##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2005.
 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to  .
 Commission file # 000-28229 CALIPER LIFE SCIENCES, INC.  Delaware
    
    33-0675808(State of Incorporation)
    
    (I.R.S. Employer Identification Number)
 68 Elm Street
Hopkinton, Massachusetts 01748
(Address and zip code of principal executive offices) Registrants telephone number, including area code: (508) 435-9500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON APRIL 29, 2005: 30,542,683




---



CALIPER LIFE SCIENCES, INC.
TABLE OF CONTENTS PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
    
    
    2Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    24Ex-31.1 Section 302 Certification of the C.E.O.Ex-31.2 Section 302 Certification of the C.F.O.Ex-32.1 Section 906 Certification of the C.E.O.Ex-32.2 Section 906 Certification of the C.F.O.
  1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS CALIPER LIFE SCIENCES, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (unaudited)
 March 31,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,903
    
    
    $
    10,403Marketable securities
    
    
    37,736
    
    
    
    39,834Accounts receivable, net
    
    
    12,446
    
    
    
    17,040Inventories
    
    
    10,707
    
    
    
    9,828Note receivable from director
    
    
    148
    
    
    
    146Prepaid expenses and other current assets
    
    
    2,918
    
    
    
    1,992Total current assets
    
    
    73,858
    
    
    
    79,243Restricted cash
    
    
    2,151
    
    
    
    2,151Property and equipment, net
    
    
    6,164
    
    
    
    6,186Intangibles, net
    
    
    11,828
    
    
    
    12,745Goodwill
    
    
    47,215
    
    
    
    47,215Other assets
    
    
    401
    
    
    
    407Total assets
    
    $
    141,617
    
    
    $
    147,947LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,833
    
    
    $
    3,164Accrued compensation
    
    
    4,092
    
    
    
    6,348Other accrued liabilities
    
    
    5,444
    
    
    
    5,841Deferred revenue and customer deposits
    
    
    8,464
    
    
    
    7,769Accrued restructuring costs
    
    
    3,204
    
    
    
    3,177Current obligations and sale-leaseback arrangements
    
    
    519
    
    
    
    710Total current liabilities
    
    
    25,556
    
    
    
    27,009Noncurrent accrued restructuring costs
    
    
    7,623
    
    
    
    8,428Other noncurrent liabilities
    
    
    932
    
    
    
    931Commitments and contingencies (Note 5)Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    30
    
    
    
    30Additional paid-in capital
    
    
    281,656
    
    
    
    280,709Deferred stock compensation
    
    
    (2,575
    )
    
    
    (2,666
    )Accumulated deficit
    
    
    (171,580
    )
    
    
    (166,649
    )Accumulated other comprehensive income (loss)
    
    
    (25
    )
    
    
    155Total stockholders equity
    
    
    107,506
    
    
    
    111,579Total liabilities and stockholders equity
    
    $
    141,617
    
    
    $
    147,947
 See accompanying notes. 2




---



##### Table of Contents



CALIPER LIFE SCIENCES,
INC. 
 CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In thousands, except
per share data)
 (unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004Revenues:Product revenue
    
    $
    13,138
    
    
    $
    12,009Service revenue
    
    
    3,256
    
    
    
    3,061License fees and contract revenue
    
    
    2,008
    
    
    
    1,863Total revenue
    
    
    18,402
    
    
    
    16,933Costs and expenses:Cost of product revenue
    
    
    8,792
    
    
    
    8,621Cost of service revenue
    
    
    1,654
    
    
    
    1,641Research and development
    
    
    3,939
    
    
    
    6,153Selling, general and administrative
    
    
    7,486
    
    
    
    8,012Employee stock compensation, net(1)
    
    
    409
    
    
    
    1,695Amortization of intangible assets
    
    
    898
    
    
    
    1,048Restructuring credit
    
    
    
    
    
    
    (134
    )Total costs and expenses
    
    
    23,178
    
    
    
    27,036Operating loss
    
    
    (4,776
    )
    
    
    (10,103
    )Interest income, net
    
    
    142
    
    
    
    199Other expense, net
    
    
    (212
    )
    
    
    (86
    )Loss before income taxes
    
    
    (4,846
    )
    
    
    (9,990
    )Provision for income taxes
    
    
    (84
    )
    
    
    (46
    )Net loss
    
    $
    (4,930
    )
    
    $
    (10,036
    )Net loss per share, basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.35
    )Shares used in computing net loss
per common share, basic and diluted
    
    
    30,453
    
    
    
    28,589
   (1)
    Includes employee stock compensation, net, related to employees classified within expenses as
follows: Cost of revenue
    
    $
    46
    
    
    $
    82Research and development
    
    
    80
    
    
    
    157Selling, general and administrative
    
    
    283
    
    
    
    1,456Total
    
    $
    409
    
    
    $
    1,695
 See accompanying notes. 3




---



##### Table of Contents



CALIPER LIFE SCIENCES, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004Operating activitiesNet loss
    
    $
    (4,930
    )
    
    $
    (10,036
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    1,728
    
    
    
    2,621Share-based compensation
    
    
    415
    
    
    
    1,711Non-cash restructuring credits
    
    
    
    
    
    
    (134
    )Interest accretion related to accrued restructuring
    
    
    90
    
    
    
    52Loss from disposal of fixed assets
    
    
    1
    
    
    
    96Changes in operating assets and liabilitiesAccounts receivable
    
    
    4,337
    
    
    
    (2,922
    )Inventories
    
    
    (1,036
    )
    
    
    (158
    )Prepaid expenses and other current assets
    
    
    (942
    )
    
    
    (700
    )Other assets
    
    
    
    
    
    
    (22
    )Notes receivable from director
    
    
    (2
    )
    
    
    39Accounts payable and other accrued liabilities
    
    
    351
    
    
    
    161Accrued compensation
    
    
    (2,223
    )
    
    
    (73
    )Deferred revenue and customer deposits
    
    
    802
    
    
    
    977Other non-current liabilities
    
    
    1
    
    
    
    Payments of accrued restructuring obligations
    
    
    (868
    )
    
    
    (2,219
    )Net cash from operating activities
    
    
    (2,276
    )
    
    
    (10,607
    )Investing activitiesPurchases of marketable securities
    
    
    (2,972
    )
    
    
    (12,645
    )Proceeds from sales of marketable securities
    
    
    2,959
    
    
    
    14,210Proceeds from maturities of marketable securities
    
    
    2,037
    
    
    
    5,881Purchases of property and equipment
    
    
    (801
    )
    
    
    (1,148
    )Net cash from investing activities
    
    
    1,223
    
    
    
    6,298Financing activitiesPayments of obligations under sale-leaseback arrangements
    
    
    (169
    )
    
    
    (500
    )Proceeds from issuance of common stock
    
    
    621
    
    
    
    1,501Net cash from financing activities
    
    
    452
    
    
    
    1,001Effect of exchange rates on changes in cash and cash equivalents
    
    
    101
    
    
    
    48Net decrease in cash and cash equivalents
    
    
    (500
    )
    
    
    (3,260
    )Cash and cash equivalents at beginning of period
    
    
    10,403
    
    
    
    8,889Cash and cash equivalents at end of period
    
    $
    9,903
    
    
    $
    5,629
 See accompanying notes. 4




---



##### Table of Contents



CALIPER LIFE SCIENCES, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 2005
 (Unaudited)
 1. Summary of Significant Accounting Principles Basis of Presentation Caliper Life Sciences, Inc. (Caliper), uses its core technologies of liquid handling,
automation, and LabChip microfluidics to create enabling solutions for the life sciences industry.
These products perform laboratory experiments for use in the pharmaceutical industry and other
industries. Caliper currently operates in one business segment, the development and
commercialization of life science instruments and related consumables and services for use in drug
discovery and other life sciences research and development. The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring entries) considered
necessary for a fair presentation have been included. Operating results for the three months ended
March 31, 2005, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. For example, we typically experience higher revenues in the second half
of our fiscal year as a result of capital spending patterns of our customers. The consolidated
balance sheet as of December 31, 2004, has been derived from audited financial statements as of
that date. For further information, refer to the financial statements and notes thereto included in
the Annual Report on Form 10-K for the year ended December 31, 2004, filed by Caliper Life
Sciences, Inc. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates. Certain prior period amounts have been reclassified to conform to the
current period presentation. Revenue Recognition General Policy Caliper recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the fee is fixed or determinable, and collectibility is
reasonably assured. Revenue is recognized on product sales when goods are shipped under Calipers
standard terms of FOB origin. Revenues on shipments subject to customer acceptance provisions are
recognized only upon customer acceptance, provided all other revenue recognition criteria are met.
Services offered by Caliper are generally recognized as revenue as the services are performed (or,
as applicable, ratably over the contract service term in the case of annual maintenance contracts).
Revenue from licensing agreements is deferred and recognized over the term of the agreement, or in
certain circumstances, when milestones are met. Revenue recognized is not subject to repayment.
Cash received that is related to future performance under such contracts is deferred and recognized
as revenue when earned. Except in limited circumstances, sales made by Caliper do not include
general return rights or privileges. Based upon Calipers prior experience, sales returns are not
significant, and therefore Caliper has made no provision for sales returns or other allowances.
Provision is made at the time of sale for estimated costs related to Calipers warranty obligations
to customers. Revenue arrangements with multiple contractual elements are divided into separate units of
accounting if the deliverables in the arrangement meet certain criteria under Emerging Issues Task
Force (EITF) Issue 00-21, Revenue Arrangements with Multiple Deliverables. The criteria applied
to multiple element arrangements are whether a) each delivered element has standalone value to the
customer, b) there is objective and reliable evidence of fair value of the undelivered elements and
if applicable, c) delivery of the undelivered elements is probable and within the control of
Caliper. Arrangement consideration is allocated among the separate units of accounting based on
their relative fair values. Datapoints In certain cases, customers will be charged on a datapoint pricing basis for their usage of
Labchips. A datapoint is generated each time a Caliper instrument system introduces a sample into a
Labchip through a sipper in order to perform a particular LabChip technology assay. Datapoints are
the test-results that Calipers customers record when they use Calipers instruments. Caliper
records datapoint revenues in the period that Calipers customers produce these datapoints and
communicate such use to Caliper. Datapoint 5




