**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

** **

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

** **

**for the quarterly periodended June 30, 2007.**

** **

**Or**

** **

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

** **

**for the transition periodfrom                 to                 .**

** **

**Commission file #000-28229**

** **

**CALIPER LIFE SCIENCES, INC.**

(Exact name of registrantas specified in its charter)

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

 

**68 Elm StreetHopkinton, 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 (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes  x   No  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated filer  o |   | Accelerated filer  x |   | Non-accelerated  filer  o |
|--------------------------------------|--------|--------------------------------|--------|-------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o No  x

**NUMBEROF SHARES OF COMMON STOCK OUTSTANDING ON July 31, 2007:  47,709,129**

 

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**CALIPERLIFE SCIENCES, INC.TABLE OF CONTENTS**
| PART I   FINANCIAL  INFORMATION                                                                        |   | 2      |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                        |   |   |   |
| Item 1. Financial Statements (unaudited)                                                               |   | 2      |   |
| Condensed Consolidated Balance Sheets as of June 30,  2007 and December 31, 2006                       |   | 2      |   |
| Condensed  Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2007 and 2006 |   | 3      |   |
| Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007  and 2006           |   | 4      |   |
| Notes  to Condensed Consolidated Financial Statements                                                       |   | 5      |   |
|                                                                                                        |   |   |   |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations    |   | 13     |   |
|                                                                                                        |   |   |   |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                    |   | 18     |   |
|                                                                                                        |   |   |   |
| Item 4. Controls and Procedures                                                                        |   | 18     |   |
|                                                                                                        |   |   |   |
| PART II  OTHER INFORMATION                                                                             |   | 19     |   |
|                                                                                                        |   |   |   |
| Item 1. Legal Proceedings                                                                                   |   | 19     |   |
|                                                                                                        |   |   |   |
| Item 1A. Risk Factors                                                                                       |   | 20     |   |
|                                                                                                        |   |   |   |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                   |   | 20     |   |
|                                                                                                        |   |   |   |
| Item 3. Defaults Upon Senior Securities                                                                |   | 20     |   |
|                                                                                                        |   |   |   |
| Item 4. Submission of Matters to a Vote of  Security Holders                                           |   | 20     |   |
|                                                                                                        |   |   |   |
| Item 5. Other Information                                                                              |   | 20     |   |
|                                                                                                        |   |   |   |
| Item 6.  Exhibits                                                                                      |   | 21     |   |
|                                                                                                        |   |   |   |
| SIGNATURES                                                                                                  |   | 22     |   |
|                                                                                                        |   |   |   |
| EXHIBIT  INDEX                                                                                              |   | 23     |   |
|                                                                                                        |   |   |   |
|  Ex-31.1 Section 302 Certification of CEO                                                              |   |   |   |
|  Ex-31.2 Section 302 Certification of CFO                                                              |   |   |   |
|  Ex-32.1 Section 906 Certification of CEO                                                              |   |   |   |
|  Ex-32.2 Section 906 Certification of CFO                                                              |   |   |   |

 

 

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**PART I. FINANCIAL INFORMATION**

**CALIPERLIFE SCIENCES, INC.****CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)(unaudited)**

**Item1. Financial Statements**
| ** **                                      | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **ASSETS**                                      | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Current assets:                                 |       |                        |       |                            |       |
| Cash and cash  equivalents                      |       | $                           | 11,477     |                            | $          | 11,634 |   |
| Marketable  securities                          |       | 5,003                       |       | 13,303                          |       |
| Accounts  receivable, net                       |       | 28,937                      |       | 30,822                          |       |
| Inventories                                     |       | 21,319                      |       | 18,758                          |       |
| Prepaid expenses  and other current assets      |       | 2,977                       |       | 1,996                           |       |
| Total current  assets                           |       | 69,713                      |       | 76,513                          |       |
| Property and equipment,  net                    |       | 12,098                      |       | 13,182                          |       |
| Core technologies, net                          |       | 27,044                      |       | 28,765                          |       |
| Developed and contract  technologies, net       |       | 11,856                      |       | 14,285                          |       |
| Other intangible  assets, net                   |       | 9,073                       |       | 9,756                           |       |
| Goodwill                                        |       | 80,776                      |       | 80,776                          |       |
| Other assets                                    |       | 2,087                       |       | 1,499                           |       |
| Total assets                                    |       | $                           | 212,647    |                            | $          | 224,776 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**  | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Current liabilities:                            |       |                        |       |                            |       |
| Accounts payable                                |       | $                           | 9,192      |                            | $          | 8,740 |   |
| Accrued  compensation                           |       | 5,570                       |       | 7,417                           |       |
| Other accrued  liabilities                      |       | 11,722                      |       | 11,286                          |       |
| Deferred revenue  and customer deposits         |       | 15,919                      |       | 15,112                          |       |
| Current portion  of accrued restructuring       |       | 3,965                       |       | 7,008                           |       |
| Current portion  of long-term obligations       |       | 4,350                       |       | 98                              |       |
| Total current  liabilities                      |       | 50,718                      |       | 49,661                          |       |
| Noncurrent portion of  accrued restructuring    |       | 567                         |       | 2,152                           |       |
| Noncurrent portion of  credit facility          |       | 8,587                       |       | 8,587                           |       |
| Other noncurrent  liabilities                   |       | 5,311                       |       | 5,837                           |       |
| Deferred tax liability                          |       | 1,130                       |       | 1,130                           |       |
| Commitments and  contingencies (Note 8)         |       |                        |       |                            |       |
| Stockholders’ equity:                      |       |                        |       |                            |       |
| Preferred stock                                 |       | —                      |       | —                          |       |
| Common stock                                    |       | 47                          |       | 47                              |       |
| Additional  paid-in capital                     |       | 371,605                     |       | 366,942                         |       |
| Accumulated  deficit                            |       | (225,957                    | )          | (210,040                        | )          |
| Accumulated  other comprehensive income         |       | 639                         |       | 460                             |       |
| Total  stockholders’ equity                |       | 146,334                     |       | 157,409                         |       |
| Total liabilities and stockholders’ equity |       | $                           | 212,647    |                            | $          | 224,776 |   |

 

*Seeaccompanying notes.*

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**CALIPERLIFE SCIENCES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(unaudited)**
| ** **                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                             | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                                                              |       |                             |       |                           |       |   |   |   |   |
| Product revenue                                                        |       | $                                | 21,022     |                           | $          | 12,310 |   | $ | 36,283 |   | $ | 27,008 |   |
| Service revenue                                                        |       | 8,942                            |       | 5,389                          |       | 17,872 |   | 10,432 |   |
| License fees and  contract revenue                                     |       | 5,326                            |       | 6,627                          |       | 9,575 |   | 9,185 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Total revenue                                                          |       | 35,290                           |       | 24,326                         |       | 63,730 |   | 46,625 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Costs and  expenses:                                                   |       |                             |       |                           |       |   |   |   |   |
| Cost of product  revenue                                               |       | 12,555                           |       | 8,825                          |       | 22,522 |   | 18,614 |   |
| Cost of service  revenue                                               |       | 5,437                            |       | 2,740                          |       | 11,089 |   | 5,579 |   |
| Cost of license  revenue                                               |       | 825                              |       | —                         |       | 1,268 |   | — |   |
| Research and  development                                              |       | 6,648                            |       | 4,928                          |       | 13,422 |   | 9,386 |   |
| Selling, general  and administrative                                   |       | 13,306                           |       | 8,929                          |       | 25,913 |   | 17,405 |   |
| Amortization of  intangible assets                                     |       | 2,533                            |       | 1,254                          |       | 5,070 |   | 2,509 |   |
| Restructuring  charges (credits), net                                  |       | (18                              | )          | 32                             |       | 7 |   | 73 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Total costs and  expenses                                              |       | 41,286                           |       | 26,708                         |       | 79,291 |   | 53,566 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Operating loss                                                         |       | (5,996                           | )          | (2,382                         | )          | (15,561 | ) | (6,941 | ) |
| Interest income  (expense), net                                        |       | (123                             | )          | 180                            |       | (116 | ) | 371 |   |
| Other income  (expense), net                                           |       | (93                              | )          | 225                            |       | (81 | ) | 278 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Loss before  income taxes                                              |       | (6,212                           | )          | (1,977                         | )          | (15,758 | ) | (6,292 | ) |
| Provision for  income taxes                                            |       | (108                             | )          | (88                            | )          | (159 | ) | (222 | ) |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Net loss                                                               |       | $                                | (6,320     | )                              | $          | (2,065 | ) | $ | (15,917 | ) | $ | (6,514 | ) |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Net loss per  share, basic and diluted                                 |       | $                                | (0.13      | )                              | $          | (0.06 | ) | $ | (0.34 | ) | $ | (0.19 | ) |
| Shares used in  computing net loss per common share, basic and diluted |       | 47,228                           |       | 33,695                         |       | 47,104 |   | 33,607 |   |

 

*Seeaccompanying notes.*

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**CALIPERLIFE SCIENCES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)**
| ** **                                                                | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Operating  activities**                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net loss                                                                  |       | $                                                 | (15,917    | ) | $ | (6,514 | ) |
| Adjustments to  reconcile net loss to net cash from operating activities: |       |                                              |       |   |   |
| Depreciation and  amortization                                            |       | 7,016                                             |       | 4,155 |   |
| Stock-based  compensation expense                                         |       | 2,734                                             |       | 2,659 |   |
| Non-cash  restructuring charge, net                                       |       | 7                                                 |       | 73 |   |
| Foreign currency  exchange gains (losses)                                 |       | 98                                                |       | (290 | ) |
| Changes in operating  assets and liabilities:                             |       |                                              |       |   |   |
| Accounts  receivable                                                      |       | 2,015                                             |       | 5,865 |   |
| Inventories                                                               |       | (2,512                                            | )          | (3,523 | ) |
| Prepaid expenses  and other current assets                                |       | (694                                              | )          | 180 |   |
| Accounts payable  and other accrued liabilities                           |       | 565                                               |       | (1,634 | ) |
| Accrued  compensation                                                     |       | (1,822                                            | )          | (1,966 | ) |
| Deferred revenue  and customer deposits                                   |       | 740                                               |       | (1,325 | ) |
| Other noncurrent  liabilities                                             |       | (525                                              | )          | 485 |   |
| Payments of  accrued restructuring obligations, net                       |       | (4,789                                            | )          | (1,518 | ) |
|                                                                      |       |                                              |       |   |   |
| Net cash from  operating activities                                       |       | (13,084                                           | )          | (3,353 | ) |
|                                                                      |       |                                              |       |   |   |
| **Investing  activities**                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Purchases of  marketable securities                                       |       | (1,648                                            | )          | (11,769 | ) |
| Proceeds from  sales of marketable securities                             |       | 4,102                                             |       | 6,285 |   |
| Proceeds from  maturities of marketable securities                        |       | 5,862                                             |       | 14,413 |   |
| Purchase of  intangible                                                   |       | (250                                              | )          | — |   |
| Purchase of other  assets                                                 |       | (587                                              | )          | (1,842 | ) |
| Change in  restricted cash                                                |       | —                                            |       | 224 |   |
| Purchases of  property and equipment                                      |       | (848                                              | )          | (3,715 | ) |
|                                                                      |       |                                              |       |   |   |
| Net cash from  investing activities                                       |       | 6,631                                             |       | 3,596 |   |
|                                                                      |       |                                              |       |   |   |
| **Financing  activities**                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Borrowings under  credit facility                                         |       | 4,500                                             |       | — |   |
| Repayments under  credit facility and other obligations                   |       | (248                                              | )          | (74 | ) |
| Proceeds from  issuance of common stock                                   |       | 1,994                                             |       | 1,050 |   |
|                                                                      |       |                                              |       |   |   |
| Net cash from  financing activities                                       |       | 6,246                                             |       | 976 |   |
|                                                                      |       |                                              |       |   |   |
| Effect of  exchange rates on changes in cash and cash equivalents         |       | 50                                                |       | 162 |   |
| Net (decrease)  increase in cash and cash equivalents                     |       | (157                                              | )          | 1,381 |   |
| Cash and cash  equivalents at beginning of period                         |       | 11,634                                            |       | 8,096 |   |
|                                                                      |       |                                              |       |   |   |
| Cash and cash  equivalents at end of period                               |       | $                                                 | 11,477     |   | $ | 9,477 |   |

