30,2009, compared to the same periods in 2008, due primarily to an increase inmicrofluidic contractual royalty obligations with a third party.

 

*Gross Margins.*    Grossmargin on product revenue was 40% for the three months ended June 30,2009, which was flat compared to the same period in 2008.  Gross margin on service revenue was 33% forthe three months ended June 30, 2009, as compared to 31% for the sameperiod in 2008. This increased service margin resulted primarily from the neteffect of reduced service costs within the instrument services business as aresult of the strategic business unit realignment in 2008 partially offset bylower CDAS revenues during the second quarter of 2009 as described above.

 

Grossmargin on product revenue was 39% for the six months ended June 30, 2009,which was flat compared to the same period in 2008.  Gross margin on service revenue was 29% forthe six months ended June 30, 2009, as compared to 31% for the same periodin 2008. This decreased service margin resulted primarily from the reducedleverage within the in vitro services business during the 

 

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firstsix months of 2009.  This decrease waspartly offset by reduced service costs within the instrument services business,as a result of the strategic business unit realignment in 2008, and other costreduction initiatives.

 

***Expenses***

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                            | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                            | ** ** | **(In thousands)**          | ** ** |
| Research and development              |       | $                                | 4,634      |                           | $          | 5,041 |   | $ | (407 | ) | (8 | )% | $ | 9,185 |   | $ | 10,573 |   | $ | (1,388 | ) | (13 | )% |
| Selling, general and administrative   |       | 11,264                           |       | 12,757                         |       | (1,493 | ) | (12 | )% | 22,449 |   | 26,690 |   | (4,241 | ) | (16 | )% |
| Amortization of intangible assets     |       | 1,557                            |       | 2,490                          |       | (933 | ) | (37 | )% | 3,114 |   | 4,979 |   | (1,865 | ) | (37 | )% |
| Restructuring charges, (credits), net |       | 29                               |       | (27                            | )          | 56 |   | 207 | % | 52 |   | (20 | ) | 72 |   | 360 | % |
|                                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Research and Development Expenses.*    Researchand development spending decreased by $0.4 million during the three monthsended June 30, 2009, compared to the same period in 2008, primarily as aresult of $0.2 million in reduced facility costs related to the consolidationof facilities in 2008 and a $0.2 million reduction in consulting costs.

 

Researchand development spending decreased by $1.4 million during the six months ended June 30,2009, compared to the same period in 2008, primarily as a result of reductionsin personnel costs of $0.2 million and $0.3 million in facilities costs,relating to the consolidation and cost reduction efforts initiated in 2008, a$0.4 million reduction in severance costs which related to actions taken in thefirst quarter of 2008, $0.3 million in reduced material and operating suppliesand a decrease in all other costs of $0.2 million.

 

*Selling, General and Administrative Expenses.*    Selling,general and administrative expenses decreased by $1.5 million during thethree months ended June 30, 2009, compared to the same period in 2008, dueto a $1.3 million decrease in selling and marketing expenses with the remainingdecrease being within general and administrative expenses.  Selling andmarketing expenses decreased during the three months ended June 30, 2009,as compared to the same period in 2008, primarily due to a $0.5 millionreduction in personnel costs due to headcount reductions as a result of thedivested product lines and cost reduction initiatives that occurred in 2008, a$0.4 million reduction in travel and related costs and a reduction of $0.4million in all other costs.

 

Selling,general and administrative expenses decreased by $4.2 million during thesix months ended June 30, 2009, compared to the same period in 2008 dueprimarily to lower salaries and related costs, a reduction in travel costs anda reduction in legal costs.   Selling andmarketing expenses decreased by $2.7 million during the six months ended June 30,2009, as compared to the same period in 2008, primarily due to a $1.2 millionreduction in salaries and related costs due to reduced headcount from thedivested product lines as well as cost reduction initiatives in 2008 to alignour business along strategic business units, a $0.7 million reduction in traveland related costs, a $0.4 million reduction in office and operating suppliesand a reduction of $0.4 million in all other costs.  General and administrative expenses decreasedby $1.6 million during the six months ended June 30, 2009, as compared tothe same period in 2008, primarily due to a $0.5 million reduction in legalcosts as a result of litigation that was settled in the first quarter of 2008,a $0.4 million reduction in consulting costs, $0.2 million in reduced severancerelated primarily to the consolidation of responsibilities within our financedepartment, and a $0.5 million reduction in all other costs.