---



##### Table of Contents



rates are contractually negotiated between Caliper and its customers. Under minimum datapoint fee
arrangements, datapoint revenues are recorded over the period during which the minimum applies,
provided Caliper has no ongoing performance obligations with respect to these minimum fees. Agilent Supply Terms Caliper sells LabChip kits and reagents to Agilent at a transfer price reflective of Calipers
cost to manufacture, and receives a royalty based upon Agilents gross margin on sales to its end
users. Revenue related to the reimbursement of costs for the supply of chips and reagents to
Agilient is recognized upon shipment within product revenue.
Calipers share of gross margin on components of the LabChip
system sold by Agilent is recognized as product revenue upon shipment
by Agilent to the end user. Contract Revenue Revenue from contract research and development services is recognized as earned based on the
performance requirements of the contract. Non-refundable contract fees which are neither time and
materials- or time and expense- based, nor tied to substantive milestones, are recognized using the
proportional performance method, subject to the consideration of the guidance in SAB 104, Revenue
Recognition (a replacement of SAB 101). Contract fees received in advance of work performed are
recorded as deferred revenue, and are recognized as revenue as the work is performed. For contracts
recognized on the proportional performance method, the amount recognized as revenue is limited to
the lesser of the amount measured as earned on a proportional performance method, or the cumulative
amount of non-refundable payments earned in accordance with the contract. Licensing and Royalty Revenue from up-front license fees is recognized when the earnings process is complete and no
further obligations exist. If further obligations exist, the up-front license fee is recognized
ratably over the obligation period. Royalties from licenses are based on third-party sales and
recorded as earned in accordance with contract terms, when third-party results are reliably
measured and collectibility is reasonably assured. Software Caliper has developed software that is marketed with its solutions as a component to operate
and run its instruments and systems. Caliper does not sell or otherwise market the software.
Calipers customers are purchasing the instruments and systems in order to be able to conduct
scientific research, and the software is incidental to the overall cost of the instruments
development and marketing effort. Caliper does not provide post-sale software support, except for
functional defects in the software as contemplated in Calipers warranty on its instruments. Warranty Obligations At the time revenue is recognized, Caliper establishes an accrual for estimated warranty
expenses associated with sales, recorded as a component of cost of revenue. Caliper offers a
one-year limited warranty on instrumentation products and a 90-day warranty on chips, which is
included in the sales price of many of its products. Calipers standard limited warranty covers
repair or replacement of defective goods, a preventative maintenance visit on certain products, and
telephone-based technical support. No upgrades are included in the standard warranty. In accordance
with FASB Interpretation No. 45 (FIN 45) Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others, provision is made for
estimated future warranty costs at the time of sale. Factors that affect Calipers warranty
liability include the number of installed units, historical and anticipated rates of warranty
claims, and cost per claim. Caliper periodically assesses the adequacy of its recorded warranty
liabilities and adjusts amounts as necessary. Changes in Calipers warranty obligation during the three months ended March 31, 2005 and 2004 are
as follows (in thousands): 2005
    
    
    2004Balance, beginning of period
    
    $
    1,436
    
    
    $
    1,108Warranties issued during the period
    
    
    359
    
    
    
    220Settlements made during the period
    
    
    (343
    )
    
    
    (261
    )Balance, end of period
    
    $
    1,452
    
    
    $
    1,067
 Net Loss Per Share Basic earnings per share is calculated based on the weighted-average number of common shares
outstanding during the period. Diluted earnings per share would give effect to the dilutive effect
of common stock equivalents consisting of stock options, unvested restricted stock, and unvested
restricted stock units (calculated using the treasury stock method). Common stock equivalents equal to 7.3 and 8.3 million shares (prior to the application of the
treasury stock method) were 6




---



##### Table of Contents



excluded from the computation of net loss per share in each of the three months ended March 31,
2005 and 2004, respectively, as they would have an antidilutive effect due to Calipers net loss. Stock-Based Compensation Caliper presently accounts for its stock options and equity awards in accordance with the
intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, and has elected to follow
the disclosure only alternative prescribed by Financial Accounting Standards Boards SFAS No.
123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense is recognized
in Calipers financial statements for stock options granted to employees which had an exercise
price equal to the fair value of the underlying common stock on date of grant. Caliper accounts for
stock options issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF
No. 96-18, Accounting for Equity Instruments that are issued to other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services. For the three months ended March 31,
2005 and 2004, compensation expense related to stock options issued to non-employees was not
material. The following table illustrates the effect on net loss and net loss per share if Caliper had
applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  and amendment of FASB
Statement No. 123. For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options using the straight-line method.
Calipers pro forma information is as follows (in thousands, except per share data): Three Months Ended March 31,2005
    
    
    2004Net loss:As reported
    
    $
    (4,930
    )
    
    $
    (10,036
    )Add: Stock-based employee
compensation expense
included in reported net
loss
    
    
    409
    
    
    
    1,695Deduct: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards
    
    
    (2,607
    )
    
    
    (6,891
    )Pro forma net loss
    
    $
    (7,128
    )
    
    $
    (15,232
    )Net loss per share:As reported:Basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.35
    )Pro forma:Basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.53
    )
 The effects of applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net loss for future years. Recent Accounting Pronouncements On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123
(revised 2004), Share-Based Payment (Statement 123(R)), which is a revision of FASB Statement
No. 123, Accounting for Stock-Based Compensation. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123. However, Statement 123(R) requiresall
share-based payments to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
Caliper will be required to adopt Statement 123(R) at the beginning of its first quarter of fiscal
2006. Statement
123(R) permits public companies to adopt its requirements using one of two methods:  
    A modified prospective method in which compensation cost
is recognized beginning with the effective date (a) based
on the requirements of Statement 123(R) for all share-based
payments granted after the effective date and (b) based on
the requirements of Statement 123 for all awards granted to
employees prior to the effective date of Statement 123(R)
that remain unvested on the effective date.
    A modified retrospective method which includes the
requirements of the modified prospective method described
above, but also permits entities to restate based on the
amounts previously recognized under Statement 123 for
purposes of pro forma disclosures for either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. 7




---



##### Table of Contents



Caliper plans to adopt Statement 123(R) using the modified prospective method. Statement 123(R) will likely affect Calipers equity
compensation strategy pursuant to its employee stock plans. Caliper is
currently assessing the impact that the adoption of Statement 123(R) will have on its results of
operations and related disclosures. In addition, Caliper is evaluating whether to use a
closed-form model (for example, the Black-Scholes-Merton formula) or a lattice model to estimate
fair value and whether to elect an accelerated method (for example,
the graded-vesting method as defined by FASB Interpretation No. 28) or a straight-line recognition
method. 2. Inventories Inventories are stated at the lower of cost or market (determined on a first-in, first-out
basis). Inventories consist of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Raw material
    
    $
    5,914
    
    
    $
    4,780Work-in-process
    
    
    404
    
    
    
    852Finished goods
    
    
    4,389
    
    
    
    4,196Total
    
    $
    10,707
    
    
    $
    9,828
 3. Comprehensive Loss Comprehensive loss for the three months ended March 31, 2005 and 2004 is as follows (in
thousands): Three Months EndedMarch 31,2005
    
    
    2004Net loss
    
    $
    (4,930
    )
    
    $
    (10,036
    )Unrealized loss on marketable securities
    
    
    (76
    )
    
    
    (49
    )Foreign currency translation gain (loss)
    
    
    (108
    )
    
    
    28Comprehensive loss
    
    $
    (5,114
    )
    
    $
    (10,057
    )
 4. Restructuring Activities  The following summarizes restructuring activities which are not completed as of March 31,
2005:
    In November 2003, Caliper closed one of its three
facilities in Mountain View, CA that was used primarily for
instrument manufacturing and research and development
activities, and recognized a $7.7 million charge related to
costs estimated over the remainder of the lease (June
2008), including leasehold improvements having a carrying
value of $319,000 that had no further use.
    In June 2004, as a result of efficiencies achieved
following Calipers strategic prioritization of research
and development programs, Caliper vacated and shut down
approximately one half of a second Mountain View facility
that was primarily used for research and development
activities, and recognized an additional $2.2 million
charge related to costs estimated over the remainder of the
lease (June 2008), including leasehold improvements having
a carrying value of $67,000 that had no further use.
    In December 2004, Caliper was successful in achieving
additional efficiencies that enabled it to complete the
full closure of the second facility above. In connection
with this latest action taken in December 2004, Caliper
also reassessed its previous estimates supporting the
earlier charges taken and determined, on the basis of
recent real estate market conditions, that
a $3.6 million charge was necessary to both account for the
latest closure and reflect the fair value of its remaining
lease payments for both idled facilities as of December 31,
2004. Of the total charge, $1.7 million was related to
Calipers revised estimate of the sublease income potential
and $246,000 was related to leasehold improvements that had
no further use. The facility closures were accounted for in accordance with Statement of Financial Accounting
Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities, pursuant to
which Caliper recorded a liability equal to the fair value of the remaining lease payments as of
the cease-use date for each of the closed facilities. Fair value was determined based upon the
discounted present value of remaining lease rentals (5% discount rate used), for the space no
longer occupied, reduced by the discounted present value of future estimated sublease rentals
(revised in December 2004 to assume no future sublease rental
income based upon market conditions) 8