 

*Seeaccompanying notes.*

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**CALIPERLIFE SCIENCES, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2007(Unaudited)**

**1. Organizationand Basis of Presentation**

Caliper Life Sciences, Inc. (Caliper) wasincorporated in the state of Delaware on July 26, 1995. Caliper’sofferings enable its customers to accelerate drug discovery, enhance thediagnosis of disease, and facilitate scientific research across four key areasof the pre-clinical drug discovery and development chain: screening;pharmacokinetics/pharmacodynamics, ADME/Tox; and drug dosage and formulationtesting. Caliper’s strategy is to provide tools and services that are relevantto and predictive of drug effects in humans. Caliper currently operates in onebusiness segment: the development and commercialization of life scienceinstruments and related consumables and services for use in drug discovery anddevelopment and other life sciences research.

***Financial Statement Presentation***

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X of theSecurities and Exchange Commission (“SEC”). Accordingly, they do not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringentries) considered necessary for a fair presentation have been included.Operating results for the three and six months ended June 30, 2007 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2007. For example, Caliper typically experiences higherrevenues in the fourth quarter of its fiscal year as a result of capitalspending patterns of its customers. The consolidated balance sheet as ofDecember 31, 2006 has been derived from audited financial statements as ofthat date. For further information, refer to the financial statements and notesthereto included in Caliper’s Annual Report on Form 10-K for the year endedDecember 31, 2006.

***Use of Estimates***

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates.

**2. Summary ofSignificant Accounting Principles**

***Revenue Recognition***

*General Policy*

Caliper recognizes revenue when persuasive evidence ofan arrangement exists, delivery has occurred or services have been rendered,the fee is fixed or determinable, and collectibility is reasonably assured orprobable, as applicable. Revenue is recognized on product sales when goods areshipped under Caliper’s standard terms of “FOB origin.” Revenue associated withcustomer product purchases delivered under terms of “FOB destination” isdeferred until the product is delivered to the customer. Revenues on shipmentssubject to customer acceptance provisions are recognized only upon customeracceptance provided all other revenue recognition criteria are met. In general,sales made by Caliper do not include general return rights or privileges. Inthe limited circumstance where a right of return exists, Caliper recognizesrevenue when the right has lapsed. Based upon Caliper’s prior experiences,sales returns have not been significant and therefore a general provision forsales returns or other allowances is not recorded at the time of sale. Revenuefrom services offered by Caliper is generally recognized as the services areperformed (or, as applicable, ratably over the contract service term in thecase of annual maintenance contracts). Provision is made at the time of salefor estimated costs related to Caliper’s warranty obligations to customers.

Our revenue arrangements may include the sale of aninstrument, consumables, software, service, technology licenses, installationand training. Revenue arrangements may include one of these single elements, ormay incorporate one or more elements in a single transaction or combination ofrelated transactions. Caliper applies the following guidance to its variousrevenue arrangements:

Emerging Issues Task Force(EITF) Issue No.00-21,*Revenue Arrangementswith Multiple Deliverables (EITF 00-21).*When multiplecontractual elements exist in an arrangement, and software is incidental, thecontractual elements are divided into separate units of accounting if thedeliverables in the arrangement meet certain criteria under EITF 00-21. Thecriteria applied to multiple element arrangements are whether (a) eachdelivered element has standalone value to the customer, (b) there is objectiveand reliable evidence of fair value of the undelivered elements, and, ifapplicable, (c) delivery or performance of the undelivered elements isprobable and within the control of Caliper. Consideration for the arrangementis allocated among the separate units of accounting based on their relativefair values, or based upon the residual method when fair value exists only forremaining undelivered items, and the amount of revenue allocable to thedelivered item(s) is recognized in accordance with the requirements of SAB104, *Revenue Recognition (a replacement of SAB 101) (SAB104)*. In either case, the amount of arrangement considerationallocated to the delivered item(s) is limited to the amount that is notcontingent on Caliper delivering additional products or services.

Statement of Position 97-2, *SoftwareRevenue Recognition* and EITF Issue No.03-5, *Applicabilityof AICPA Statement of Position 97-2 to Non-Software Deliverables in anArrangement Containing More-than-Incidental Software( SOP 97-2)*.When Caliper’s revenue arrangements include the sale of an instrument in whichthe software is more than incidental, revenue is recognized in accordancewith SOP 97-2. Caliper allocates 

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revenue on the arrangement between software andnon-software related deliverables based on fair value as required by EITF 03-5.Revenue allocated to the software deliverable is recognized in accordance withSOP 97-2. If there is vendor-specific objective evidence of the fairvalue(s) of the undelivered item(s) in an arrangement, but no suchevidence for the delivered item(s), Caliper uses the residual method toallocate the arrangement consideration associated with the softwaredeliverables. Revenue allocated to non-software deliverables is furtherallocated based on the separation criteria established in EITF 00-21. Whenitems included in a multiple-element arrangement represent separate units ofaccounting and there is objective and reliable evidence of fair value for allitems included in the arrangement, Caliper allocates the arrangementconsideration to the individual items based on their relative fair values. Ifthere is objective and reliable evidence of the fair value(s) of theundelivered item(s) in an arrangement, but no such evidence for thedelivered item(s), Caliper uses the residual method to allocate the arrangementconsideration. In either case, the amount of arrangement considerationallocated to the delivered item(s) is limited to the amount that is notcontingent on Caliper delivering additional products or services.

Cash received from customers as advance deposits forundelivered products and services, including contract research and developmentservices, is recorded within customer deposits until revenue is recognized.Revenue related to annual maintenance contracts or other remaining undeliveredperformance obligations is deferred and recognized upon completion of theunderlying performance criteria.

*Product Revenue*

Product revenue is recognized upon the shipment andtransfer of title to customers and is recorded net of discounts and allowances.Revenues on shipments subject to customer acceptance provisions are recognizedonly upon customer acceptance, provided all other revenue recognition criteriaare met. Customer product purchases are generally delivered under standardizedterms of “FOB origin” with the customer assuming the risks and rewards ofproduct ownership at the time of shipping from Caliper’s warehouse. Revenueassociated with customer product purchases delivered under terms of “FOBdestination” is deferred until product is delivered to the customer. Inaccordance with EITF 00-21 or SOP 97-2, Caliper defers the fair value of anyelements that remain undelivered after product shipment and/or acceptance (asapplicable), such as remaining services to be performed.

In certain cases, customers will be charged on adatapoint pricing basis for their usage of chips. Datapoints are the testresults that Caliper’s customers record when they use Caliper’s instruments inorder to perform a particular LabChip assay. Caliper records datapoint revenuesin the period that Caliper’s customers produce these datapoints and communicatesuch use to Caliper. Under minimum datapoint fee arrangements, datapointrevenues are recorded over the period during which the minimum applies,provided Caliper has no ongoing performance obligations with respect to theseminimum fees.

*Service and Annual Maintenance Agreements*

Service revenue is recognized as services areperformed, typically using the proportional performance method based upondefined outputs or other reasonable measures as applicable, or ratably over thecontract service term in the case of annual maintenance contracts. Customersmay purchase optional warranty coverage during the initial standard warrantyterm and annual maintenance contracts beyond the standard warranty expiration.These optional service offerings are not included in the price Caliper chargescustomers for the initial product purchase. Under Caliper’s standard warranty,the customer is entitled to repair or replacement of defective goods. Softwareupgrades are not included in the standard warranty.

*Licensing and Royalty*

Revenue from up-front license fees is recognized whenthe earnings process is complete and no further obligations exist. If furtherobligations exist, the up-front license fee is recognized ratably over theobligation period. Royalties under licenses are recorded as earned inaccordance with contract terms, when third-party results are reliably measuredand collectibility is reasonably assured.

*Contract Revenue*

Revenue from contract research and developmentservices is recognized as earned based on the performance requirements of thecontract. Non-refundable contract fees, which are neither time and materials-nor time and expense-based, nor tied to substantive milestones, are recognizedusing the proportional performance method, subject to the consideration of theguidance in SAB 104.

***Warranty Obligations***

Caliper provides for estimated warranty expenses as acomponent of cost of revenue at the time product revenue is recognized inaccordance with FAS 5,*Accounting forContingencies* and FASB Interpretation No. 45 (FIN 45),*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, including Indirect Guarantees of Indebtedness of Others*.Caliper offers a one-year limited warranty on most products, which is includedin the selling price. Caliper’s standard limited warranty covers repair orreplacement of defective goods, a preventative maintenance visit on certainproducts, and telephone-based technical support. Factors that affect Caliper’swarranty liability include the number of installed units, historical andanticipated rates of warranty claims, and cost per claim. Caliper periodicallyassesses the adequacy of its recorded warranty liabilities and adjusts amountsas necessary.

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Changes in Caliper’s warranty obligation are asfollows (in thousands):
| ** **                           | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Balance at  beginning of period      |       | $                                                 | 2,223      |   | $ | 1,555 |   |
| Warranties  issued during the period |       | 776                                               |       | 1,444 |   |
| Settlements made  during the period  |       | (930                                              | )          | (1,106 | ) |
| Balance at end of  period            |       | $                                                 | 2,069      |   | $ | 1,893 |   |

 

***Net Loss Per Share***

Basic earnings per share is calculated based on theweighted-average number of common shares outstanding during the period. Dilutedearnings per share would give effect to the dilutive effect of common stockequivalents consisting of stock options, unvested restricted stock, unvestedrestricted stock units and warrants (calculated using the treasury stockmethod).

Common stock equivalents equal to 14.0 million and 7.5million shares (prior to the application of the treasury stock method) wereexcluded from the computation of net loss per share in each of the three andsix months ended June 30, 2007 and 2006, respectively, as they would have anantidilutive effect due to Caliper’s net loss.

***Income Taxes***

Caliper accounts for income taxes in accordance withFAS 109, *Accounting for Income Taxes*, andaccounts for uncertainty in income taxes recognized in financial statements inaccordance with FIN 48, *Accounting for Uncertaintyin Income Taxes.*FIN 48 prescribes a comprehensive model for therecognition, measurement, and financial statement disclosure of uncertain taxpositions. Unrecognized tax benefits are the differences between tax positionstaken, or expected to be taken, in tax returns, and the benefits recognized foraccounting purposes pursuant to FIN 48. Caliper classifies uncertain taxpositions as short-term liabilities within accrued expenses.