 

*Amortization of Intangible Assets.*  Theamortization of intangible assets for the three and six months ended June 30,2009 relates to assets acquired in our previous business combinations.Amortization is computed based upon the estimated timing of the undiscountedcash flows used to value each respective asset over the estimated useful lifeof the particular intangible asset, or using the straight-line method over theestimated useful life of the intangible asset when the pattern of cash flows isnot necessarily reflective of the true consumption rate of the particularintangible asset.  The decrease in amortization during the three and sixmonths ended June 30, 2009 is the result of certain intangibles from ouracquisition of Zymark Corporation in July 2003 that had a five-year lifeand therefore were fully amortized as of July 13, 2008.

 

*Restructuring Charges.*    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. Restructuring charges during the threeand six months ended June 30, 2009 and 2008 relate to accretion ofinterest related to idle facility rent obligations.

 

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

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                  | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**     | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest expense, net       |       | $                                | (179       | )                              | $          | (203 | ) | $ | 24 |   | 12 | % | $ | (391 | ) | $ | (358 | ) | (33 | ) | (9 | )% |
| Other income (expense), net |       | 66                               |       | (87                            | )          | 153 |   | 176 | % | (117 | ) | 319 |   | (436 | ) | (137 | )% |
|                             |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Interest Expense, Net.*    Netinterest expense decreased during the three months ended June 30, 2009,compared to the same period in 2008, as a result of a decrease in the weightedaverage outstanding credit facility borrowing to $9.9 million during thequarter ended June 30, 2009, from $13.6 million during the quarter ended June 30,2008. Net interest expense increased during the six months ended June 30,2009, compared to the same period in 2008, as a result of lower interest incomedue to reduced yield rates on our investments, offset in part by the reducedaverage outstanding debt during the period.

 

*Other Income (Expense), Net.*    Otherincome (expense), net, increased in the three-month period ended June 30,2009, compared to the same period in 2008, due primarily to a reduction intransaction losses on foreign denominated accounts receivable resulting from astronger U.S. dollar in comparison to primarily the Euro and the British Pound.During the three months ended June 30, 2009, we incurred a $0.1 millionreduction in foreign currency transaction losses, compared to the same periodin 2008.

 

Otherincome (expense), net, decreased in the six-month period ended June 30,2009,  compared to the same period in2008, due to transaction losses on foreign denominated accounts receivableresulting from a stronger U.S. dollar in comparison to primarily the Euro andthe British Pound. During the six months ended June 30, 2009, we incurredforeign currency transaction losses of approximately $0.2 million,compared to gains of approximately $0.3 million for the same period in 2008.

 

**Liquidity and Capital Resources**

 

Asof June 30, 2009, we had $23.5 million in cash, cash equivalents andmarketable securities, 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 the greater of:  (i) thebank’s announced “prime rate” and (ii) four and one-half of one percent(4.5%).   Under the Credit Facility, we are permitted to borrow up to$25 million, subject to a borrowing base limit consisting of (a) 80%of eligible accounts receivable plus (b) the lesser of 70% of ourunrestricted cash at the bank or $12 million; provided that on each of thefirst three business days and each of the last three business days of eachfiscal quarter, the borrowing base is (a) 80% of eligible accountsreceivable plus (b) the lesser of 90% of our unrestricted cash at the bankor $12 million. Eligible accounts receivable do not includeinternationally billed receivables, unbilled receivables, and receivables agedover 90 days from invoice date. The Credit Facility matures on November 30,2010. As of June 30, 2009, $14.9 million was outstanding under theCredit Facility. The Credit Facility serves as a source of capital for ongoingoperations 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 ourtotal cash, cash equivalents and marketable securities held at the bank, net ofdebt outstanding under the Credit Facility, are less than $0.5 million(the Net Liquidity Limit), then the bank will apply all of our accountsreceivable collections, received within our lockbox arrangement with the bank,to the outstanding principal. Such amounts would be eligible to be re-borrowedby us subject to the borrowing base limit. Based on our current forecast, we donot expect to fall below the net liquidity limit during the second half of2009. As of June 30, 2009, we were in compliance with our covenants. Weexpect to remain in compliance with the covenants through the Credit Facility’smaturity date based on current forecasts.

 

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

 

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either (i) declareall outstanding obligations immediately due and payable, (ii) reduce ourborrowing base, or (iii) stop making credit advances to us, we may be requiredto significantly reduce our costs and expenses, sell additional equity or debtsecurities, or restructure portions of our business, which could involve thesale 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 our current projections that the bankwill continue to lend to us subject to the terms and conditions of the CreditFacility. Furthermore, additional capital may not be available on termsfavorable to us, if at all. In this circumstance, if we could not significantlyreduce our costs and expenses, obtain adequate financing on acceptable termswhen such financing is required or restructure portions of our business, ourbusiness would be adversely affected. In addition, the amount of availablecapital that we are able to access under the Credit Facility at any particulartime is dependent upon the borrowing base formula, which relies on the abilityof our business to generate accounts receivable that are eligible according tothe Credit Facility. If economic conditions worsen and our business performanceis weaker than anticipated, then we could experience an event of default or areduction in borrowing capacity under the Credit Facility, which if not curedto the bank’s satisfaction, could have a material adverse impact on our abilityto access capital under our Credit Facility in order to fund operations. Ifsuch events were to occur, our business would be adversely affected.