---



##### Table of Contents



through the end of the lease.
Caliper intends to sublease the facilities if the commercial real
estate market improves, and will adjust the fair value of the
remaining lease payments in accordance with any new developments that
result in changes to underlying assumptions. The following table summarizes the restructuring accrual activity during the three months
ended March 31, 2005 (in thousands): FacilityLeaseAccrualBalance, December 31, 2004
    
    $
    11,605Accretion of facility lease accrual
    
    
    90Payments
    
    
    (868
    )Balance, March 31, 2005
    
    $
    10,827
 The two unoccupied facilities each include 28,800 square feet of space. Minimum
monthly lease and operating expense payments under these leases are currently $180,000 and $114,000
related to each building. These payments escalate at approximately 4% and 3%, respectively, through
the expiration of the leases in June 2008. The restructuring liability as of March 31, 2005
reflects the minimum future payment obligations related to base lease rentals and operating charges
over the remaining lease lives through June 30, 2008, discounted at 5%, as follows (in thousands): Years ending December 31:2005 (9 months)
    
    $
    2,6652006
    
    
    3,6572007
    
    
    3,7842008
    
    
    1,922Total minimum lease and principal payments
    
    
    12,028Less: Amount representing interest
    
    
    1,201Present value of future payments
    
    
    10,827Less: Current portion of obligations
    
    
    3,204Noncurrent portion of obligations
    
    $
    7,623
 5. Commitments As of March 31, 2005, future minimum payments under operating leases for occupied facilities,
sale-leaseback obligations and other obligations were as follows (in thousands): Operating
    
    
    Sale-Leaseback
    
    
    OtherLeases
    
    
    Arrangements
    
    
    ObligationsYears ending December 31:2005 (9 months)
    
    $
    3,381
    
    
    $
    135
    
    
    $
    3872006
    
    
    2,745
    
    
    
    
    
    
    
    2007
    
    
    2,428
    
    
    
    
    
    
    
    2008
    
    
    2,214
    
    
    
    
    
    
    
    2009
    
    
    273
    
    
    
    
    
    
    
    Thereafter
    
    
    477
    
    
    
    
    
    
    
    Total minimum lease and principal payments
    
    $
    11,518
    
    
    
    135
    
    
    
    387Amount representing interest
    
    
    
    
    
    $
    (3
    )
    
    
    Present value of future payments
    
    
    
    
    
    
    132
    
    
    
    387Current portion of sale-leaseback arrangements and other obligations
    
    
    
    
    
    
    (132
    )
    
    
    (387
    )Noncurrent portion of obligations
    
    
    
    
    
    $
    
    
    
    $
    
 9




---



##### Table of Contents



The table above does not include operating lease commitments related to a new lease agreement
entered into on April 27, 2005, as further discussed in Note 6. Letters-of-Credit In connection with its Mountain View, CA leases, Caliper has pledged a portion of its cash
investments to secure standby letters-of-credit in the outstanding amount of $2.2 million as of
March 31, 2005 as security deposits under the leases. In addition, Caliper has pledged cash
deposits to secure standby letters-of-credit in the amount of $212,000 as of March 31, 2005, as
security for certain customer deposits. The total amount of cash deposits pledged as collateral of
$2.4 million are shown as restricted cash on the accompanying
balance sheet as of March 31, 2005, including $279,000 within
cash and cost equivalents. 6. Subsequent Event On April 27, 2005, Caliper entered into a new lease agreement covering its Hopkinton,
Massachusetts headquarters. Pursuant to the lease, Caliper will continue to lease its existing
facilities, comprised of two separate buildings totaling approximately 117,000 square feet. This
lease supercedes and replaces Calipers existing lease for these facilities, which otherwise was
due to expire on December 31, 2005. The initial term of the lease will expire on December 31, 2015.
The lease contains two five-year extension options, which are exercisable at Calipers option.
Basic rent under the lease will be $97,000 per month for the remainder of 2005, which is unchanged
from the former lease arrangement. Thereafter, annual basic rent for the leased facilities will be
$1.2 million from January 1, 2006 through June 30, 2008; $1.5 million from July 1, 2008 through
December 31, 2011; and $1.6 million from January 1, 2012 through December 31, 2015. Under the terms
of the lease, Caliper is also required to pay utilities, property taxes, and other operating and
maintenance expenses relating to the leased facilities. As a security deposit for Calipers
obligations under the lease, Caliper is required to deliver to the landlord a letter of credit for
approximately $1.5 million. The amount of this letter of credit will be reduced by $200,000 on each
of the first seven anniversaries of the commencement date of the lease, provided that Caliper is
not then in default under the terms of the lease. Under the terms of the lease Caliper is entitled
to undertake certain improvements and expansions of the leased facilities, which Caliper does
expect to undertake, subject to obtaining necessary permits and approvals. Caliper presently
estimates that these improvements and expansions will cost approximately $4.9 million, of which
approximately $3.3 million will be funded by the landlord, with the balance to be funded by
Caliper. Caliper is obligated to spend not less than $1.6 million in connection with these
improvements and expansions. The lease also contains other terms and conditions that are typical of
commercial leases of this type. 10




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations This Managements Discussion and Analysis of Financial Condition and Results of Operations as
of March 31, 2005 and for the three month periods ended March 31, 2005 and March 31, 2004 should be
read in conjunction with our financial statements included in this Quarterly Report on Form 10-Q
and Managements Discussion and Analysis of Financial Condition and Results of Operations and our
financial statements included in our Annual Report onForm 10-Kfor the year ended December 31,
2004. The discussion in this report contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual
results could differ materially from those discussed here. Factors that could cause or contribute
to these differences include those discussed under the caption Factors Affecting Operating
Results below as well as those discussed elsewhere. The cautionary statements made in this report
should be read as applying to all related forward-looking statements wherever they appear in this
report. Executive Summary Business Caliper uses its core technologies of liquid handling, automation, and LabChip microfluidics
to create enabling solutions for the life sciences industry. Caliper is a leader in microfluidic
lab-on-a-chip technologies. We believe our LabChip systems can add value to the life sciences
industry by miniaturizing, integrating, automating and standardizing many laboratory processes, and
by raising the quality of data derived from experimentation. In July, 2003, Caliper acquired Zymark
Corporation, a global provider of liquid handling, laboratory automation and robotics technologies.
We believe that by combining our microfluidic technologies with advanced liquid handling
capabilities we are well positioned to develop and deliver next-generation laboratory automation
products that address the key challenges of modern scientific research. Within the life sciences industry, Caliper is currently pursuing three major markets: drug
discovery and development, genomics and proteomics, and molecular diagnostics. We believe that our
products and technologies are capable of addressing these markets in a number of ways. For example,
in the drug discovery and development market, pharmaceutical companies face many new challenges.
These include late-stage drug failures, increased research and development spending yielding fewer
new drugs and, more recently, drugs being removed from the market due to unforeseen side effects
that were not discovered in pre-launch clinical trials. Caliper is focused on helping
pharmaceutical companies address these challenges by providing products that help researchers make
better choices earlier in their drug discovery process, increase the speed and efficiency of their
high-throughput screening efforts, and enable profiling experiments that can identify drug side
effects earlier in the drug discovery process. In the genomics and proteomics market, recent
advances in DNA research and a subsequent surge of interest in protein functionality has created an
increased industry need for high-throughput, cost-efficient tools for DNA and protein experiments. We have three channels of distribution for our products: direct to customers, indirect through
our international network of distributors, and through original equipment manufacturer (OEM)
channels. Through our direct and indirect distributor channels, we sell complete systems solutions
developed by Caliper to end customers. Our OEM distribution channel is core to our business
strategy and complementary to our direct sales and distribution network activities, as it enables
us to extend the commercial potential of our LabChip and advanced liquid handling technologies into
new industries and new applications with experienced commercial partners. In the OEM channel we
provide liquid handling products, microfluidics chips, product development expertise and other
enabling technologies to commercial partners who then typically integrate an application solution
and market it to their end customers. In addition to these product distribution channels, Caliper
has begun to out-license its extensive microfluidic patent estate for applications for which it
does not have current product development plans, or which Caliper cannot access because of the
licensees proprietary technology. By using direct and indirect distribution, and OEM product
distribution channels, as well as out-licensing our technology in appropriate circumstances,
Caliper seeks to maximize penetration of our products and technologies into the marketplace and
position itself as a leader in the life sciences tools market. Overview of First Quarter  2005 During the first quarter of 2005, we maintained revenue growth and the steps taken in 2004 to
rationalize our cost structure continued to benefit our gross margins, reduce our cash utilization
and improve our bottom line. The 9% overall increase in our first quarter revenue, compared to the
first quarter of 2004, resulted primarily from increased sales of our drug discovery products and
services, and as a result of a new multi-year supply agreement with Amphora Discovery Corporation
and increased sales of Staccato Automated Workstations, including new sales to an OEM partner.
However, we are cautious in our outlook for the remainder of 2005 due to general economic
uncertainty and indications of reduced overall spending by pharmaceutical companies and the
potential impact this may have on our industry. Also, during the first quarter we experienced a
decline in sales of our pharmaceutical development and quality (PDQ) instrument products, and do
not expect to see sales increase in this area on a comparable basis until next generation products
presently in development become available for commercial release in the first half of 2006. We accomplished several important achievements during the first quarter including
announcements of two new large pharmaceutical companies that have adopted our microfluidic
technologies, and that we have entered into a new multi-year supply 11