The total amount of unrecognized tax benefits as ofJune 30, 2007 was approximately $333,000, all of which, if recognized, wouldaffect our effective tax rate, and was unchanged from December 31, 2006. In theordinary course of business, Caliper’s income tax filings are regularly auditedby tax authorities. While we believe we have appropriately provided for alluncertain tax positions, amounts asserted by taxing authorities could begreater or less than our accrued position. Accordingly, additional provisionson income tax matters, or reductions of previously accrued provisions, could berecorded in the future as we revise our estimates due to changing facts andcircumstances or the underlying matters are settled or otherwise resolved. Weare currently undergoing tax examinations by one state tax authority and weanticipate that this examination will be concluded within the next twelvemonths, and it is possible that this event will affect existing tax reserves.An estimate of the range of possible changes to existing reserves cannot bemade at this time. Federal and remaining state taxes for the years 2002 through2006 are subject to examination, as well as foreign jurisdiction tax returnscovering these same periods.

We recognize accrued interest and penalties related tounrecognized tax benefits in income tax expense. Interest and penalties accruedas of June 30, 2007 were not material.

During the three and six month periods in 2007 and2006, Caliper’s tax provision primarily relates to foreign taxes injurisdictions where our wholly owned subsidiaries are profitable.

***Reclassifications***

Certain amounts in the 2006 financial statements havebeen reclassified to conform to the 2007 financial statement presentation. Thisreclassification had no effect on previously reported net loss, totalstockholders’ equity or net loss per share.

**3. Acquisitions**

On August 9, 2006, Caliper completed itsacquisition of Xenogen Corporation for $62.1 million, including $52.2 millionin Caliper common stock, $7.1 million in warrants and $2.8 million of estimateddirect acquisition costs. The allocation of the purchase price will becompleted prior to August 9, 2007 based upon the finalization of estimatedassumed obligations and liabilities. Xenogen’s operations assumed as of thedate of acquisition are included in the results of Caliper for all periodsafter August 9, 2006.

**4. Inventories**

Inventories are stated at the lower of cost(determined on a first-in, first-out basis, or “FIFO”) or market. Amounts arerelieved from inventory and recognized as a component of cost of sales on aFIFO basis. Inventories consist of the following (in thousands):
| ** **      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Raw material    |       | $                 | 11,650     |                  | $          | 9,998 |   |
| Work-in-process |       | 678               |       | 1,380                 |       |
| Finished goods  |       | 8,991             |       | 7,380                 |       |
|            |       | $                 | 21,319     |                  | $          | 18,758 |   |

 

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**5. ComprehensiveLoss**

Comprehensive loss is as follows (in thousands):
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net loss                                  |       | $                                | (6,320     | )                              | $          | (2,065 | ) | $ | (15,917 | ) | $ | (6,514 | ) |
| Unrealized gain  on marketable securities |       | 9                                |       | 24                             |       | 16 |   | 89 |   |
| Foreign currency  translation gain        |       | 172                              |       | 83                             |       | 163 |   | 91 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Comprehensive loss                        |       | $                                | (6,139     | )                              | $          | (1,958 | ) | $ | (15,739 | ) | $ | (6,334 | ) |

 

**6. RestructuringActivities**

During the period from May 2003 through December 2006,Caliper incurred restructuring charges and credits related to planned workforcereductions and facility closures that were undertaken by management to controlcosts and improve the focus of its operations in order to reduce losses.Certain of these activities took place following Caliper’s acquisition ofZymark in 2003. The following actions were originally charged (credited) torestructuring charges in the accompanying statement of operations and continueto be reflected as components of accrued restructuring costs as of June 30,2007:

·                  In November 2003, Caliper closed one of itsthree facilities in Mountain View, California that was used primarily forinstrument manufacturing and research and development activities, andrecognized a $7.7 million charge related to costs estimated over the remainderof the lease (which terminates in June 2008).

·                  In June 2004, Caliper vacated excess facilityspace in Mountain View, California that was primarily used for research anddevelopment activities, and recognized an additional $2.2 million chargerelated to costs estimated over the remainder of the lease (which terminates inJune 2008).

·                  In December 2004, Caliper further consolidatedresearch and development dedicated space in Mountain View, California and atthe same time reassessed its previously made restructuring costs estimates. Anadditional $3.6 million charge was recorded to reflect the latest closure andto adjust the fair value of its remaining lease payments as of December 31,2004.

·                  In December 2005, Caliper recorded a $1.4million restructuring credit to reflect the net present value of futuresublease rental income based upon subleases it was able to secure in 2005.

·                  In December 2006, Caliper adjusted itsrestructuring obligations by $124,000 to reflect the anticipated increase inoperating costs for idled facilities over the remainder of the respective leaseterms.

The above facility closures were accounted for inaccordance with SFAS No. 146,*Accounting for Costs Associated with Exit or Disposal Activities*,pursuant to which Caliper recorded a liability equal to the fair value of theremaining lease payments as of the cease-use date for each of the closedfacilities. Fair value was determined based upon the discounted present valueof remaining lease rentals (5% discount rate used), for the space no longeroccupied, considering sublease income at each point in time.

The two vacated facilities in Mountain View,California each include 28,800 square feet of space. Minimum annual lease andoperating expense payments remaining under these leases, which escalate at 3 to4% annually, are approximately $1.9 million in each of 2007 and 2008. During2005, Caliper entered into sublease agreements for approximately 73% of itsidled facilities in Mountain View, California. The agreements extend through June 2008,the end of the current lease agreement for the facilities. Basic rent andoperating expenses remaining under the subleases is approximately $403,000 ineach of 2007 and 2008. In connection with the subleases, $78,000 in deposits isbeing held by Caliper.

In connection with the acquisition of Xenogen, Caliperincurred costs that have been accounted for in accordance with EITFNo. 95-3,*Recognition of Liabilities inConnection with a Purchase Business Combination*, pursuant to whichCaliper recorded a liability based on a defined exit plan equal to the fairvalue of the facility obligations and the costs related to the involuntarilyterminated individuals.

·                  Caliperidentified severance and other expenses relating to the involuntary terminationof former Xenogen personnel performing general and administrative andmanufacturing functions and established an assumed liability of $3.5 millionrelated to this activity. This action reduced the total Xenogen workforce byapproximately 34 employees, or approximately 6%. Substantially all affectedemployees were terminated by December 31, 2006. All associated severancepayments were completed as of June 30, 2007. Based on the actual payments,Caliper has adjusted the accrual by $0.2 million and recorded the adjustment inthe purchase price allocation.

·                  Caliperleft unoccupied one of the Xenogen facilities in Alameda, California with theintention to sublease the facility. As of August 9, 2006, Caliperestablished a liability of $1.0 million related to this lease obligation. Thefair value of the lease obligation was determined based upon the discountedpresent value of remaining lease rentals (8.75% discount rate used) for the spaceno longer occupied, considering sublease income it receives and expects toreceive. The lease term expires April 30, 2011. During the second quarterof 2007, Caliper increased the accrual by $0.3 million based upon anticipatedtenant improvement costs required to sublease the facility. The adjustment wasrecorded in the purchase price allocation.

Caliper also assumed a $1.0 million obligation relatedto Xenogen’s St. Louis, Missouri facility. The facility closure was previously 

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accounted for in accordance with EITF 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (Including Certain Costs Incurred in aRestructuring)*. The fair value of the assumed obligation wasdetermined based upon the discounted present value of remaining lease rentals(using a discount rate of 8.75%) for the space no longer occupied, consideringsublease income potential of the property. The lease term expiresApril 30, 2010. During the second quarter of 2007, Caliper increasedthe accrual by $0.1 million based upon the level of operating expenses requiredto maintain the facility. Theadjustment was recorded in the purchase price allocation.

The following table summarizes the restructuringaccrual activity during the six months ended June 30, 2007 (in thousands):
| ** **                          | ** ** | **Severance and  Related** | ** ** | **Facilities** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|----------------|------------|-----------|------------|
| Balance,  December 31, 2006    |       | $                               | 3,041      |           | $          | 6,119     |       | $ | 9,160 |   |
| Adjustments to  Xenogen obligations |       | (193                            | )          | 354            |       | 161       |       |
| Interest  accretion                 |       | —                          |       | 181            |       | 181       |       |
| Payments                            |       | (2,814                          | )          | (2,156         | )          | (4,970    | )          |
|                                |       |                            |       |           |       |      |       |
| Balance, June 30, 2007              |       | $                               | 34         |           | $          | 4,498     |       | $ | 4,532 |   |

 

The remaining facility obligations are payable asfollows (in thousands):
| **Years Ended December 31:** | ** ** | **Severance and   Related** | ** ** | **Facilities** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|----------------|------------|-----------|------------|
| 2007 (6 months  ended)                      |       | $                                     | 34         |           | $          | 2,151     |       | $ | 2,185 |   |
| 2008                                        |       | —                                |       | 2,351          |       | 2,351     |       |
| 2009                                        |       | —                                |       | 385            |       | 385       |       |
| 2010                                        |       | —                                |       | 150            |       | 150       |       |
| 2011                                        |       | —                                |       | 8              |       | 8         |       |
| Total minimum  payments                     |       | 34                                    |       | 5,045          |       | 5,079     |       |
| Less: Amount  representing interest         |       | —                                |       | 547            |       | 547       |       |
| Present value of  future payments           |       | 34                                    |       | 4,498          |       | 4,532     |       |
| Less: Current  portion of obligations       |       | 34                                    |       | 3,931          |       | 3,965     |       |
| Non-current portion of  obligations         |       | $                                     | —     |           | $          | 567       |       | $ | 567 |   |

 

**7. Credit Facilityand Other Long-Term Obligations**

On August 9, 2006, Caliper entered into a loan andsecurity agreement with a bank, as modified by a First Loan ModificationAmendment dated February 26, 2007 and a Second Loan Modification Amendmentdated June 28, 2007 (the “Credit Facility”), which permits Caliper to borrow upto $20.0 million in the form of revolving loan advances including up to $5.0million in the form of letters of credit. The Credit Facility serves as asource of capital for ongoing operations and working capitalneeds. Principal borrowings under the Credit Facility accrue interest at afloating per annum rate equal to the prime rate if Caliper’s unrestricted cashheld at the bank exceeds $20.0 million, or prime plus one-half of onepercentage point if Caliper’s unrestricted cash held at the bank is below $20.0million. Under the Credit Facility, Caliper is permitted to borrow up to $20.0million, provided it maintains unrestricted cash of at least $20.0 million withthe bank, or is otherwise subject to a borrowing base limit consisting of up to(a) 80% of eligible accounts receivable, as defined, plus (b) the lesser of 90%of Caliper’s unrestricted cash maintained at the bank or $10.0 million. TheCredit Facility matures on August 9, 2008, although Caliper expects to renewthe facility upon its maturation. The Credit Facility requires Caliper to payinterest on a minimum of $8.0 million of outstanding borrowings throughFebruary 9, 2008.

The Credit Facility includes traditional lending andreporting covenants including that certain financial covenants applicable toliquidity and earnings are to be maintained by Caliper and tested as of thelast day of each quarter. As of June 30, 2007, Caliper was in compliance withthese covenants. The Credit Facility also includes several potential events ofdefault such as payment default, material adverse change conditions andinsolvency conditions that could cause interest to be charged at prime plus twopercentage points, or in the event of any uncured events of default, couldresult in the bank’s right to declare all outstanding obligations immediatelydue and payable.