 

We believe our cashbalance, working capital on hand at June 30, 2009 and access to availablecapital under our Credit Facility will be sufficient to fund continuingoperations through at least November 30, 2010. Nevertheless, our actualcash 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.

 

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

 

We maintain cash balancesin many subsidiaries through which we conduct our business. The repatriation ofcash balances from certain of our subsidiaries could have adverse tax consequences.However, these cash balances are generally available without legal restrictionsto fund ordinary business operations. We have transferred, and will continue totransfer, cash from our subsidiaries to us and to other internationalsubsidiaries when it is cost effective to do so.

 

***Cash Flows***

 
| ** **                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2009**                                          | ** ** | **2008** | ** ** | **$ Change** | ** ** |
| Cash  provided by (used in) |       |                                              |       |   |   |   |   |
| Operating  Activities       |       | $                                                 | (2,648     | ) | $ | (9,949 | ) | $ | 7,301 |   |
| Investing  Activities       |       | (1,216                                            | )          | (741 | ) | (475 | ) |
| Financing  Activities       |       | 264                                               |       | 2,866 |   | (2,602 | ) |
|                             |            |                                                   |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*    Duringthe six months ended June 30, 2009, we used $2.6 million of cash foroperating activities, which included approximately $1.0 million related to ouridle facilities.  We used approximately $1.6 million of cash to fundoperations and working capital needs, which primarily related to materials usedin production, salaries and rent obligations for our current facilities.

 

*InvestingActivities.*    Duringthe six months ended June 30, 2009, net purchases of marketable securitiesused $0.4 million of cash. Our other primary investing activity was thepurchase of property and equipment of $0.8 million primarily related tofacility improvements and information systems.

 

*FinancingActivities.*    Duringthe six months ended June 30, 2009, net financing cash proceeds wererelated to proceeds from option exercises. During the three months ended June 30, 2009, we made paymentsagainst our credit facility to reduce our interest expense, which were re-borrowedat the end of the period.

 

**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 change during the six months ended June 30,2009 in the contractual obligations disclosed as of December 31, 2008.

 

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***Capital Requirements***

 

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

 

·                           continued market 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.****                                                 ****Quantitative andQualitative Disclosures About Market Risk**

 

***Interest Rate Sensitivity***

 

Our primary market riskexposures are foreign currency exchange rate fluctuation and interest ratesensitivity. During the six months ended June 30, 2009, there have been nomaterial changes 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.****                                                 ****Controls and 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 June 30, 2009, our principal executive officer and principalfinancial officer have concluded that our disclosure controls and proceduresare effective to ensure that information we are required to disclose in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in SEC’s rules andforms.

 

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

 

*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 second quarter of 2009 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**Part II—OTHER INFORMATION**

 

**Item 1.****                                                 ****Legal Proceedings**

 

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, and in July 2009 notices of the proposed settlementwere mailed to members of the plaintiff class.  This settlement agreementis still subject to approval by Judge Scheindlin, and will not be consideredfinal until this approval is obtained.  The hearing for final approval ofthe settlement has been scheduled for September 10, 2009. The settlementagreement, if approved by Judge Scheindlin, will provide Caliper with a releaseof all claims against it, and will not require any payments from Caliper. Thefinal resolution of this litigation is not expected to have a material impacton Caliper.

 

On January 23, 2009,Caliper filed a patent infringement suit against Shimadzu Corporation and itsU.S. subsidiary, Shimadzu Scientific Instruments, Inc., in the UnitedStates District Court for the Eastern District of Texas. The complaint waspromptly served upon Shimadzu’s U.S. subsidiary, and Caliper is in the processof serving the complaint on Shimadzu Corporation in Japan.  In this suit,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 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.  Caliper filed its preliminary infringementcontentions with the Court on February 10, 2009, and Shimadzu filed itspreliminary invalidity contentions with the Court on July 23, 2009.  The Markman hearing for this case has not yetbeen scheduled by the Court.