---



##### Table of Contents



agreement with Amphora under which Amphora will purchase LabChip products and pay us for
datapoints generated by Amphora on its LabChip instruments. In addition, we entered into a new
microfluidic technology licensing agreement with Affymetrix. This license will enable Affymetrix
to explore development of products that use both our LabChips and Affymetrix GeneChip technologies
on one platform. Based upon our assessment of current economic conditions, our full year revenue projection is
currently $84 to $90 million. This financial projection is a forward-looking statement that is
subject to risks and uncertainties, and is only made as of the date of the filing of this Form
10-Q. This projection is based upon assumptions that we have made and believe to be reasonable.
However, actual results may vary significantly from these projections due to the risks and
uncertainties inherent in our business as described in the section entitled Factors Affecting
Operating Results below. We are intending to aggressively pursue assay development services and
aftermarket consumables revenues, which have higher margins and are less subject to capital
spending fluctuations. Critical Accounting Policies The critical accounting policies used in the preparation of our financial statements that we
believe affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements presented in this report are described in our Managements
Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the
Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2004. There have been no material changes to the critical accounting policies. Results of Operations for the Three Months Ended March 31, 2005 and 2004 Revenue Three Months EndedMarch 31,(In thousands)
    
    2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeProduct revenue
    
    $
    13,138
    
    
    $
    12,009
    
    
    $
    1,129
    
    
    
    9
    %Service revenue
    
    
    3,256
    
    
    
    3,061
    
    
    
    195
    
    
    
    6
    %License fees and contract revenue
    
    
    2,008
    
    
    
    1,863
    
    
    
    145
    
    
    
    8
    %Total Revenues
    
    $
    18,402
    
    
    $
    16,933
    
    
    $
    1,469
    
    
    
    9
    %
 Total Revenue.The total revenue increase in 2005 resulted primarily from increased product
sales, new service revenues, and new license revenues, offset by a decrease in contract revenue in
comparison to 2004. Changes in foreign currencies accounted for approximately $200,000, or 1.2%
of the increase in total revenue. Product Revenue.The majority of the increase in product revenue was primarily due to
strength of certain instrument sales, particularly our high-throughput screening and integrated
workstations (Staccato Automated Workstations) that incorporate our Caliper Sciclone ALH 3000.
Improved Staccato sales during the first quarter included sales of new OEM partner systems that we
began manufacturing and delivering during the second half of 2004. In total, sales of instruments
in our drug discovery product family, including the improvement in Staccato sales above, increased
by approximately $1.8 million, and sales of instruments in our pharmaceutical development and
quality (PDQ) product family and other specialty instruments declined by approximately
$760,000. Sales of our existing PDQ products have slowed or declined as these products have
matured, and we do not anticipate increasing sales of PDQ products until next generation products
currently in development are commercially released in the first half of 2006. Within our overall
product growth, we saw improvement in non-instrument product sales of approximately $950,000 in
comparison to 2004, a significant portion of which was due to datapoint purchases pursuant to a
new supply agreement for microfluidic products that we entered into during the first quarter.
However, this improvement was offset by an $850,000 decrease in non-instrument product sales as a
result of software product upgrades sold to a customer in the first quarter of 2004 for which
there was no comparable revenue in 2005. Service Revenue.The increase in service revenue in 2005 was primarily due to assay
development services related to compound selectivity screening profiles. Assay development
services emerged as a growing business opportunity in 2004 as the need for drug compound
selectivity screening, especially for kinases, has arisen in recent years. This trend has in turn
generated the need for fast, cost-effective ways to generate numerous assays in response to
companies specific profiling strategies. License Fees and Contract Revenue. The total increase in license fees and contract revenue
during 2005 was primarily due to an initial license fee under a microfluidic technology licensing
agreement we entered into during the quarter, offset in part by a decrease in contract revenue
from two OEM collaboration partners, including one partner who launched a new product in October,
2004 as a result of our prior collaboration efforts. 12




---



##### Table of Contents



Costs Three Months EndedMarch 31,(In thousands)
    
    2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeCost of product revenue
    
    $
    8,792
    
    
    $
    8,621
    
    
    $
    171
    
    
    
    2
    %Cost of service
    
    
    1,654
    
    
    
    1,641
    
    
    
    13
    
    
    
    1
    %
 Cost of Product Revenue.The net increase in cost of product revenue is due primarily to
incremental direct costs associated with the increase in product revenues generated during the
three months ended March 31, 2005 compared to 2004, offset by reductions in scrap and provisions
for excess and obsolete inventory totaling approximately $250,000. Cost of Service Revenue.Cost of service revenue in 2005 remained relatively unchanged from
2004 due to the fact that the expense base has remained consistent and revenues increased only
slightly during the first quarter. Gross Margins.Our gross margin on product revenue was 33% for the three months ended March
31, 2005, as compared to 28% for the same period in 2004. The improvement during the three-month
period ended March 31, 2005 as compared to the same period in 2004 occurred as a result of
manufacturing efficiencies, and the effects of reduced scrap and inventory provisions discussed
above. Gross margin on service revenue was 49% for the three months ended March 31, 2005, as
compared to 46%, for the same period in 2004. The increase in the service margin relates to the
increase in billable services during the period while maintaining a relatively consistent expense
base. Expenses Three Months EndedMarch 31,(In thousands)
    
    2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeResearch and development
    
    $
    3,939
    
    
    $
    6,153
    
    
    $
    (2,214
    )
    
    
    (36
    )%Selling, general and administrative
    
    
    7,486
    
    
    
    8,012
    
    
    
    (526
    )
    
    
    (7
    )%Stock-based compensation
    
    
    409
    
    
    
    1,695
    
    
    
    (1,286
    )
    
    
    (76
    )%Amortization of intangible assets
    
    
    898
    
    
    
    1,048
    
    
    
    (150
    )
    
    
    (14
    )%Restructuring credit
    
    
    
    
    
    
    (134
    )
    
    
    134
    
    
    
    100
    %
 Research and Development Expenses.The decrease in research and development expenses is
primarily due to a decrease of approximately $900,000 in employment costs associated with reduced
headcount, which was lower by approximately 20 employees in comparison to the corresponding period
in 2004. The reductions resulted from fewer projects, due to greater commercial emphasis on
project prioritization, and improved productivity of our research and development investments. The
level of ongoing research and development expense is highly dependent upon the number and
significance of ongoing projects at any particular time. In addition, research and development
expenses were approximately $400,000 lower as a result of reduced rent and operating costs stemming
from our consolidation of facilities in Mountain View, CA during the second half of 2004. The
remaining decrease resulted from $500,000 of reduced depreciation in connection with retired
research and development capital assets and $400,000 related to other cost savings realized across
various categories of operating expenses. We currently expect research and development expenses to
be moderately higher in future quarters as we continue to develop new products and product
enhancements. Selling, General and Administrative Expenses.The decrease in selling, general and
administrative expenses was due primarily to a decrease of approximately $250,000 in employment
costs associated with reduced headcount of approximately 15 employees which was evenly divided
across sales and marketing and general and administrative departments. The reduced headcount was
due to several factors including finalization of our integration with Zymark, planned attrition,
and the timing of new hire replacements for certain open positions. The remainder of the reduction
in selling, general and administrative expenses was due to several cost savings across various
categories of spending due to effective cost management. Stock-based Compensation.The decrease in stock based compensation primarily results from
charges of $1.4 million in the first quarter of 2004, that were related to employment and
separation agreements with former executives and other senior employees whose employment was
terminated during the first quarter of 2004. We had no comparable charges in the first quarter of
2005. Stock compensation expense, excluding these severance related costs in 2004, otherwise
increased by approximately $150,000 as a result of incremental amortization of deferred
compensation recorded during the third quarter of 2004 in connection with share-based equity awards
granted to employees. In addition, amortization of below fair market value stock options issued
prior to Calipers IPO in 1995, which was $55,000 during the first quarter of 2004, was completed
during the third quarter of 2004. Assuming no changes to current outstanding stock awards or
changes in personnel, we estimate stock-based compensation to be approximately $1.3 million over
the remainder of 2005. We are in the process of completing our analysis of the effects of
expensing of share-based equity awards in 13




---



##### Table of Contents



accordance with SFAS 123(R). Amortization of Intangible Assets.Amortization of intangible assets relates solely to the
intangible assets acquired in the Zymark acquisition. The expense decreased as a result of
certain intangible assets which were amortized over less than twelve months. Scheduled
amortization is $2.7 million for the remainder of 2005, $3.6 million for each of the years 2006 and
2007, and the remaining $1.9 million in 2008. Restructuring Credit.We recognized a $134,000 restructuring credit in the three months
ended March 31, 2004 to adjust the estimated restructuring liability related to severance and
benefits associated with the December 2003 reductions in force. Interest Income, Net Three MonthsEndedMarch 31,(In thousands)
    
    2005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeInterest income, net
    
    $
    142
    
    
    $
    199
    
    
    $
    (57
    )
    
    
    (29
    )%
 Interest income, net decreased due to lower cash, cash equivalents and marketable securities
balances over the three months ended March 31, 2005 as compared to the same period in 2004. Liquidity and Capital Resources Our cash, cash equivalents and marketable securities decreased $2.6 million to $47.6 million
at March 31, 2005, compared to $50.2 million as of December 31, 2004. During the corresponding
three months of 2004, total cash, cash equivalents and marketable securities decreased by $11.0
million. This improvement in 2005 in comparison to 2004 resulted from our revenue growth and steps
taken in 2004 to rationalize our cost structure and improve our gross margins. Cash Flows Three Months Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    

$
ChangeCash provided by (used in)Operating Activities
    
    $
    (2,276
    )
    
    $
    (10,607
    )
    
    $
    8,331Investing Activities
    
    
    1,223
    
    
    
    6,298
    
    
    
    (5,075
    )Financing Activities
    
    
    452
    
    
    