As of June 30, 2007, $12.9 million of borrowings and$2.8 million in outstanding letters of credit (related primarily to securitydeposits under Caliper’s operating leases) were outstanding under the CreditFacility leaving $4.3 million available for future borrowings. Of the totalborrowings outstanding, expected minimum borrowings of $8.6 million through thematurity date of the Credit Facility have been classified as long-term, and theremaining $4.3 million of borrowed amounts are classified as short-termwithin Caliper’s balance as of June 30, 2007 in accordance with Caliper’sintention to repay such balance within the next twelve months.

**8. Commitments andContingencies**

***In-License Obligations***

On March 30, 2007, Caliper entered into an exclusivelicense agreement with Monogram Biosciences, Inc. (“Monogram”) to licensesubstantial portions of Monogram’s microfluidic patent portfolio. Under thelicense agreement, Caliper is obligated to pay ongoing royalties related toproduct and service revenues that encompass the use of the Monogram patents,and royalty sharing for any sublicense revenue generated by Caliper. A portion ofthe initial license fee may be credited against royalties due to Monogram in2007. Over the term of the patents, Caliper owes minimum royalties of not morethan $100,000 per year for calendar years 2007 through 2024.

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On August 9, 2006, Stanford University providedXenogen with a copy of an audit report prepared by a third party consultantwhich asserted certain claims of underpayments under the license agreementbetween Stanford and Xenogen during the period from 2002 through March 31, 2006based upon the consultant’s interpretation of Xenogen’s exclusive license withStanford. Upon review of the audit report, Caliper determined that additionalroyalties of $71,000 were owed to Stanford, and recorded such amount as anassumed obligation as of August 9, 2006 in connection with Caliper’sacquisition of Xenogen. Caliper is contesting the remaining payment obligationthat is claimed in the Stanford audit report, and as a result, has not accruedfor any additional liability beyond the $71,000 of royalties that have beenaccrued and paid. At any time, either party may choose binding arbitration toresolve any dispute over the amount of back royalties owed, if any. The amountof any remaining contingent obligation, if any, cannot currently be estimated,nor does Caliper believe that it is probable that a liability exists.

***Legal Proceedings***

Commencing on June 7, 2001, Caliper and three ofits officers and directors (David V. Milligan, Daniel L. Kisner and JamesL. Knighton) were named as defendants in three securities class action lawsuitsfiled in the United States District Court for the Southern District of NewYork. The cases have been consolidated under the caption, In re CaliperTechnologies Corp. Initial Public Offering Securities Litigation, 01Civ. 5072 (SAS) (GBD). Similar complaints were filed against approximately300 other public companies that conducted initial public offerings of theircommon stock during the late 1990s (the “IPO Lawsuits”). On August 8,2001, the IPO Lawsuits were consolidated for pretrial purposes before UnitedStates Judge Shira Scheindlin of the Southern District of New York. Together,those cases are denominated In re Initial Public Offering SecuritiesLitigation, 21 MC 92(SAS). On April 19, 2002, a Consolidated AmendedComplaint was filed alleging claims against Caliper and the individualdefendants under Sections 11 and 15 of the Securities Act of 1933, andunder Sections 10(b) and 20(a) of the Securities Exchange Act of1934, as well as Rule 10b-5 promulgated thereunder. The ConsolidatedAmended Complaint also names certain underwriters of Caliper’sDecember 1999 initial public offering of common stock as defendants. TheComplaint alleges that these underwriters charged excessive, undisclosedcommissions to investors and entered into improper agreements with investorsrelating to aftermarket transactions. The Complaint seeks an unspecified amountof money damages. Caliper and the other issuers named as defendants in the IPOLawsuits moved on July 15, 2002, to dismiss all claims on multiplegrounds. By Stipulation and Order dated October 9, 2002, the claimsagainst Messrs. Milligan, Kisner and Knighton were dismissed without prejudice.On February 19, 2003, the Court granted Caliper’s motion to dismiss allclaims against it. Plaintiffs were not given the right to replead the claimsagainst Caliper. The time to appeal the dismissal has not yet expired. During2003, a settlement, subject to final approval by Judge Scheindlin, was reachedamong the plaintiffs, the issuers and their insurers that would result in thetermination of all claims brought by plaintiffs against the issuers andindividual defendants named in the IPO Lawsuits. On July 7, 2003, aSpecial Litigation Committee of the Caliper Board of Directors approved theterms of this settlement, which was subject to approval by Judge Scheindlin.Judge Scheindlin held a fairness hearing for final approval of the settlementon April 24, 2006, but did not issue an approval order. OnDecember 5, 2006 the Court of Appeals for the Second Circuit issued anopinion reversing Judge Scheindlin’s prior certification of the plaintiffclasses in several “focus” cases pending before her as part of the consolidatedIPO Lawsuits. As a result of this ruling, on June 25, 2007, Judge Scheindlinissued an order terminating the settlement among the plaintiffs, the issuersand their insurers. The parties in the “focus” cases have agreed to a schedulefor the filing of papers seeking certification of a new class of plaintiffs,which will not be completed until February 2008. The final resolution of thislitigation is not expected to have a material impact on Caliper.

On March 7, 2005, AntiCancer, Inc. filed alawsuit against Xenogen in the U.S. District Court for the Southern District ofCalifornia (the “Court”) alleging infringement of five patents of AntiCancer.The complaint seeks damages and injunctive relief against the allegedinfringement. On March 29, 2005, AntiCancer amended its complaint toinclude an additional claim seeking a judgment that one of Xenogen’s imagingpatents exclusively in-licensed from Stanford University, U.S. patentNo. 5,650,135, is invalid. On May 10, 2005, Xenogen filed its answerto AntiCancer’s amended complaint. Xenogen denied all of AntiCancer’sallegations and asserted various affirmative defenses, including its positionthat AntiCancer’s patents cited in its complaint, and its patent claimsrelating to in vivo imaging of fluorescence, are invalid, unenforceable, andnot infringed by Xenogen. Caliper, as successor-in-interest to Xenogen,continues to vigorously defend itself against AntiCancer’s claims and believesAntiCancer’s complaint is without merit. Concurrent with filing Xenogen’s answerto AntiCancer’s original complaint, Xenogen had filed its own counterclaimsagainst AntiCancer. Xenogen’s counterclaims allege that AntiCancer infringesfour of Xenogen’s U.S. patents, Nos. 5,650,135, 6,649,143, 6,939,533, and6,916,462, all of which relate to in vivo imaging and have earlier prioritydates than each of the patents asserted by AntiCancer in its amended complaint.Both parties seek injunctive relief and an unspecified amount of damages,including enhanced damages for willful infringement. Caliper intends tovigorously pursue its claims against AntiCancer. The Court completed the firstthree days of a Markman hearing relating to these claims from June 13,2006 through June 15, 2006. The Court then stopped the Markman hearing inorder to permit Xenogen to pursue a motion to disqualify counsel for AntiCancerbased on information discovered by Xenogen on the first day of the Markmanhearing. On July 14, 2006, Xenogen filed a motion to disqualify AntiCancer’sattorneys due to numerous violations of ethical rules by such attorneys.After a hearing on Xenogen’s motion to disqualify AntiCancer’s attorneys due tonumerous violations of ethical rules by such attorneys, on August 10,2006, the Court issued detailed findings of fact which found several violationsof applicable ethical rules by counsel for AntiCancer. As a result, the Courtissued an Order which granted Xenogen’s motion to disqualify AntiCancer’sattorneys. On October 18, 2006, the Court issued a supplemental andclarifying Order to its previous August 10, 2006 Order in which the Court,among other things, (i) granted Xenogen’s motion to restart the Markmanhearing, (ii) granted Xenogen’s motion to prohibit the transfer of taintedfiles to AntiCancer’s successor counsel, and (iii) granted AntiCancerpermission until November 6, 2006 to amend its complaint. OnNovember 6, 2006, AntiCancer filed its third amended complaint in thismatter and voluntarily dismissed Stanford University from this proceeding. Inresponse to AntiCancer’s third amended complaint, Xenogen filed a motion tostrike and for a more definite statement. On April 12, 2007, the Court issuedan Order which noted that all of Xenogen’s objections set forth in its motionto strike and for a more definite statement had merit, and granted AntiCancerleave to file a fourth amended complaint. AntiCancer filed its fourth amendedcomplaint on May 15, 2007. The fourth amended complaint names Xenogen, CaliperLife Sciences, Inc., and Caliper Holdings, Inc. as defendants. In its fourthamended complaint, AntiCancer dropped three of the five patents it hadpreviously asserted. Caliper filed a motion to dismiss AntiCancer’s fourthamended complaint on June 18, 2007. A hearing on this motion is scheduled forAugust 13, 2007. After that motion is decided, Caliper will determine what, ifany, claims to assert and reassert against AntiCancer. Another case managementconference is currently scheduled for September 13, 2007.

Caliper currently is not able to predict the outcomeof the patent infringement lawsuit with AntiCancer. Even if Caliper prevails inthis 

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lawsuit, the defense of the lawsuit or similarlawsuits will be expensive and time-consuming and may distract Calipermanagement from operating Caliper’s business.

From time to time Caliper is involved in litigationarising out of claims in the normal course of business. Based on theinformation presently available, management believes that there are no otherclaims or actions pending or threatened against Caliper, the ultimateresolution of which will have a material adverse effect on our financialposition, liquidity or results of operations, although the results oflitigation are inherently uncertain, and adverse outcomes are possible.

**9. Stockholders’Equity**

***Common Stock***

During the six months ended June 30, 2007, Caliperissued 535,106 shares of common stock, increasing the total shares outstandingas of June 30, 2007 to 47,347,421. The increase in shares outstanding relatesto shares issued as a result of stock purchases under Caliper’s employee stockpurchase plan, stock option exercises and vesting of restricted stock.

***Stock-Based Compensation***

Caliper accounts for stock-based compensation inaccordance with Statement of Financial Accounting Standard No. 123R,*Share-Based Payment* (“SFAS 123R”), whichrequires all share-based payments, including grants of stock options, to berecognized in the income statement as an operating expense, based on their fairvalues. Caliper estimates the fair value of each option award on the date ofgrant using a Black-Scholes-Merton based option-pricing model.

Stock-based compensation expense is included withincosts and expenses as follows (in thousands):
| ** **                           | ** ** | **Three Months Ended  June 30** | ** ** | **Six Months Ended  June 30** | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cost of product  revenue             |       | $                                              | 114        |                                         | $          | 123 |   | $ | 242 |   | $ | 250 |   |
| Cost of service  revenue             |       | 34                                             |       | 41                                           |       | 77 |   | 66 |   |
| Research and  development            |       | 211                                            |       | 252                                          |       | 465 |   | 492 |   |
| Selling, general  and administrative |       | 1,022                                          |       | 953                                          |       | 1,950 |   | 1,843 |   |
| Total                                |       | $                                              | 1,381      |                                         | $          | 1,369 |   | $ | 2,734 |   | $ | 2,651 |   |

 

On June 30, 2007, Caliper had five share-basedcompensation plans (the “Plans”), which are described within Note 13 of Caliper’saudited financial statements included in Caliper’s Annual Report on Form 10-Kfor the year ended December 31, 2006.