 

On July 13, 2009,HandyLab, Inc., a private company based in Ann Arbor, Michigan, filed acomplaint against Caliper in United States District Court for the EasternDistrict of Michigan, Southern Division, seeking declaratory judgment that either(i) HandyLab’s RaiderTM and JaguarTM systems and related consumable productsdo not infringe 13 patents owned or licensed by Caliper and/or (ii) theclaims of the 13 patents identified in HandyLab’s complaint are invalid.  The complaint filed by HandyLab did notcontain any other claims against Caliper. On August 6, 2009, HandyLab and Caliper entered into a Standstill andTolling Agreement pursuant to which the parties agreed to postpone the formalservice of the complaint filed by HandyLab or the filing or commencement of newclaims concerning HandyLab’s products or either party’s microfluidic technologyfor an agreed upon period of time while the parties discuss a potentiallicensing arrangement.

 

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.****                                        ****Risk Factors**

 

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

 

None.

 

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**Item 3.****                                                 ****Defaults Upon SeniorSecurities**

 

None.

 

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

 

Our 2009 Annual Meetingof Stockholders was held on June 2, 2009. There were present at themeeting, in person or represented by proxy, the holders of 42,317,869 shares ofcommon stock. The matters voted on at the meeting and the votes cast were asfollows:

 

1.               David W. Carter was elected to serve as adirector of the Company to hold office until our 2012 Annual Meeting ofStockholders or until his successor is chosen and qualified. There were31,928,529 shares of common stock voting in favor, and 9,794,855 shares ofcommon stock for which votes were withheld.

 

E. Kevin Hrusovsky waselected to serve as a director of the Company to hold office until our 2012Annual Meeting of Stockholders or until his successor is chosen and qualified.There were 41,713,550 shares of common stock voting in favor, and 9,834 sharesof common stock for which votes were withheld.

 

Kathryn Tunstall waselected to serve as a director of the Company to hold office until our 2012Annual Meeting of Stockholders or until her successor is chosen and qualified.There were 38,458,261 shares of common stock voting in favor, and 3,265,123shares of common stock for which votes were withheld.

 

2.               The appointment of Ernst & YoungLLP as our independent registered public accounting firm for the fiscal yearending December 31, 2009 was ratified. There were 42,019,933 shares ofcommon stock voting in favor, 285,455 shares of common stock votingagainst/withheld, and 12,481 shares of common stock abstaining with zero brokernon-votes.

 

3.               Our 2009 Equity Incentive Plan wasapproved. There were 22,499,110 shares of common stock voting in favor,13,768,247 shares of common stock voting against/withheld, 179,987 shares ofcommon stock abstaining and 5,870,525 broker non-votes.

 

Following the meeting,our board of directors consists of Dr. Robert C. Bishop, Van Billet, David W.Carter, Allan L. Comstock, E. Kevin Hrusovsky, David Milligan, Ph.D. andKathryn Tunstall.

 

**Item 5.****                                                 ****Other Information**

 

None.

 

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**Item 6.****                                                 ****Exhibits**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                    |
| 10.1                      |       | 2009 Equity Incentive  Plan. Filed as Exhibit 10.1 to the Company’s Current Report on  Form 8-K on July 7, 2009, and incorporated herein by reference.                                                              |
|                      |       |                                                                                                                                                                                                                                    |
| 31.1                      |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 31.2                      |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 32.1*                     |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                      |       |                                                                                                                                                                                                                                    |
| 32.2*                     |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |

 

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** *The 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.

 

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**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: August 7,  2009 |                         |   |
|                       | By:                          | /s/  E. KEVIN  HRUSOVSKY |
|                       |                         | E. Kevin Hrusovsky |
|                       |                         | Chief Executive Officer  and President |
|                       |                         |   |
| Date: August 7,  2009 |                         |   |
|                       | By:                          | /s/  PETER F.  MCAREE |
|                       |                         | Peter F. McAree |
|                       |                         | Senior Vice President  and Chief Financial Officer |

 

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**EXHIBIT INDEX**

 
| **Exhibit********Number** | ** ** | **Description of document**                                                                                                                                                                                                   |
|---------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                    |
| 10.1                      |       | 2009 Equity Incentive  Plan. Filed as Exhibit 10.1 to the Company’s Current Report on  Form 8-K on July 7, 2009, and incorporated herein by reference.                                                              |
|                      |       |                                                                                                                                                                                                                                    |
| 31.1                      |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 31.2                      |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(a) or  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                      |       |                                                                                                                                                                                                                                    |
| 32.1*                     |       | Certification of Chief  Executive Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |
|                      |       |                                                                                                                                                                                                                                    |
| 32.2*                     |       | Certification of Chief  Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350.                                    |

 

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** *The 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.

 

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