    1,001
    
    
    
    (549
    )
 Operating Activities.Our cash used in operations decreased as compared to the first quarter
of 2004 primarily as a result of an increase in cash collected from customers of $8.7 million in
2005. Cash payments to employees as compared to the first quarter of 2004 decreased on an overall
basis by $100,000 as a result of bonus payments of $1.5 million earned in 2004 and paid in 2005,
offset by a $1.6 million savings as a result of having no severance-related restructuring payments
to former employees in 2005. Payments of accrued facilities obligations due to building closures
in 2003 and 2004 increased by $300,000. Cash payments to suppliers for all other operating expenses
increased by approximately $200,000. Investing
Activities.Our cash provided by investing activities decreased $5.1 million as
compared to the first quarter of 2004 as a result of a decrease in proceeds from sales and
maturities of marketable equity securities, offset in part by reduced spending for purchases of
property and equipment. Financing
Activities.Cash provided by (used in) financing activities as compared to the first quarter
of 2004 decreased by $549,000 due to an $880,000 decrease in proceeds from common stock sales
pursuant to option exercises, offset by a decrease of $331,000 in payments made under
sale-leaseback obligations. Our commitments under leases and other obligations as of March 31, 2005 were not materially
different from that as of December 31, 2004. As further described in Note 6 of the Notes to
Consolidated Financial Statements, Caliper entered into a new lease agreement for its Massachusetts
headquarters. Annual basic rent for the leased facilities will be $1.2 million from January 1,
2006 through June 30, 2008; $1.5 million from July 1, 2008 through December 31, 2011; and $1.6
million from January 1, 2012 through December 31, 2015. As of December 31, 2004, we had
commitments under leases and other obligations totaling $26.0 million, payable in varying amounts
over five years, as more fully described in Item 7 of our Annual Report on Form 10-K. Financial Projections.We are providing updated financial projections for 2005 as follows: 14




---



##### Table of Contents




    We expect full year revenues for 2005 to be approximately $84 million
to $90 million, and second quarter 2005 revenues to be approximately
$17 to $20 million. We reduced our full year revenue outlook from our
prior estimate of $87 million to $92 million based upon indications of
reduced overall spending by certain pharmaceutical companies and
associated pressures on our industry. In addition, sales of our
existing PDQ products have slowed or declined as these products have
matured, and we do not anticipate being able to replace these sales
until next generation products presently in development are
commercially released during the first half of 2006.
    We project combined gross margins from products and services of approximately 36% in the second quarter and
maintain our estimate of 37% to 40% on a full-year basis.
    We are maintaining our goal to attain positive cash flows from operations during the fourth quarter of 2005. The financial projections that we have provided above are forward-looking statements
that are subject to risks and uncertainties, and are only made as of the date of the filing of this
Form 10-Q. These projections are based upon assumptions that we have made and believe to be
reasonable. However, actual results may vary significantly from these projections due to the risks
and uncertainties inherent in our business as described in the section entitled Factors Affecting
Operating Results below. Our capital requirements depend on numerous factors, including market acceptance of our
products, the resources we devote to developing and supporting our products, and acquisitions. We
expect to devote substantial capital resources to continuing our research and development efforts,
expanding our support and product development activities, and for other general corporate
activities. Our future capital requirements will depend on many factors, including:  
    continued market acceptance of our microfluidic and lab automation products;
    the magnitude and scope of our research and product development programs;
    our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;
    the time and costs involved in expanding and maintaining our manufacturing facilities;
    the potential need to develop, acquire or license new technologies and products; and
    other factors not within our control. Based on current plans, we believe that our current cash balances will be sufficient to fund
our operations at least through the year 2006. Factors Affecting Operating Results Risks Related To Our Business Our LabChip products may not achieve widespread market
acceptance, which could cause our revenue to grow slowly or decline. The commercial success of our LabChip products depends upon market acceptance of the merits of
our drug discovery and automated electrophoresis separations systems by pharmaceutical and
biotechnology companies, academic research centers, and other companies that rely upon laboratory
experimentation. However, because our microfluidic drug discovery and automated electrophoresis
systems have been in operation for only a limited period of time, their accuracy, reliability,
ease-of-use and commercial value have not yet gained widespread commercial acceptance. If these
systems do not continue to gain further market acceptance, our revenue may grow more slowly than
expected or decline. In addition, our strategy for the LabChip 3000 system depends upon the early users of these
systems buying additional units as they spread the adoption of this technology throughout their
organizations worldwide. New customers for our drug discovery systems may wait for indications from
our initial drug discovery system customers that our drug discovery systems work effectively and
generate substantial benefits. If the early users of our LabChip 3000 systems do not endorse the
further adoption of these systems because they fail to generate the quantities and quality of data
they expected, are too difficult or costly to use, or are otherwise deficient in meeting the
screening needs of these customers, further sales of these systems to these early users may be
limited, and our sales to new users will be more difficult. To date, our microfluidic-based drug discovery systems have been sold as a result of senior
level relationship selling and we have not yet achieved broadened sales through our sales and
marketing organization. In addition, these systems and the technologies are still relatively new
to our sales and marketing organization, which may limit our ability to effectively market and sell
these systems. If we cannot market these systems effectively, their market acceptance may be
limited. 15




---



##### Table of Contents



For all of the foregoing reasons, we cannot assure you that our efforts to increase the
adoption of our high-throughput drug screening and automated electrophoresis systems, by both
existing and new users, will be expeditious or effective. In summary, market acceptance of our LabChip systems will depend on many factors, including:  
    our ability to demonstrate the advantages and potential economic value of our LabChip
drug discovery systems over alternative well-established technologies;
    our ability to develop a broader range of standard assays and applications that enable
customers and potential customers to perform many different types of experiments on a
single LabChip instrument system; and
    our ability to market and sell our drug discovery systems and related consumable products. If we are not successful in developing new and enhanced liquid
handling, LabChip and other life sciences products, we may lose
market share to our competitors. The life sciences productivity tools equipment market is very competitive and is characterized
by rapid technological change and frequent new product introductions. The commercial success of our
liquid handling systems, LabChip and other products depends upon continued and expanding market
acceptance of our systems and products by pharmaceutical and biotechnology companies and genomics
research organizations, and upon our ability to address quickly any performance problems that our
customers encounter. We anticipate that our competitors will introduce new, enhanced products in
this market in the near future. Our future success will depend on our ability to offer new products
and technologies that researchers believe are an attractive alternative to current products and
technologies, that address the evolving needs of our customers and that are technologically
superior to new products that may be offered by our competitors. We may experience difficulties or
delays in our development efforts for new products, and we may not ultimately be successful in
developing them. Any significant delay in releasing new products in this market could adversely
affect our reputation, give a competitor a first-to-market advantage or cause a competitor to
achieve greater market share. If we are not successful in improving the cost of our LabChip
products relative to the performance delivered, we may not be
successful in displacing alternative or more established products and
technologies that are competitive with our LabChip products. Customers in the life sciences productivity tools equipment market tend to be very price and
cost sensitive relative to product performance. The commercial success of our LabChip products will
depend not only upon our ability to demonstrate that their performance is superior to the
performance of conventional products, but also that their total cost to purchase and operate is
competitive with or lower than the cost of alternative or more established products. We may need to
reduce our manufacturing costs in order for us sell our LabChip products at more competitive
prices. Although we have been successful in achieving significant reductions in the manufacturing
costs of our LabChip instruments and chips, we are engaged in ongoing efforts to further reduce the
costs of our LabChip products. Some of these efforts involve a substantial amount of technical
risk, such as manufacturing our chips on plastic substrates rather than glass. If we are not
successful in achieving these additional cost reductions, the market demand for our LabChip
products may be limited, and the rate of adoption of these products may be slower than we
anticipate. We cannot assure you that our efforts to achieve further cost reductions will be
successful. If we do not successfully expand the range of applications for
our drug discovery systems, we may experience a decline in revenue or
slow revenue growth and may not achieve or maintain profitability. Because drug screening systems represent substantial capital expenditures, it is important
that these systems be capable of performing a wide variety of different types of assays and
experiments in order to justify the cost of the systems. We intend to continue developing new
versions of our microfluidic-based drug discovery systems with enhanced features that address
existing or emerging customer needs, such as offering a broad range of standardized, easy-to-use
assays. If we are unable to do so, our drug discovery systems may not become more widely used and
we may experience a decline in revenue or slow revenue growth and may not achieve or maintain
profitability. We currently have several assays in development, including assays that measure many
important activities of cells and proteins. We are developing product extensions that are
particularly well suited for the evaluation of kinases, one of the largest focus areas of drug
discovery efforts today, as well as running assays with adherent cell lines. We are creating new
tools to make it easier for our customers to develop their own custom assays in a microfluidic
format. We are also developing kinase profiling and selectivity screening kits. If we are not able
to complete the development of any of these expanded applications and tools, or if we experience
difficulties or delays, we may lose our current customers and may not be able to obtain new
customers. We are subject to the capital spending patterns of the
pharmaceutical industry, which over the past several years have been
adversely impacted by general economic conditions, industry
consolidation and increased competition. Many of our instrument products represent relatively large capital expenditures by our
customers. During the past several years, many of our customers and potential customers,
particularly in the pharmaceutical industry, have reduced their
capital spending budgets because of generally adverse prevailing economic conditions, consolidation in the industry,
and increased pressure on the 16