The fair value of each option award issued underCaliper’s equity plans is estimated on the date of grant using aBlack-Scholes-Merton based option pricing model that uses the assumptions notedin the following table. Expected volatilities are based on historicalvolatility of Caliper’s stock. The expected term of the options is basedon Caliper’s historical option exercise data taking into consideration theexercise patterns of the option holders during the option’s life. Therisk-free interest rate is based on the U.S. Treasury yield curve in effect onthe date of the grant.
| ** **                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Expected  volatility (%)     |       | 40-45                                             |       | 45 |   |
| Risk-free  interest rate (%) |       | 4.50-5.00                                         |       | 4.80 |   |
| Expected term  (years)       |       | 3.2-4.2                                           |       | 4.3 |   |
| Expected dividend yield  (%) |       | —                                            |       | — |   |

 

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A summary of stock option and restricted stockactivity under the Plans as of June 30, 2007, and changes during the six monthsthen ended is as follows:
| **Stock Options**            | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-----------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                          | ** ** | **(in thousands)**             | ** ** |
| Outstanding at  December 31, 2006 |       | 6,713,292  |       | $                                      | 6.31       |                                                |       |                                |       |   |
| Granted                           |       | 1,177,145  |       | 5.77                                   |       |                                                |       |                                |       |
| Exercised                         |       | (342,775   | )          | 3.91                                   |       |                                                |       |                                |       |
| Canceled                          |       | (501,012   | )          | 11.95                                  |       |                                                |       |                                |       |
| Outstanding at  June 30, 2007     |       | 7,046,650  |       | $                                      | 5.93       |                                                | 6.5        |                                | $          | 2,887 |   |
| Exercisable at  June 30, 2007     |       | 4,565,157  |       | $                                      | 5.95       |                                                | 5.3        |                                | $          | 2,817 |   |
| Unvested at June 30,  2007        |       | 2,481,493  |       | $                                      | 5.89       |                                                |       |                                | $          | 70 |   |

 
| **Restricted Stock Units**             | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Market per  Share Value** | ** ** |
|--------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------|------------|
| Outstanding and  non-vested at December 31, 2006 |       | 567,090    |       | $                                                                                   | 6.30       |   |
| Granted                                          |       | 322,498    |       | 5.64                                                                                |       |
| Vested                                           |       | (47,536    | )          | 6.57                                                                                |       |
| Unvested  repurchases                            |       | (9,838     | )          | 5.85                                                                                |       |
| Outstanding and  non-vested at June 30, 2007     |       | 832,214    |       | 6.03                                                                                |       |
|                                                  |            |            |            |                                                                                     |            |  |

 

During the six months ended June 30, 2007, Calipergranted its employees and directors 1,027,145 options at a weighted averagegrant date fair value of $2.24 per share using a Black-Scholes-Merton basedoption pricing model. The total intrinsic value of options exercised during thesix months ended June 30, 2007 was approximately $0.7 million. The total fairvalue of restricted stock that vested during the six months ended June 30, 2007was approximately $0.3 million.

As of June 30, 2007, there was $8.5 million of totalunrecognized compensation cost related to unvested stock-based compensationarrangements granted under the Plans. That cost is expected to be recognizedover a weighted-average remaining service (vesting) period of approximately 2.8years.

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

*This Management’s Discussion and Analysis of FinancialCondition and Results of Operations as of June 30, 2007 and for the three andsix months ended June 30, 2007 and June 30, 2006 should be read in conjunctionwith our financial statements included in this Quarterly Report on Form 10-Qand Management’s Discussion and Analysis of Financial Condition and Results ofOperations and our financial statements included in our Annual Report on Form10-K for the year ended December 31, 2006.*

*The discussion in this report contains forward-lookingstatements that involve risks and uncertainties, such as statements of ourplans, objectives, expectations and intentions. Our actual results could differmaterially from those discussed here. Factors that could cause or contribute tothese differences include those discussed under the caption “Risk Factors”below, as well as those discussed elsewhere. The cautionary statements made inthis report should be read as applying to all related forward-lookingstatements wherever they appear in this report.*

**Executive Summary**

***Business***

Caliper Life Sciences sells products, services and integrated systemscomprised of instruments, software and reagents to life sciences biomedical andpharmaceutical researchers. We believe our offerings enable our customers toaccelerate drug discovery, enhance the diagnosis of disease and facilitatescientific research. Our strategy is to transform drug discovery anddevelopment through technologies and services that are relevant to andpredictive of drug effects in humans. Our products and services, assembled fromour leading portfolio of microfluidics, automation, liquid handling, andbiophotonic imaging technologies, address key issues related to research andthe critical path of pre-clinical drug discovery and development, and moleculardiagnostics.

On August 9, 2006, we completed our acquisition of XenogenCorporation. Xenogen developed and marketed products and services for in vivoimaging and drug discovery. Our acquisition of Xenogen provides us entry intothe fast-growing preclinical non-invasive imaging market, and positions us asone of the first life science instrumentation companies able to provide anintegrated portfolio of products and services for both in vitro (in anartificial environment) and in vivo (in a living organism) research. Followingthe Xenogen acquisition, Xenogen Biosciences became part of Caliper Discoveryand Alliance Services, or CDAS.

Our products and services currently address some of the key challengesthat face the pharmaceutical and biotechnology industry, including shrinkingdrug candidate pipelines, late-stage drug failures, and unforeseen side effectscoming to light late in the development process, or post-commercialization.Using our products and services, researchers are able to increase the speed andefficiency of their screening efforts, make better choices earlier in the drugdiscovery and development process, and conduct profiling experiments thatidentify drug side effects well before the human clinical trial stage.

We are pursuing the application of our LabChip technology tothe diagnostics market and believe that our LabChip technologiesmay be able to provide ease of use, cost and data quality benefits forcertain diagnostic tests. These benefits are the anticipated result ofchip-based integration, automation and miniaturization of thevarious workflow steps required to perform these tests. We are presentlyworking with collaboration partners in this area through our Caliper Drivenprogram. Although most of these projects are still in the feasibility or earlydevelopment stages, we believe that one of our Caliper Driven partners,Agilent, expects to commercialize its first diagnostic test based on ourLabChip technology in 2007.

We have multiple channels of distribution for our products: direct tocustomers, indirect through our international network of distributors, throughpartnership channels under our Caliper Driven program and through jointmarketing agreements. Through our direct and indirect channels, we sellproducts, services and complete system solutions, developed by us, to endcustomers. Our Caliper Driven program is core to our business strategy and complementaryto our direct sales and distribution network activities, as it enables us toextend the commercial potential of our LabChip and advanced liquid handlingtechnologies into new industries and new applications with commercial partners.We also utilize joint marketing agreements to enable others to market anddistribute our products. By using direct and indirect distribution, andcollaborating and/or out-licensing our technology under our Caliper Drivenprogram, we seek to maximize penetration of our products and technologies intothe marketplace and position Caliper as a leader in the life sciences toolsmarket.

***Overview of Second Quarter 2007***

During the second quarter of 2007, we achieved total revenue of $35.3million, which represented a 45% increase compared to revenue in the secondquarter of 2006. Our revenue growth in the quarter was mainly attributable tothe overall revenue contributed by Xenogen, which was not included in our prioryear results, along with strong product and revenue performance by ourdevelopment and specialty and microfluidics product lines. These sources ofincreased revenue compensated for lower sales generated from our liquidhandling and automation product lines and license and contract revenues underour Caliper-Driven program. Liquid handling and automation product revenueswere primarily affected by increased competition, while license and contractrevenues were down primarily as a result of an unfavorable quarter over quartercomparison of significant license transactions, involving Wako Pure ChemicalIndustries, Ltd (Wako) in the second quarter of 2007 and Canon U.S. LifeSciences (Canon) in the second quarter of 2006. The timing of significantlicense arrangements under our Caliper Driven program, such as those with Wakoand Canon, is by its nature difficult to predict. Over the second half of 2007,we expect that the performance of our in vivo imaging products and servicesalong with sales from recently launched new microfluidic and automationproducts will result in continuing strong revenue growth and marginimprovement. We are seeking to increase OEM sales by enhancing our existing OEMrelationships and by expanding our efforts to develop new collaborationrelationships.

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During the second quarter of 2007, there were several key highlightscomplementing our financial performance:

·                  TheU.S. Patent and Trademark Office issued a Notice of Allowance to Caliper for apatent covering key methods of in vivo, non-invasive imaging of light generatedwithin mammals. This patent expands our already leading intellectual propertyposition in non-invasive optical imaging technology to also include the use ofconjugates (combination of any biocompatible entity with a light source such asfluorescence) that can be injected into mammals instead of requiring transgenicmodification to produce the light that is imaged. We believe this new patentwill expand our licensing revenue opportunities beginning as early as thesecond half of 2007, and will ultimately support continued increases in productsales.

·                  Wako,a subsidiary of Takeda Pharmaceutical Company, signed a commercial licenseagreement with Caliper. Wako’s intent is to use Caliper’s microfluidicstechnology to develop new diagnostics systems targeted at decentralized testingin hospitals and clinics.

·                  Duringthe quarter, we implemented cost reduction measures to achieve greateroperational efficiency and direct a greater level of resources toward sellingand marketing efforts. We anticipate that these measures will reduce overallspending by approximately $2.0 million on an annualized basis, effectivebeginning in the third quarter of 2007. Severance and other costs related tothese actions amounted to approximately $0.7 million in total and are reflectedin our operating results.

**Critical Accounting Estimates**

The critical accounting policies used in the preparation of ourfinancial statements that we believe affect our significant judgments andestimates used in the preparation of our consolidated financial statementspresented in this report are described in our Management’s Discussion andAnalysis of Financial Condition and Results of Operations, and in the Notes tothe Consolidated Financial Statements, each included in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006. During the firstquarter of 2007, we adopted FIN 48, *Accounting for Uncertaintyin Income Taxes.*The adoption of FIN 48 had no impact on ourfinancial statements. Aside from the adoption of FIN 48, there have been nomaterial changes to the critical accounting policies since the filing of thatreport.

**Resultsof Operations for the Three and Six Months Ended June 30, 2007 and 2006**

Operating results for the six months ended June 30, 2007 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2007. For example, Caliper typically experiences higher revenuesin the fourth quarter of its fiscal year as a result of the capital spendingpatterns of its customers.

***Revenue***
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**            | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product revenue                    |       | $                                | 21,022     |                           | $          | 12,310 |   | 8,712 |   | 71 | % | $ | 36,283 |   | $ | 27,008 |   | $ | 9,275 |   | 34 | % |
|                               |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service revenue                    |       | 8,942                            |       | 5,389                          |       | 3,553 |   | 66 | % | 17,872 |   | 10,432 |   | 7,440 |   | 71 | % |
|                               |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| License fees and  contract revenue |       | 5,326                            |       | 6,627                          |       | (1,301 | ) | (20 | )% | 9,575 |   | 9,185 |   | 390 |   | 4 | % |
|                               |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Revenues                     |       | $                                | 35,290     |                           | $          | 24,326 |   | $ | 10,964 |   | 45 | % | $ | 63,730 |   | $ | 46,625 |   | $ | 17,105 |   | 37 | % |
|                                    |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Total Revenue*.   Our total revenues increase on both a three and six month basisover 2006 resulted primarily from $13.5 million and $23.6 million,respectively, of revenues generated from our acquisition of Xenogen in Augustof 2006. We also experienced growth in our development and specialty markets of$1.6 million and $2.1 million, respectively, during the three and six monthsended June 30, 2007, as well as growth during the most recent three months of$0.6 million in microfluidic product and service sales, excluding OEM sales toAgilent. Offsetting these growth areas during the three and six month periods,respectively, were the following: a decrease in contract and license revenuesof $2.4 million and $1.6 million, which is due to an unfavorable quarter overquarter comparison of significant license transactions, involving Wako in thesecond quarter of 2007 and Canon in the second quarter of 2006; a decrease inAgilent revenues of $0.2 million and $0.9 million, primarily as a result ofAgilent sourcing its own reagents for use with our LabChip products; and adecrease in liquid handling and automation revenue of $1.5 million and $5.1million due primarily to increased competition. All other revenue sources weredown $0.6 million and $0.4 million, resulting primarily from our in vitro drugdiscovery services business.