---



##### Table of Contents



profitability of pharmaceutical companies, due in part to more
competition from generic drugs. If our customers and potential customers do not increase their
capital spending budgets, because of continuing adverse economic conditions or further
consolidation in the industry, we could face weak demand for our products, in particular our
products used for high-throughput screening. If the demand for our instrument products is weak
because of constrained capital spending by our pharmaceutical industry customers and potential
customers, we may not achieve our targets for revenue and cash flow from operations. A significant portion of our business depends upon
collaborations with OEM business partners, and our financial success
depends upon our ability to develop new product concepts with
compelling value propositions to generate new OEM collaboration
relationships, as well as our ability to manage our existing OEM
relationships. Historically, an important part of our business strategy has been to collaborate with OEM
business partners in the development of new applications for our microfluidic and liquid handling
products and the subsequent commercialization of the developed products. The expenses associated
with these product development efforts are large, and the time to market for these product
development efforts is generally two or more years. Accordingly, attracting an OEM collaboration
partner to undertake and underwrite a proposed product development effort requires a compelling
value proposition for the product proposed to be developed. Moreover, even if we are successful in initiating a new product development effort with an OEM
partner, these collaboration arrangements can be difficult to manage, and technical problems
encountered in the development programs or disagreements with our OEM business partners may
adversely impact our ability to complete development programs, and therefore to realize increased
product sales through these product development and commercialization collaborations. There can be
no assurance that we will continue to be able to define compelling new products, or to identify new
collaboration partners or new applications for our technologies to develop with our existing
collaboration partners. If we are unable to define new product opportunities or to identify new
collaboration partners or to agree on the terms of a collaboration, or if we are unable to identify
new applications for our technologies to develop and commercialize with an existing collaboration
partner, our revenues could decline and the growth of our business could be adversely affected. Potential future acquisitions may have unexpected consequences or impose additional costs on us. Our business is highly competitive and our growth is dependent upon market growth and our
ability to enhance our existing products, introduce new products on a timely basis and offer
products to our customers that provide a more complete solution. One of the ways we may address the
need to develop new products is through acquisitions of complementary businesses and technologies,
such as our acquisition of Zymark in July 2003. From time to time, we consider and evaluate
potential business combinations both involving our acquisition of another company and transactions
involving the sale of Caliper through, among other things, a possible merger or consolidation of
our business into that of another entity. Acquisitions involve numerous risks, including the
following:  
    difficulties in integration of the operations, technologies, and products of the acquired companies;
    the risk of diverting managements attention from normal daily operations of the business;
    potential cost and disruptions caused by the integration of financial reporting systems and development of
uniform standards, controls, procedures and policies;
    accounting consequences, including amortization of acquired intangible assets or other required purchase
accounting adjustments, resulting in variability or reductions of our reported earnings;
    potential difficulties in completing projects associated with purchased in-process research and development;
    risks of entering markets in which we have no or limited direct prior experience and where competitors in
these markets have stronger market positions;
    the potential loss of key employees of Caliper or the acquired company due to the employment uncertainties
inherent in the acquisition process;
    the assumption of known and potentially unknown liabilities of the acquired company;
    the risk that we may find that the acquired company or business does not further our business strategy or
that we paid more than what the company or business was worth;
    our relationship with current and new employees and customers could be impaired;
    the acquisition may result in litigation from terminated employees or third parties who believe a claim
against us would be valuable to pursue; 17




---



##### Table of Contents




    our due diligence process may fail to identify significant issues with product quality, product
architecture and legal contingencies, among other matters; and
    insufficient revenues to offset increased expenses associated with acquisitions. Acquisitions may also cause us to:  
    issue common stock that would dilute our current stockholders percentage ownership;
    record goodwill and non-amortizable intangible assets that will be subject to
impairment testing and potential periodic impairment charges;
    incur amortization expenses related to certain intangible assets; or
    incur other large and immediate write-offs. We cannot assure you that future acquisitions will be successful and will not adversely affect
our business. We must also maintain our ability to manage any growth effectively. Failure to manage
growth effectively and successfully integrate acquisitions we make could harm our business. We expect to incur future operating losses and may not achieve profitability. We have experienced significant operating losses each year since our inception and expect to
incur substantial additional operating losses in 2005. We may never achieve profitability. As of
March 31, 2005, we had an accumulated deficit of approximately $171.6 million. Our losses have
resulted principally from costs incurred in research and development, product marketing and from
general and administrative costs associated with our operations. These costs have exceeded our
interest income and revenue which, to date, have been generated principally from product sales,
collaborative research and development agreements, technology access fees, cash and investment
balances. Our operating results fluctuate significantly and any failure
to meet financial expectations may disappoint securities analysts or
investors and result in a decline in our stock price. Our quarterly operating results have fluctuated significantly in the past, and we expect they
will continue to fluctuate in the future as a result of many factors, some of which are outside of
our control. For example, many of our products represent relatively large capital expenditures for
our customers, which leads to variations in the amount of time it takes for us to sell our products
because customers may take several months or longer to evaluate and obtain the necessary internal
approvals for the purchase of our products. In addition, a significant portion of our revenues is
derived from sales of relatively high-priced products, and these sales are generally made by
purchase orders and not long-term contracts. Delays in receipt of anticipated orders for
higher-priced products could lead to substantial variability of revenue from quarter to quarter.
Furthermore, we commonly receive purchase orders and ship a significant portion of each quarters
product orders near the end of the quarter. If that pattern continues, even short delays in the
receipt of orders or shipment of products at the end of a quarter could result in shipment during
the next quarter, which could have a material adverse effect on results of operations for the
quarter in which the shipment did not occur. Our business is affected by capital spending patterns
of our customers with a greater percentage of purchases, and therefore we typically experience
higher revenues in the second half of our fiscal year. There can be no assurance that this trend
will continue. For all of these and other reasons, it is possible that in some future quarter or
quarters, our operating results will be below the expectations of securities analysts or investors.
In this event, the market price of our common stock may fall abruptly and significantly. Because
our revenue and operating results are difficult to predict, we believe that period-to-period
comparisons of our results of operations are not a reliable indication of our future performance. If revenue declines in a quarter, whether due to a delay in recognizing expected revenue or
otherwise, our earnings will decline because many of our expenses are relatively fixed. In
particular, research and development and general and administrative expenses and amortization of
deferred stock compensation and intangible assets are not affected directly by variations in
revenue. We have limited experience in manufacturing our products and
may encounter manufacturing problems or delays, which could result in
lost revenue. Although Agilent manufactures the Agilent 2100 Bioanalyzer and Bio-Rad manufactures the
Experion instrument system, we manufacture the chips used in these instruments and in the Agilent
5100 instrument system. We also currently manufacture instruments and sipper chips for our drug
discovery systems. If we fail to deliver chips and automated drug discovery products in a timely
manner, our relationships with our customers could be seriously harmed, and revenue would decline.
We currently have one manufacturing location for LabChip products in Mountain View, California, and
one manufacturing location for instruments and other products located in Hopkinton, Massachusetts.
The actual number of chips we are able to sell or use depends in part upon the manufacturing yields
for these chips. We have only recently begun to manufacture significant numbers of sipper chips and
are continuing to develop our manufacturing procedures for these chips. In order to offer sipper chips
with four or more capillaries for 18




---



##### Table of Contents



drug discovery applications, we will need to continue to achieve
consistently high yields in this process. We have experienced difficulties in manufacturing both
our chips and instruments. We cannot assure you that manufacturing or quality problems will not
continue or arise as we attempt to scale-up our production of chips or that we can scale-up
manufacturing in a timely manner or at commercially reasonable costs. If we are unable to
consistently manufacture sipper chips or chips for the Agilent 2100 Bioanalyzer or the Bio-Rad
Experion instrument systems on a timely basis because of these or other factors, our product sales
will decline. We are currently manufacturing drug discovery instruments in-house and in limited
volumes. If demand for our drug discovery instruments increases significantly, we will either need
to expand our in-house manufacturing capabilities or outsource to other manufacturers, which could
result in a decrease in yields, and therefore an increase in manufacturing costs and a decrease in
net income from sales. Our ability to scale-up chip manufacturing may be compromised by uncertainty regarding the
volume of chips for the Agilent
2100 Bioanalyzer and the Bio-Rad Experion instrument systems that we will need to supply to Agilent
and Bio-Rad in the future. Due to our termination of our exclusive collaboration with Agilent in
May 2003, Agilent now has the option to manufacture chips itself rather than continue to receive
its supply of chips from Caliper. Accordingly, we face uncertainty regarding future demand for
these chips from our manufacturing operations. Because Agilent and a small number of other customers have
accounted for, and may continue to account for, a substantial portion
of our revenue, our revenue could decline due to the loss of one of
these customers. Historically, we have had very few customers and one commercial partner, Agilent, from which
we have derived a significant portion of our revenue, although our acquisition of Zymark in July
2003 greatly expanded our customer base. If we were to lose Agilent as a customer for our chips,
and one or more of our other significant customers, our revenue could decrease significantly. Our revenue could decline due to the termination of our
agreement with Agilent because of a number of different factors,
including a reduction in our gross margin share of Agilent 2100
Bioanalyzer and LabChip products sold by Agilent or reduced sales of
such products by Agilent due to competition from us or our other
commercial partners. Due to our termination of the collaboration agreement with Agilent, effective in May 2003, we
are now operating under the surviving provisions of that agreement. We will continue to receive
revenue from Agilent based on a formula for gross margin sharing on sales by Agilent of instruments
and chips developed under our collaboration agreement, and we expect to continue to receive revenue
from Agilent based on our sale of sipper chips to Agilent for its 5100 instrument system. Although
we anticipate that future sales of the Agilent 2100 Bioanalyzer system will further expand our
revenue base, under the surviving provisions of our agreement with Agilent, our gross margin share
of collaboration products sold by Agilent declined at the end of 2004, and will decline again in
May 2006. If sales of these products do not increase fast enough to offset the decline in our gross
margin share, the amount of revenue we receive from Agilent will decline. In addition, under the surviving terms of our agreement with Agilent, we granted to Agilent a
non-exclusive, royalty-bearing license to certain of our LabChip technologies existing as of the
termination date for Agilent to develop, make and sell products in the field of the collaboration.
Consequently, there is the possibility that Agilent may manufacture its own supply of LabChip
products, rather than purchasing them from us, or that we may experience competition from Agilent
in the future, which would reduce our ability to sell products independently or through other
commercial partners. Now that our agreement with Agilent is terminated, Agilents sales of collaboration products
could be reduced due to competition from us or our other commercial partners, such as Bio-Rad. In
such event, the revenue we would receive from Agilent could be reduced by more than the revenue we
receive from other commercial partners. Further, Agilent may decide for reasons wholly independent
of competition to reduce its sales efforts and/or pricing for these products. If Agilent does so,
our revenue may decline. We depend on our key personnel, the loss of whom would impair our ability to compete. We are highly dependent on the principal members of our management team, especially our Chief
Executive Officer, and certain of our scientific staff. The loss of services of any of these
persons could seriously harm our product development and commercialization efforts. In addition,
research, product development, and commercialization will require additional skilled personnel in
areas such as chemistry and biology, software engineering and electronic engineering. Our principal
business locations in the United States are Silicon Valley, California, and in the Boston
metropolitan area, where demand for personnel with these skills remains high, and may increase
further as the economic outlook in these areas improves. As a result, competition for and retention
of personnel, particularly for employees with technical expertise, is intense and the turnover rate
for these people is high. If we are unable to hire, train and retain a sufficient number of
qualified employees, our ability to conduct and expand our business could be seriously reduced. The
inability to retain and hire qualified personnel could also hinder any planned expansion of our
business. Our products could infringe on the intellectual property rights
of others, which may cause us to engage in costly litigation and, if
we are not successful, could also cause us to pay substantial damages
and prohibit us from selling our products. Third parties may assert infringement or other intellectual property claims against us. We may
have to pay substantial damages, including treble damages, for past infringement if it is
ultimately determined that our products infringe a third partys proprietary rights. Further, we
may be prohibited from selling our products before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if these claims are without merit, defending a
lawsuit takes significant time, may be expensive and may
divert management attention from other business concerns. We are aware of third-party patents that
may relate to our technology or 19




---



##### Table of Contents



potential products. In addition, a third party has provoked an
interference action in the US Patent and Trademark Office with respect to one issued U.S. patent
that we have exclusively licensed to determine the priority of the inventions covered by that
patent. Any public announcements related to litigation or interference proceedings initiated or
threatened against us could cause our stock price to decline. We may need to initiate lawsuits to protect or enforce our
patents, which would be expensive and, if we lose, may cause us to
lose some of our intellectual property rights, which would reduce our
ability to compete in the market. We rely on patents to protect a large part of our intellectual property and our competitive
position, especially in our microfluidics business. In order to protect or enforce our patent
rights, we may initiate patent litigation against third parties, such as the patent infringement
suit against Molecular Devices we settled in November 2003. These lawsuits could be expensive, take
significant time, and could divert managements attention from other business concerns. They would
put our patents at risk of being invalidated or interpreted narrowly and our patent applications at
risk of not issuing. We may also provoke these third parties to assert claims against us. Patent
law relating to the scope of claims in the technology fields in which we operate is still evolving
and, consequently, patent positions in our industry are generally uncertain. We cannot assure you
that we will prevail in any of these suits or that the damages or other remedies awarded, if any,
will be commercially valuable. During the course of these suits, there may be public announcements
of the results of hearings, motions and other interim proceedings or developments in the
litigation. If securities analysts or investors perceive any of these results to be negative, it
could cause our stock price to decline. The rights we rely upon to protect our intellectual property
underlying our products may not be adequate, which could enable third
parties to use our technology and would reduce our ability to compete
in the market. In addition to patents, we rely on a combination of trade secrets, copyright and trademark
laws, nondisclosure agreements and other contractual provisions and technical measures to protect
our intellectual property rights. Nevertheless, these measures may not be adequate to safeguard the
technology underlying our products. If they do not protect our rights, third parties could use our
technology, and our ability to compete in the market would be reduced. In addition, employees,
consultants and others who participate in the development of our products may breach their
agreements with us regarding our intellectual property, and we may not have adequate remedies for
the breach. We also may not be able to effectively protect our intellectual property rights in some
foreign countries. For a variety of reasons, we may decide not to file for patent, copyright or
trademark protection outside of the United States. We also realize that our trade secrets may
become known through other means not currently foreseen by us. Notwithstanding our efforts to
protect our intellectual property, our competitors may independently develop similar or alternative
technologies or products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our proprietary
technologies. We are dependent on a single-source supplier for the glass used
in our LabChip products and if we are unable to buy this glass on a
timely basis, we will not be able to deliver our LabChip products to
customers. We currently purchase a key component for our chips from a single-source supplier located in
Germany. Although we keep surplus inventory in our Mountain View manufacturing facility, if we are
unable to replenish this component on a timely basis, we will not be able to deliver our chips to
our customers, which would harm our business. We obtain some of the components and subassemblies included in
our systems from a single source or a limited group of suppliers, and
the partial or complete loss of one of these suppliers could cause
production delays and a substantial loss of revenue. We rely on outside vendors to manufacture many components and subassemblies for our products.
Certain components, subassemblies and services necessary for the manufacture of our products are
provided by a sole supplier or limited group of suppliers, some of which are our competitors. We
currently purchase additional components, such as optical, electronic, and pneumatic devices, in
configurations specific to our requirements that, together with certain other components, such as
computers, are integrated into our products. We maintain only a limited number of long-term supply
agreements with our suppliers. Our reliance on a sole or a limited group of suppliers involves several risks, including the
following:  
    we may be unable to obtain an adequate supply of required components;
    we have reduced control over pricing and the timely delivery of components and subassemblies; and
    our suppliers may be unable to develop technologically advanced products to support our growth
and development of new systems. Because the manufacturing of certain of these components and subassemblies involves complex
processes and requires long lead times, we may experience delays or shortages caused by suppliers.
We believe that alternative sources could be obtained at the same prices and on substantially the
same terms and conditions, if necessary, for most sole and limited source parts. However, if we
were forced to seek alternative sources of supply or to manufacture such components or
subassemblies internally, we might be forced to
redesign our systems, which could prevent us from shipping our systems to customers on a timely
basis. Some of our suppliers have 20




---



##### Table of Contents



relatively limited financial and other resources, and, therefore,
their businesses could fail. Any inability to obtain sufficient quantities of components and
subassemblies, or any other circumstance that would restrict our ability to ship our products,
could damage relationships with current and prospective customers and could harm our business. If a natural disaster strikes our manufacturing facility we
would be unable to manufacture our products for a substantial amount
of time and we would experience lost revenue. We rely on a single manufacturing location to produce our chips and drug discovery systems,
and a single location to produce laboratory automation and robotics systems, with no alternative
facilities. These facilities and some pieces of manufacturing equipment are difficult to replace
and could require substantial replacement lead-time. Our manufacturing facilities may be affected
by natural disasters such as earthquakes and floods. Earthquakes are of particular significance
because our LabChip product manufacturing facility is located in Mountain View, California, an
earthquake-prone area. In the event that our existing manufacturing facilities or equipment is
affected by man-made or natural disasters, we would be unable to manufacture products for sale,
meet customer demands or sales projections. If our manufacturing operations were curtailed or
ceased, it would harm our business. Failure to raise additional capital or generate the significant
capital necessary to expand our operations and invest in new products
could reduce our ability to compete and result in lower revenue. We anticipate that our existing capital resources, together with the revenue to be derived
from our commercial partners and from commercial sales of our microfluidic and lab automation
products and services, will enable us to maintain currently planned operations at least through the
year 2006. However, we premise this expectation on our current operating plan, which may change as
a result of many factors, including our acquisition of another company or business. Consequently,
we may need additional funding sooner than anticipated. Our inability to raise needed capital would
seriously harm our business and product development efforts. In addition, we may choose to raise
additional capital due to market conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. To the extent that additional capital
is raised through the sale of equity or convertible debt securities, the issuance of these
securities could result in dilution to our stockholders. We currently have no credit facility or committed sources of capital. To the extent operating
and capital resources are insufficient to meet future requirements, we will have to raise
additional funds to continue the development and commercialization of our technologies. These funds
may not be available on favorable terms, or at all. If adequate funds are not available on
attractive terms, we may be required to curtail operations significantly or to obtain funds by
entering into financing, supply or collaboration agreements on unattractive terms. Our tax net operating losses and credit carryforwards may expire if we do not achieve or maintain profitability. As of December 31, 2004, Caliper had federal and state net operating loss carryforwards of
approximately $132 million and $47 million, respectively. Caliper also had federal and state
research and development tax credit carryforwards of approximately $4.1 million and $2.8 million,
respectively. The federal net operating loss and credit carryforwards will expire at various dates
through 2024 beginning in the year 2009 if not utilized. State net operating losses of
approximately $750,000 expired in 2004. The current remaining state net operating losses have
varying expiration dates through 2013. Utilization of the federal and state net operating losses and credits may be subject to a
substantial limitation due to the change in ownership provisions of the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization. Because of our lack of earnings history and the uncertainty of realizing these net operating
losses, the deferred tax assets have been fully offset by a valuation allowance. Risks Related to Owning Our Common Stock Our stock price is extremely volatile, and you could lose a substantial portion of your investment. Our stock has been trading on the Nasdaq National Market only since mid-December 1999. We
initially offered our common stock to the public at $16.00 per share. Since then our stock price
has been extremely volatile and has ranged, through March 10, 2005, from a high of approximately
$202.00 per share on March 2, 2000 to a low of $2.71 per share both on January 28, 2003 and
February 6, 2003. Our stock price may drop substantially following an investment in our common
stock. We expect that our stock price will remain volatile as a result of a number of factors,
including:  
    announcements by analysts regarding their assessment of Caliper and its prospects;
    announcements by our competitors of complementary or competing products and technologies;
    announcements of our financial results, particularly if they differ from investors expectations; 21