*Product Revenue*.   Product revenue increased during the three months ended June 30,2007 compared to the same period in 2006 primarily as a result of sales of IVISimaging systems, our core in vivo imaging product line which we acquired aspart of our acquisition of Xenogen. Sales of IVIS imaging systems and relatedaftermarket sales generated approximately $8.3 million of product revenue inthe quarter, which was the primary factor behind the overall product salesincrease. A total of 32 IVIS instruments were sold during the quarter comparedto 29 units sold by Xenogen in the second quarter of 2006, prior to theacquisition when it operated as a stand alone reporting entity. Sales ofmicrofluidic instruments and associated aftermarket sales increased byapproximately $0.4 million compared to 2006, including the effects of reducedsales to Agilent. This increase resulted 

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primarilyfrom continuing strong demand for our LabChip 90 Automated ElectrophoresisSystem. All other product sales were relatively flat on an overall net basis.We experienced, however, an increase of approximately $1.2 million in sales ofour development and specialty product lines which offset a similaryear-over-year decline in liquid handling and automation product sales thatoccurred in the second quarter. Development and specialty products salesincreased primarily as a result of sales of TPW III, our newest tabletprocessing workstation, and AutoTrace workstations. We expect demand for theseinstrument products to remain strong as a result of the need for researchers toautomate and reduce costs associated with quality control and analysis testing.Sales of liquid handling and automation instruments and systems declined duringthe three months ended June 30, 2007 compared to the same period in 2006primarily as a result of greater competition affecting both our direct and OEMselling channels, and a trend toward smaller, more targeted applicationworkstations. We are seeking to address recent declines in liquid handling andautomation through new automation collaborations with future potential OEMpartners, and new product introductions such as our Zephyr liquid handler whichwas introduced during the first quarter of 2007. We are seeing increasingdemand for this recently introduced product.

Product revenue increased during the six months ended June 30, 2007compared to the same period in 2006 primarily as a result of sales of IVISimaging systems and related aftermarket sales which generated approximately$13.5 million of revenue. A total of 57 IVIS instruments were sold during theperiod compared to 47 units sold by Xenogen as a stand alone entity over thefirst half of 2006. All other product sales declined $4.2 million during thesix months ended June 30, 2007 compared to the same period of 2006. Theprincipal cause of this decrease was a $5.1 million decrease in sales of liquidhandling and automation products which included a $2.4 million decrease inStaccato system sales, a $0.9 million decrease in liquid handling workstationsales, and a $1.8 million decrease in OEM and other robotic instrumentrevenues. We attribute these declines, in general, to a more competitiveenvironment for liquid handling and automation solutions. Sales of microfluidicinstruments and associated aftermarket sales decreased by approximately $0.8million on a year-to-date basis in comparison to 2006. This decrease resultedprimarily from the planned reduction in reagent sales to Agilent, which beganto source its own reagents directly in 2006. Sales of development and specialtyproducts increased approximately $1.7 million during the six months ended June30, 2007 compared to the same period in 2006. This increase was due primarilyto the TPW3 workstation sales, and to a lesser extent, increased sales ofspecialty workstations such as AutoTrace and RapidTrace.

*Service Revenue*.   Service revenue increased during the three and six months endedJune 30, 2007 compared to the same period in 2006 primarily as a result of acquiredrevenues of Xenogen Biosciences. During the quarter ended June 30, 2007,maintenance and billable services increased by $1.0 million over the sameperiod in 2006 primarily related to IVIS imaging systems, offset by a decreaseof $0.3 million within CDAS primarily related to in vitro drug discoverycommercial services. During the six months ended June 30, 2007, maintenance andbillable services increased by $2.1 million over the same period in 2006,primarily related to IVIS imaging systems, offset by a decrease of $0.6 millionwithin CDAS related to in vitro drug discovery services.

*License Fees and Contract Revenue.*   License fees and contract revenuedecreased on a combined net basis during the three months ended June 30, 2007compared to the same period in 2006 primarily as a result of a decrease inlicense revenue derived under our Caliper Driven program due to the unfavorablequarter over quarter comparisons as discussed above, offset in part by newimaging license revenue generated as a result of the in vivo imaging patentestate we acquired as a result of our acquisition of Xenogen. On a combinedbasis, these sources of revenue resulted in a $0.5 million net decrease inlicense revenue during the second quarter compared to last year. The remainingdecrease in revenue during the three months ended June 30, 2007 compared to thesame period in 2006 related to a decrease in contract research revenue ofapproximately $0.6 million due to completed projects, and a decrease of $0.2million from government funded research projects. The timing of significantlicense arrangements under our Caliper Driven program, such as those with Wakoand Canon, is by its nature difficult to predict.

License fees and contract revenue increased during the six months endedJune 30, 2007 primarily as a result of $2.5 million of new imaging licenserevenue, which was partially offset by a $1.0 million decrease in revenue frommicrofluidic patent estate licenses granted year-to-date. The remainingdecrease in revenue during the three months ended June 30, 2007 compared to thesame period in 2006 related to a decrease in contract research revenue ofapproximately $0.8 million, and a decrease of $0.4 million from governmentfunded research projects.

***Costs of Revenue***

*** ***
| ** **              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)** | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                | 12,555     |                           | $          | 8,825 |   | $ | 3,730 |   | 42 | % | $ | 22,522 |   | $ | 18,614 |   | $ | 3,908 |   | 21 | % |
| Service                 |       | 5,437                            |       | 2,740                          |       | 2,697 |   | 98 | % | 11,089 |   | 5,579 |   | 5,510 |   | 99 | % |
| License                 |       | 825                              |       | —                         |       | 825 |   | — |   | 1,268 |   | — |   | 1,268 |   | — |   |
| Total Costs             |       | $                                | 18,817     |                           | $          | 11,565 |   | $ | 7,252 |   | 63 | % | $ | 34,879 |   | $ | 24,193 |   | $ | 10,686 |   | 44 | % |

 

*Cost of Product Revenue.*   Cost of product revenue increasedduring the three months ended June 30, 2007 due primarily to overall higherproduct sales, especially resulting from our acquisition of Xenogen, andassociated materials and other variable costs. During the three months endedJune 30, 2007, we incurred a modest level of severance costs associated with areduction in the number of our manufacturing personnel, but otherwise overallspending levels remained consistent with the prior year.

Cost of product revenue during the six months ended June 30, 2007 alsoincreased primarily as a result of higher product sales, notably the result ofour acquisition of Xenogen. Manufacturing spending was relatively unchangedfrom 2006; however, variable costs associated with product sourcing anddistribution were higher by approximately $0.8 million due to increasedfreight, which increased 1.5% of product sales, or $0.4 million, and othermiscellaneous costs.

*Cost of Service Revenue.*   Cost of service revenue increasedduring both the three and six months ended June 30, 2007 primarily due to our 

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acquisitionof Xenogen and its Xenogen Biosciences’ in vivo drug discovery service businessin August 2006. The remaining increases relate to incremental service personnelassociated with the IVIS imaging product line.

*Cost of License Revenue.*   Cost of license revenue incurred duringboth the three and six months ended June 30, 2007 relates to royalties due tocertain third parties for in-licensed technology. The increase over the sameperiods in 2006 relate to new royalty agreements in 2007 and agreements assumedfrom the Xenogen acquisition in August 2006.

*Gross Margins.*   Gross margin on product revenue was 40% for the three monthsended June 30, 2007, as compared to 28% in the same period in 2006. Theincrease in margin was primarily driven by the benefit of greater sales,especially due to added product sales from our acquisition of Xenogen, spreadover a relatively fixed cost base and to a lesser extent, reduced manufacturingpersonnel costs. Gross margin on service revenue was 39% for the three monthsended June 30, 2007, as compared to 49% in the same period in 2006. Thedecrease in 2007 resulted from lower gross margins associated with XenogenBiosciences’ in vivo drug discovery service revenues. Xenogen Biosciencescontributed approximately one-third of total service revenue during the secondquarter of 2007 at an approximate 30% gross margin resulting in a 400 basispoint decrease in services gross margins.

Gross margin on product revenue was 38% for the six months ended June30, 2007, as compared to 31% in the same period during 2006 also as a result ofincreased product sales and relatively stable fixed spending. Gross margin onservice revenue was 38% for the six months ended June 30, 2007, as compared to47% in comparison to the same period in 2006 with the decline also beingattributable to the effect of Xenogen Biosciences service revenues as discussedabove.

***Expenses***
| ** **                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Research and  development              |       | $                                | 6,648      |                           | $          | 4,928 |   | $ | 1,720 |   | 35 | % | $ | 13,422 |   | $ | 9,386 |   | $ | 4,036 |   | 43 | % |
|                                   |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative   |       | 13,306                           |       | 8,929                          |       | 4,377 |   | 49 | % | 25,913 |   | 17,405 |   | $ | 8,508 |   | 49 | % |
|                                   |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of  intangible assets     |       | 2,533                            |       | 1,254                          |       | 1,279 |   | 102 | % | 5,070 |   | 2,509 |   | 2,561 |   | 102 | % |
|                                   |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restructuring  charges, (credits), net |       | (18                              | )          | 32                             |       | (50 | ) | (156 | )% | 7 |   | 73 |   | (66 | ) | (90 | )% |
|                                   |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Research and Development Expenses.*   Research and development expensesincreased during the quarter ended June 30, 2007 compared to the same period in2006 primarily as a result of $1.9 million of in vivo research and developmentspending we assumed as a result of acquiring Xenogen.

Research and development expenses similarly increased during the sixmonths ended June 30, 2007 as a result of the Xenogen acquisition. Otherresearch and development expenses increased by approximately $0.3 millionduring this period, primarily related to a modest increase in personnel andproject materials costs.

As a percentage of revenues, we expect research and development spendingto generally decrease in the future, to the extent our revenues grow, and as wecontinue to closely manage discretionary spending on research and developmentprograms. As part of our Caliper Driven program, we may potentially undertakeprojects that could cause our research and development costs to increase as apercentage of revenue, although such increased spending may be fully orpartially funded by our commercial partners.

*Selling, General and Administrative Expenses.*   Selling, general and administrativeexpenses increased during the quarter ended June 30, 2007 compared to the sameperiod in 2006 primarily as a result of incremental spending we assumed byacquiring Xenogen. The increase in expenses related primarily to $1.6 millionof additional personnel costs, including approximately 20 additional sales andmarketing employees, $0.6 million in increased legal expenses, $1.2 million insales and marketing related expenses, $0.5 million in consulting and accountingfees, and $0.7 million in all other expenses.

Selling, general and administrative expenses increased during the sixmonths ended June 30, 2007 compared to the same period in 2006 also as a resultof incremental spending we assumed by acquiring Xenogen. The increase inexpenses related primarily to $3.5 million of additional personnel costs,including approximately 20 additional sales and marketing employees, $1.1million in increased legal expenses, $1.9 million in sales and marketingrelated expenses, $1.1 million in consulting and accounting fees and $0.9million of all other expenses.

As noted under Part II, Item 1 “Legal Proceedings,” we are presentlyinvolved in certain litigation matters, and we are currently unable to predictthe level of ongoing legal costs that we will have to incur with respect tothese matters.

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*Amortization of Intangible Assets.*   The increase in amortization ofintangible assets for both the three and six months ended June 30, 2007 relatesto the intangible assets acquired in the Xenogen acquisition in August 2006.

*Restructuring Charges.*   We incurred restructuring charges in2007 and 2006 related to acquisition and integration activities that are morefully discussed in Note 6 to the accompanying financial statements.Restructuring charges during the three and six month periods relate toaccretion of interest on facilities, net of sub-lease income and adjustments tothe operating expense assumptions on certain facilities.

***Interest and Other Expense, Net***
| ** **                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands)**         | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest income  (expense), net |       | $                                | (123       | )                              | $          | 180 |   | $ | (303 | ) | (168 | )% | $ | (116 | ) | $ | 371 |   | $ | (487 | ) | (131 | )% |
| Other income  (expense), net    |       | (93                              | )          | 225                            |       | (318 | ) | (141 | )% | (81 | ) | 278 |   | (359 | ) | (129 | )% |
|                                 |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Interest Income, Net.*   Interest income, net, decreased duringthe three and six months ended June 30, 2007 compared to the same period in2006, primarily due to interest expense of $0.2 and $0.4 million, respectively,incurred on outstanding borrowing under our credit facility. In addition,interest income decreased during the three and six months ended June 30, 2007,compared to 2006 primarily due to lower cash, cash equivalents and marketablesecurities balances.

*Other Income, Net.*   Other income, net, decreased on a three and six month basiscompared to 2006 due to gains and losses associated with recording accountbalances denominated in non-U.S. currencies at fair market value. During thethree and six months ended June 30, 2007, we incurred foreign currencytransaction losses of approximately $0.1 million, compared to transaction gainsof $0.3 million for the same periods in 2006.

**Liquidity and Capital Resources**

As of June 30, 2007, we had $16.5 million in cash, cash equivalents andmarketable securities, as compared to $24.9 million as of December 31, 2006.

As noted in Note 7 of the Notes to Condensed Consolidated FinancialStatements, on August 9, 2006, we entered into a Credit Facility with a bankwhich permits us to borrow up to $20.0 million in the form of revolving loanadvances including up to $5.0 million in the form of letters of credit.Principal borrowings under the Credit Facility accrue interest at a floatingper annum rate equal to the prime rate if our unrestricted cash held at thebank exceeds $20.0 million, or prime plus one-half of one percentage point ifCaliper’s unrestricted cash held at the bank is below $20.0 million. Under theCredit Facility, we are permitted to borrow up to $20.0 million, provided wemaintain unrestricted cash of at least $20.0 million with the bank, or areotherwise subject to a borrowing base limit consisting of up to (a) 80% ofeligible accounts receivable, as defined, plus (b) the lesser of 90% of ourunrestricted cash maintained at the bank or $10.0 million. The Credit Facilityhas a two-year initial maturity. Through February 9, 2008, we are required topay interest on a minimum of $8.0 million of outstanding borrowings.

The Credit Facility includes traditional lending and reporting covenantsincluding that certain financial covenants applicable to liquidity and earningsare to be maintained by us and tested as of the last day of each quarter. As ofJune 30, 2007, Caliper was in compliance with these covenants. The CreditFacility also includes several potential events of default that could causeinterest to be charged at prime plus two percentage points, or, in the event ofany uncured events of default, could result in the bank’s right to declare alloutstanding obligations immediately due and payable. The Credit Facility willserve as a source of capital for ongoing operations and working capital needs.

***Cash Flows***
| ** **                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **$ Change** | ** ** |
| Cash provided by  (used in) |       |                                              |       |   |   |   |   |
| Operating  Activities       |       | $                                                 | (13,084    | ) | $ | (3,353 | ) | $ | (9,731 | ) |
| Investing  Activities       |       | 6,631                                             |       | 3,596 |   | 3,035 |   |
| Financing  Activities       |       | 6,246                                             |       | 976 |   | 5,270 |   |
|                             |            |                                                   |            |  |  |  |  |  |  |  |

 

*Operating Activities.*   During the six months ended June 30,2007 we used $13.1 million of cash for operating activities which includedapproximately $2.8 million related to severance payments to former Xenogenemployees and payments of $2.2 million related to our idle facilities. We usedapproximately $8.1 million of cash to fund operations and working capitalneeds.

*Investing Activities.*   During the six months ended June 30,2007, net proceeds from purchases, sales and maturities of marketablesecurities generated $8.3 million of cash which we used primarily foroperations. Our primary investing activities were the purchase of property andequipment of $0.8 million.

*Financing Activities.*   During the six months ended June 30,2007, financing cash proceeds were principally comprised of $4.3 million of netborrowings under our Credit Facility. Other proceeds were from participation inour employee stock purchase plan and option exercises.

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**Contractual Obligations**

The commitments under leases and other obligations are described in our Management’sDiscussion and Analysis of Financial Condition and Results of Operations and inthe Notes to the Consolidated Financial Statements included in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2006. Otherthan the in-license arrangement with Monogram Biosciences described in footnote8 in Notes to Consolidated Financial Statements included in this Form 10-Qfiling, there has been no material change during the six months ended June 30,2007 in the contractual obligations disclosed at December 31, 2006.

***Capital Requirements***

Our capital requirements depend on numerous factors, including marketacceptance of our products, the resources we devote to developing andsupporting our products, and acquisitions. We expect to devote substantialcapital resources to continuing our research and development efforts, expandingour support and product development activities, and for other general corporateactivities. Our future capital requirements will depend on many factors,including:

·                  continued market acceptance of our in vivoimaging, microfluidic and lab automation products;

·                  the magnitude and scope of our research andproduct development programs;

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

·                  the time and costs involved in expanding andmaintaining our manufacturing facilities;

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

·                  otherfactors not within our control.

Based on current plans, we expect that our current cash balancestogether with borrowing availability under the Credit Facility will besufficient to fund our operations at least through the end of 2008.

**Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk**

***Interest Rate Sensitivity***

Our primary market risk exposures are foreign currency fluctuation andinterest rate sensitivity. There have been no material changes to theinformation included under Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in our Annual Report on Form 10-K for thefiscal year ended December 31, 2006.

**Item 4. Controls and Procedures**

We evaluated our “disclosure controls and procedures” as defined byExchange Act Rules 13a-15(e) and 15d-15(e), as of June 30, 2007. Thisevaluation was done under the supervision and with the participation of Caliper’smanagement, including our chief executive officer and our chief financialofficer.

**Evaluation of Disclosure Controls and Procedures.**   We have established disclosure controlsand procedures that are designed to provide reasonable assurance thatinformation required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934, such as this Quarterly Report on Form 10-Q, is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms. Disclosure controls are also designed to provide reasonableassurance that such information is accumulated and communicated to ourmanagement, including our chief executive officer and chief financial officer,as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of June 30, 2007, the chief executiveofficer and the chief financial officer have concluded that our disclosurecontrols and procedures are effective to provide reasonable assurance thatinformation we are required to disclose in reports that we file or submit underthe Securities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms.

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

**Changes in Internal Controls.**   No changes in our internal control overfinancial reporting identified in connection with the evaluation of suchinternal control occurred during the second quarter of 2007, that materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

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**Part II — OTHER INFORMATION**

**Item 1.Legal Proceedings**

Commencing on June 7, 2001, Caliper and three of its officers anddirectors (David V. Milligan, Daniel L. Kisner and James L. Knighton) werenamed as defendants in three securities class action lawsuits filed in theUnited States District Court for the Southern District of New York. The caseshave 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 companiesthat conducted initial public offerings of their common stock during the late1990s (the “IPO Lawsuits”). On August 8, 2001, the IPO Lawsuits wereconsolidated for pretrial purposes before United States Judge Shira Scheindlinof the Southern District of New York. Together, those cases are denominated Inre Initial Public Offering Securities Litigation, 21 MC 92(SAS). OnApril 19, 2002, a Consolidated Amended Complaint was filed alleging claimsagainst Caliper and the individual defendants under Sections 11 and 15 ofthe Securities Act of 1933, and under Sections 10(b) and20(a) of the Securities Exchange Act of 1934, as well as Rule 10b-5promulgated thereunder. The Consolidated Amended Complaint also names certainunderwriters of Caliper’s December 1999 initial public offering of commonstock as defendants. The Complaint alleges that these underwriters chargedexcessive, undisclosed commissions to investors and entered into improperagreements with investors relating to aftermarket transactions. The Complaintseeks an unspecified amount of money damages. Caliper and the other issuersnamed as defendants in the IPO Lawsuits moved on July 15, 2002, to dismissall claims on multiple grounds. By Stipulation and Order dated October 9,2002, the claims against Messrs. Milligan, Kisner and Knighton weredismissed without prejudice. On February 19, 2003, the Court grantedCaliper’s motion to dismiss all claims against it. Plaintiffs were not giventhe right to replead the claims against Caliper. The time to appeal thedismissal has not yet expired. During 2003, a settlement, subject to finalapproval by Judge Scheindlin, was reached among the plaintiffs, the issuers andtheir insurers that would result in the termination of all claims brought byplaintiffs against the issuers and individual defendants named in the IPOLawsuits. On July 7, 2003, a Special Litigation Committee of the CaliperBoard of Directors approved the terms of this settlement, which was subject toapproval by Judge Scheindlin. Judge Scheindlin held a fairness hearing forfinal approval of the settlement on April 24, 2006, but did not issue anapproval order. On December 5, 2006 the Court of Appeals for the SecondCircuit issued an opinion reversing Judge Scheindlin’s prior certification ofthe plaintiff classes in several “focus” cases pending before her as part ofthe consolidated IPO Lawsuits. DAs a result of this ruling, on June 25, 2007,Judge Scheindlin issued an order terminating the settlement among theplaintiffs, the issuers and their insurers. The parties in the “focus” caseshave agreed to a schedule for the filing of papers seeking certification of anew class of plaintiffs, which will not be completed until February 2008. Thefinal resolution of this litigation is not expected to have a material impacton Caliper.