---



##### Table of Contents




    general market volatility for technology stocks. These factors and fluctuations, as well as general economic, political and market conditions,
may materially adversely affect the market price of our common stock. We have been sued, and are at risk of future securities class action litigation. In the Spring and Summer of 2001, class action lawsuits were filed against certain leading
investment banks and over 300 companies that did public offerings during the prior several years,
including lawsuits against Caliper and certain of its officers and directors. This and other
securities litigation could result in potential liability, cause us to incur litigation costs and
divert managements attention and resources, any of which could harm our business. In addition,
announcements of future lawsuits of this or some other nature, and announcements of events
occurring during the course of the current and any future lawsuits, could cause our stock price to
drop. Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the
price investors might be willing to pay in the future for our common stock. Provisions in our certificate of incorporation and bylaws may have the effect of delaying or
preventing an acquisition, merger in which we are not the surviving company or changes in our
management. In addition, because we are incorporated in Delaware, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting stock, from
consummating a merger or combination including us. These provisions could limit the price that
investors might be willing to pay in the future for our common stock. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Sensitivity Our primary market risk exposures are foreign currency fluctuation and interest rate
sensitivity. There have been no material changes to the information included under Item 7A in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2004. 
 Item 4. Controls and Procedures We evaluated our disclosure controls and procedures and our internal controls and
procedures for financial reporting as of March 31, 2005. This evaluation was done under the
supervision and with the participation of management, including our chief executive officer and our
chief financial officer. Evaluation of disclosure controls and procedures.We have established disclosure controls and
procedures that are designed to provide reasonable assurance that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Quarterly
Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions (SEC) rules and forms. Disclosure controls
are also designed to provide reasonable assurance that such information is accumulated and
communicated to our management, including the chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation as of March 31, 2005, the chief executive officer and the chief
financial officer have concluded that our disclosure controls and procedures, as defined by
Exchange Act Rules 13(a)-15(e) and 15(d)-15(e), are effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. Limitations on the Effectiveness of Disclosure Controls and Procedures.Our management, including
our chief executive officer and chief financial officer, does not expect that our disclosure
controls and procedures will prevent all error and all fraud. A control system can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Caliper have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people or by
management override of the control. Because of the inherent limitations in a cost-effective control
system, misstatements due to error fraud may occur and not be detected. 
 Part II  Other Information 
 Item 1. Legal Proceedings Commencing
on June 7, 2001, Caliper and three of its officers and directors
(David V. Milligan, Daniel L. Kisner and James L. Knighton) were
named as defendants in three securities class action lawsuits filed
in the United States District Court for the Southern District of New
York. The cases have been consolidated under the caption In re
Caliper Technologies Corp. Initial Public Offering Securities
Litigation, 01 Civ. 5072 (SAS) (GBD). Similar complaints were
filed against approximately 300 other public companies that conducted
IPOs of their common stock during the late 1990s (the IPO
Lawsuits). On August 8, 2001, the IPO Lawsuits were
consolidated for pretrial purposes before United States Judge Shira
Scheindlin of the Southern District of New York. Together, those
cases are denominated In re Initial Public Offering Securities
Litigation, 21 MC 92(SAS). On April 19, 2002, a
Consolidated Amended Complaint was filed alleging claims against
Caliper and the individual defendants under Sections 11 and 15
of the Securities Act of 1933, and under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as well as Rule 10b-5
promulgated thereunder. The Consolidated Amended Complaint also names
certain underwriters of Calipers December 1999 initial public
offering of common stock. The Complaint alleges that these
underwriters charged excessive, undisclosed commissions to investors
and entered into improper agreements with investors relating to
aftermarket transactions. 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 dated October 9,
2002, the claims against Messrs. Milligan, Kisner and Knighton were
dismissed without prejudice. On February 19, 2003, the Court
granted Calipers motion to dismiss all claims against it.
Plaintiffs were not given the right to replead the claims against
Caliper; the time to appeal the dismissal has not yet expired. In May
2003, a Memorandum of Understanding was executed by counsel for
plaintiffs, issuers and their insurers setting forth the terms of a
settlement that would result in the termination of all claims brought
by plaintiffs against the issuers and individual defendants named in
the IPO Lawsuits. On July 7, 2003, a Special Litigation
Committee of the Caliper Board of Directors approved the settlement
terms described in that Memorandum of Understanding, which was
subsequently set forth in definitive Settlement Agreement among the
settling parties. On February 15, 2005, Judge Scheindlin issued
an order granting preliminary approval of the settlement, subject to
the condition that the settling parties agree to modify the terms of
the settlement to limit the scope of the bar order contemplated by
the settlement. Caliper has reviewed the impact of this condition to
the Courts approval of the settlement in the context of the
overall benefits of the settlement for Caliper and determined that it
is still in Calipers best interests to proceed with the
settlement. Judge Scheindlin has scheduled the final hearing for this
settlement during the first quarter of 2006. The final resolution of
this litigation is not expected to have a material impact on
Calipers financial statements. 22




---



##### Table of Contents



Item 6. Exhibits ExhibitNumber
    
    Description of document3.1(1)
    
    Amended and Restated Certificate of Incorporation of Caliper.3.2(2)
    
    Certificate of Designation Of Series A Junior Participating Preferred Stock.3.3(3)
    
    Restated Bylaws of Caliper.3.4(4)
    
    Amendment No. 1 to Bylaws of Caliper.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2(5)
    
    Specimen Stock Certificate.4.3(2)
    
    Rights Agreement, dated as of December 18, 2001, between Caliper and Wells Fargo Bank
Minnesota, N.A., as Rights Agent.10.14(7)
    
    Lease Agreement, dated as of April 25, 2005, between Caliper and BCIA New England Holdings LLC.10.18(6)
    
    Caliper Performance Bonus Plan.10.20(6)
    
    Summary Cash Compensation Sheet.10.29(5)
    
    Key Employee Change of Control and Severance Benefit Plan.31.1
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of
the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.32.2*
    
    Certification of Chief Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of
the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.(1)
    
    Previously filed as the like-numbered Exhibit to Form 10-Q for the quarterly period ended
March 31, 2004 and incorporated by reference herein.(2)
    
    Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed December 19, 2001 and
incorporated by reference herein.(3)
    
    Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1, as amended, File
No. 333-88827, filed on October 12, 1999 and incorporated by reference herein.(4)
    
    Previously filed as the like-numbered Exhibit to Form 10-K for the year ended December 31,
2002 and incorporated by reference herein.(5)
    
    Previously filed as the like-numbered Exhibit to Annual Report on Form 10-K for the annual
period ended December 31, 2004 and incorporated by reference herein.(6)
    
    Previously filed as the like-numbered Exhibit to Current Report on Form 8-K filed March 16,
2005 and incorporated by reference herein.(7)
    
    Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed April 28, 2005 and
incorporated by reference herein.
  *
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this
Quarterly Report on Form 10-Q pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Caliper
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended. 23




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALIPER LIFE SCIENCES, INC.Date: May 10,
2005
    
    By: /s/ E. Kevin HrusovskyE. Kevin HrusovskyChief Executive Officer and PresidentBy: /s/ Thomas T. HigginsThomas T. HigginsExecutive Vice President and Chief
Financial Officer
 24




---



##### Table of Contents



ExhibitNumber
    
    Description of document3.1(1)
    
    Amended and Restated Certificate of Incorporation of Caliper.3.2(2)
    
    Certificate of Designation Of Series A Junior Participating Preferred Stock.3.3(3)
    
    Restated Bylaws of Caliper.3.4(4)
    
    Amendment No. 1 to Bylaws of Caliper.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.4.2(5)
    
    Specimen Stock Certificate.4.3(2)
    
    Rights Agreement, dated as of December 18, 2001, between Caliper and Wells Fargo Bank
Minnesota, N.A., as Rights Agent.10.14(7)
    
    Lease Agreement, dated as of April 25, 2005, between Caliper and BCIA New England Holdings LLC.10.18(6)
    
    Caliper Performance Bonus Plan.10.20(6)
    
    Summary Cash Compensation Sheet.10.29(5)
    
    Key Employee Change of Control and Severance Benefit Plan.31.1
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of
the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.32.2*
    
    Certification of Chief Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of
the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.(1)
    
    Previously filed as the like-numbered Exhibit to Form 10-Q for the quarterly period ended
March 31, 2004 and incorporated by reference herein.(2)
    
    Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed December 19, 2001 and
incorporated by reference herein.(3)
    
    Previously filed as Exhibit 3.4 to our Registration Statement on Form S-1, as amended, File
No. 333-88827, filed on October 12, 1999 and incorporated by reference herein.(4)
    
    Previously filed as the like-numbered Exhibit to Form 10-K for the year ended December 31,
2002 and incorporated by reference herein.(5)
    
    Previously filed as the like-numbered Exhibit to Annual Report on Form 10-K for the annual
period ended December 31, 2004 and incorporated by reference herein.(6)
    
    Previously filed as the like-numbered Exhibit to Current Report on Form 8-K filed March 16,
2005 and incorporated by reference herein.(7)
    
    Previously filed as Exhibit 99.1 to Current Report on Form 8-K filed April 28, 2005 and
incorporated by reference herein.
  *
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this
Quarterly Report on Form 10-Q pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Caliper
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended. 25