On March 7, 2005, AntiCancer, Inc. filed a lawsuit againstXenogen in the U.S. District Court for the Southern District of California (the“Court”) alleging infringement of five patents of AntiCancer. The complaintseeks damages and injunctive relief against the alleged infringement. OnMarch 29, 2005, AntiCancer amended its complaint to include an additionalclaim seeking a judgment that one of Xenogen’s imaging patents exclusivelyin-licensed from Stanford University, U.S. patent No. 5,650,135, isinvalid. On May 10, 2005, Xenogen filed its answer to AntiCancer’s amendedcomplaint. Xenogen denied all of AntiCancer’s allegations and asserted variousaffirmative defenses, including its position that AntiCancer’s patents cited inits complaint, and its patent claims relating to in vivo imaging offluorescence, are invalid, unenforceable, and not infringed by Xenogen.Caliper, as successor-in-interest to Xenogen, continues to vigorously defenditself against AntiCancer’s claims and believes AntiCancer’s complaint iswithout merit. Concurrent with filing Xenogen’s answer to AntiCancer’s originalcomplaint, Xenogen had filed its own counterclaims against AntiCancer. Xenogen’scounterclaims allege that AntiCancer infringes four of Xenogen’s U.S. patents,Nos. 5,650,135, 6,649,143, 6,939,533, and 6,916,462, all of which relate to invivo imaging and have earlier priority dates than each of the patents assertedby AntiCancer in its amended complaint. Both parties seek injunctive relief andan unspecified amount of damages, including enhanced damages for willfulinfringement. Caliper intends to vigorously pursue its claims againstAntiCancer. The Court completed the first three days of a Markman hearingrelating to these claims from June 13, 2006 through June 15, 2006.The Court then stopped the Markman hearing in order to permit Xenogen to pursuea motion to disqualify counsel for AntiCancer based on information discoveredby Xenogen on the first day of the Markman hearing. On July 14, 2006, Xenogenfiled a motion to disqualify AntiCancer’s attorneys due to numerous violationsof ethical rules by such attorneys. After a hearing on Xenogen’s motion todisqualify AntiCancer’s attorneys due to numerous violations of ethicalrules by such attorneys, on August 10, 2006, the Court issueddetailed findings of fact which found several violations of applicable ethicalrules by counsel for AntiCancer. As a result, the Court issued an Order whichgranted Xenogen’s motion to disqualify AntiCancer’s attorneys. OnOctober 18, 2006, the Court issued a supplemental and clarifying Order toits previous August 10, 2006 Order in which the Court, among other things,(i) granted Xenogen’s motion to restart the Markman hearing, (ii) grantedXenogen’s motion to prohibit the transfer of tainted files to AntiCancer’ssuccessor counsel, and (iii) granted AntiCancer permission untilNovember 6, 2006 to amend its complaint. On November 6, 2006,AntiCancer filed its third amended complaint in this matter and voluntarilydismissed Stanford University from this proceeding. In response to AntiCancer’sthird amended complaint, Xenogen filed a motion to strike and for a moredefinite statement. On April 12, 2007, the Court issued an Order which notedthat all of Xenogen’s objections set forth in its motion to strike and for amore definite statement had merit, and granted AntiCancer leave to file afourth amended complaint. AntiCancer filed its fourth amended complaint on May15, 2007. The fourth amended complaint names Xenogen, Caliper Life Sciences,Inc., and Caliper Holdings, Inc. as defendants. In its fourth amendedcomplaint, AntiCancer dropped three of the five patents it had previouslyasserted. Caliper filed a motion to dismiss AntiCancer’s fourth amendedcomplaint on June 18, 2007. A hearing on this motion is scheduled for August13, 2007. After that motion is decided, Caliper will determine what, if any,claims to assert and reassert against AntiCancer. Another case managementconference is currently scheduled for September 13, 2007.

Caliper currently is not able to predict the outcome of the patentinfringement lawsuit with AntiCancer. Even if Caliper prevails in this lawsuit,the defense of the lawsuit or similar lawsuits will be expensive andtime-consuming and may distract Caliper management from operating Caliper’sbusiness.

From time to time Caliper is involved in litigation arising out ofclaims in the normal course of business. Based on the information presentlyavailable, management believes that there are no other claims or actionspending or threatened against Caliper, the ultimate resolution of which willhave a material adverse effect on our financial position, liquidity or resultsof operations, although the results of litigation are inherently uncertain, andadverse outcomes are possible.

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**Item 1A. Risk Factors**

Our risk factors are described in Part I, Item1A of our Annual Report on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2006. There have been no materialchanges in the risks affecting Caliper since the filing of our Form 10-K.

**Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds**

None.

**Item 3. Defaults Upon Senior Securities**

None.

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

Our 2007 Annual Meeting of Shareholders washeld on June 5, 2007. There were present at the meeting, in person orrepresented by proxy, the holders of 39,052,486 shares of common stock. Thematters voted on at the meeting and the votes cast are as follows:

(1)Three persons were elected to serve as directors of the company to hold officeuntil our 2010 Annual Meeting of Stockholders or until their respectivesuccessors are chosen and qualified. The following is a table setting forth thenumber of votes cast for and withheld for each nominee for director:

| Name of Nominee | ** ** | **No. of Common  Votes in Favor** | ** ** | **No. of Common  Votes Withheld** | ** ** |
|---------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| Van Billet                |       | 37,168,330                                            |       | 1,884,156                                        |       |
| Robert C.  Bishop, Ph.D.  |       | 36,748,158                                            |       | 2,304,328                                        |       |
| David V. Milligan,  Ph.D. |       | 38,523,265                                            |       | 529,221                                          |       |

 

(2)The appointment of Ernst & Young LLP as our independent registered publicaccounting firm for the fiscal year ending December 31, 2007 was ratified. Therewere 38,898,284 shares of common stock voting in favor, 134,947 shares ofcommon stock voting against, and 19,255 shares of common stock abstaining withzero broker non-votes.

(3)A proposed amendment to the 1999 Non-Employee Director Equity Incentive Planwas approved (i) to enable grants of stock awards in the form of restrictedstock units (RSUs) to be made to non-employee directors under such Plan, and(ii) to change the annual, non-discretionary awards to be made annually tonon-employee directors in office for at least six months to a fixed dollarvalue, which will be split evenly on a dollar value basis between an award ofstock options and an award of RSUs. There were 20,828,872 shares of commonstock voting in favor, 13,088,505 shares of common stock voting against, 36,262shares of common stock abstaining and 5,098,847 broker non-votes.

**Item 5. Other Information**

None.

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**Item 6.Exhibits**

**EXHIBIT INDEX**
| Exhibit  Number | ** ** | **Description of document**                                                                                                                                                                                                                                                                                    | ** ** |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1(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.                                                                                                                                                                                                                                                                                             |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 4.2(5)          |       | Specimen Stock  Certificate.                                                                                                                                                                                                                                                                                             |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 4.3(6)          |       | Rights Agreement, dated as of December 18,  2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent.                                                                                                                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 10.1            |       | Second Loan Modification Agreement, dated as of June  28, 2007, among Silicon Valley Bank, Caliper Life Sciences, Inc.,  NovaScreen Biosciences Corporation, Xenogen Corporation and Xenogen  Biosciences Corporation (filed as Exhibit 10.1 to Caliper’s Current Report on  Form 8-K filed on June 29, 2007). |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 10.2(7)         |       | 1999 Non-Employee Directors’ Equity Incentive Plan  amended and approved on June 5, 2007.                                                                                                                                                                                                                      |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 31.1            |       | Certification of Chief Executive Officer Required  Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange  Act of 1934, as amended, and pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 31.2            |       | Certification of Chief Financial Officer Required  Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange  Act of 1934, as amended, and pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 32.1*           |       | Certification of Chief Executive Officer Required  Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange  Act of 1934, as amended, and 18 U.S.C. Section 1350.                                                                                                                                |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 32.2*           |       | Certification of Chief Financial Officer Required  Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange  Act of 1934, as amended, and 18 U.S.C. Section 1350.                                                                                                                                |       |

----

(1)             Previouslyfiled as the like-numbered Exhibit to Form 10-Q for the quarterly period endedMarch 31, 2004 and incorporated by reference herein.

(2)             Previouslyfiled as Exhibit 4.1 to Current Report on Form 8-K filed December 19,2001 and incorporated by reference herein.

(3)             Previouslyfiled as Exhibit 3.1 to Current Report on Form 8-K filed March 2, 2007.

(4)             Previouslyfiled as the like-numbered Exhibit to Form 10-K for the year ended December 31,2002 and incorporated by reference herein.

(5)             Previouslyfiled as the like-numbered Exhibit to Annual Report on Form 10-K for the annualperiod ended December 31, 2004 and incorporated by reference herein.

(6)             Previouslyfiled as Exhibit 99.2 to Current Report on Form 8-K filed December 19, 2001 andincorporated by reference herein.

(7)             Previouslyfiled as Attachment A to Proxy Statement on Form DEF 14A filed onApril 25, 2007.

*                    Thecertifications attached as Exhibits 32.1 and 32.2 accompany this QuarterlyReport on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of2002 and shall not be deemed “filed” by Caliper for purposes of Section 18of the Securities Exchange Act of 1934, as amended.

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|                                  | **CALIPER LIFE SCIENCES, INC.**                      |
|----------------------------------|------------------------------------------------------|
|                             |                                                 |   |
| Date:  August  9, 2007 | By:                                                  | /s/ E. Kevin Hrusovsky |
|                             | E. Kevin Hrusovsky                                   |
|                             | Chief Executive Officer and President                |
|                             |                                                 |   |
|                             | By:                                                  | /s/ Thomas T. Higgins |
|                             | Thomas T. Higgins                                    |
|                             | Executive Vice President and Chief Financial Officer |

 

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**EXHIBIT INDEX**

** **
| Exhibit  Number | ** ** | **Description of document**                                                                                                                                                                                                                                                                                    | ** ** |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1(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.                                                                                                                                                                                                                                                                                             |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 4.2(5)          |       | Specimen Stock  Certificate.                                                                                                                                                                                                                                                                                             |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 4.3(6)          |       | Rights Agreement, dated as of December 18,  2001, between Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent.                                                                                                                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 10.1            |       | Second Loan Modification Agreement, dated as of June  28, 2007, among Silicon Valley Bank, Caliper Life Sciences, Inc.,  NovaScreen Biosciences Corporation, Xenogen Corporation and Xenogen  Biosciences Corporation (filed as Exhibit 10.1 to Caliper’s Current Report on  Form 8-K filed on June 29, 2007). |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 10.2(7)         |       | 1999 Non-Employee Directors’ Equity Incentive Plan  amended and approved on June 5, 2007.                                                                                                                                                                                                                      |       |   |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 31.1            |       | Certification of Chief Executive Officer Required  Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange  Act of 1934, as amended, and pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 31.2            |       | Certification of Chief Financial Officer Required  Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange  Act of 1934, as amended, and pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                            |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 32.1*           |       | Certification of Chief Executive Officer Required  Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange  Act of 1934, as amended, and 18 U.S.C. Section 1350.                                                                                                                                |       |
|            |       |                                                                                                                                                                                                                                                                                                                     |       |
| 32.2*           |       | Certification of Chief Financial Officer Required  Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange  Act of 1934, as amended, and 18 U.S.C. Section 1350.                                                                                                                                |       |
|                 |            |                                                                                                                                                                                                                                                                                                                          |            |  |  |  |

----

(1)             Previouslyfiled as the like-numbered Exhibit to Form 10-Q for the quarterly period endedMarch 31, 2004 and incorporated by reference herein.

(2)             Previouslyfiled as Exhibit 4.1 to Current Report on Form 8-K filed December 19,2001 and incorporated by reference herein.

(3)             Previouslyfiled as Exhibit 3.1 to Current Report on Form 8-K filed March 2, 2007.

(4)             Previouslyfiled as the like-numbered Exhibit to Form 10-K for the year endedDecember 31, 2002 and incorporated by reference herein.

(5)             Previouslyfiled as the like-numbered Exhibit to Annual Report on Form 10-K for the annualperiod ended December 31, 2004 and incorporated by reference herein.

(6)             Previouslyfiled as Exhibit 99.2 to Current Report on Form 8-K filed December 19, 2001 andincorporated by reference herein.

(7)             Previouslyfiled as Attachment A to Proxy Statement on Form DEF 14A filed onApril 25, 2007.

*                    Thecertifications attached as Exhibits 32.1 and 32.2 accompany this QuarterlyReport on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of2002 and shall not be deemed “filed” by Caliper for purposes of Section 18of the Securities Exchange Act of 1934, as amended.

 

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