Tableof Contents

 

 

 

**UNITEDSTATES SECURITIES AND EXCHANGE**

**COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

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

 

**for thequarterly period ended March 31, 2010.**

 

**Or**

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

 

**for thetransition period from                 to                 .**

 

**Commissionfile # 001-32976**

 

**CALIPERLIFE SCIENCES, INC.**

(Exact name of registrantas specified in its charter)

 

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

 

**68 ElmStreet**

**Hopkinton,Massachusetts 01748**

(Address and zip code ofprincipal executive offices)

 

Registrant’s telephonenumber, including area code:**(508) 435-9500**

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch 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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes  o  No  o

 

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

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

 

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

 

**NUMBER OF SHARES OF COMMON STOCKOUTSTANDING ON April 30, 2010: 49,990,434**

 

 

 

----

Tableof Contents

 

**CALIPERLIFE SCIENCES, INC.**

 

**TABLE OFCONTENTS**

 
| ** **                                                                                                | **Page** |
|-----------------------------------------------------------------------------------------------------------|----------|
| PART I    FINANCIAL INFORMATION                                                                 | 2        |
|                                                                                                      |     |
| Item 1.  Financial Statements (unaudited)                                                            | 2        |
| Condensed Consolidated Balance Sheets  as of March 31, 2010 and December 31, 2009               | 2        |
| Condensed Consolidated  Statements of Operations for the Three Months Ended March 31, 2010 and  2009 | 3        |
| Condensed Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2010 and  2009 | 4        |
| Notes to  Condensed Consolidated Financial Statements                                                     | 5        |
|                                                                                                      |     |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 14       |
|                                                                                                      |     |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  | 19       |
|                                                                                                      |     |
| Item 4.  Controls and Procedures                                                                     | 19       |
|                                                                                                      |     |
| PART II   OTHER INFORMATION                                                                     | 21       |
|                                                                                                      |     |
| Item 1. Legal  Proceedings                                                                                | 21       |
|                                                                                                      |     |
| Item  1A. Risk Factors                                                                                    | 21       |
|                                                                                                      |     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 | 21       |
|                                                                                                      |     |
| Item 3.  Defaults Upon Senior Securities                                                             | 21       |
|                                                                                                      |     |
| Item 4. Reserved                                                                                     | 21       |
|                                                                                                      |     |
| Item 5. Other  Information                                                                           | 21       |
|                                                                                                      |     |
| 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                                                            |     |

 

1

----

Tableof Contents

 

**PART I. FINANCIAL INFORMATION**

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

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

 

**Item1.    Financial Statements**

 
| ** **                                                                                                                                              | ** ** | **March 31,  2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                              | ** ** | ** **               | ** ** | ** **                      | ** ** |
| Current assets:                                                                                                                                         |       |                     |       |                            |       |
| Cash and cash equivalents                                                                                                                               |       | $                        | 26,100     |                            | $          | 34,522 |   |
| Marketable  securities                                                                                                                                  |       | 10,311                   |       | 3,525                           |       |
| Accounts  receivable, net                                                                                                                               |       | 21,181                   |       | 26,816                          |       |
| Inventories                                                                                                                                             |       | 12,204                   |       | 11,525                          |       |
| Prepaid expenses  and other current assets                                                                                                              |       | 3,348                    |       | 2,385                           |       |
| Total current  assets                                                                                                                                   |       | 73,144                   |       | 78,773                          |       |
| Property and equipment,  net                                                                                                                            |       | 9,058                    |       | 9,107                           |       |
| Intangible  assets, net                                                                                                                                 |       | 23,969                   |       | 25,222                          |       |
| Goodwill                                                                                                                                                |       | 21,011                   |       | 21,011                          |       |
| Other assets                                                                                                                                            |       | 320                      |       | 359                             |       |
| Total assets                                                                                                                                            |       | $                        | 127,502    |                            | $          | 134,472 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                          | ** ** | ** **               | ** ** | ** **                      | ** ** |
| Current  liabilities:                                                                                                                                   |       |                     |       |                            |       |
| Accounts payable                                                                                                                                        |       | $                        | 5,013      |                            | $          | 5,114 |   |
| Accrued  compensation                                                                                                                                   |       | 5,088                    |       | 8,085                           |       |
| Other accrued  liabilities                                                                                                                              |       | 8,732                    |       | 9,735                           |       |
| Deferred revenue  and customer deposits                                                                                                                 |       | 12,737                   |       | 12,390                          |       |
| Current portion  of accrued restructuring                                                                                                               |       | 1,290                    |       | 1,449                           |       |
| Borrowings under  credit facility                                                                                                                       |       | 14,900                   |       | 14,900                          |       |
| Total current  liabilities                                                                                                                              |       | 47,760                   |       | 51,673                          |       |
| Noncurrent  portion of accrued restructuring                                                                                                            |       | 1,970                    |       | 2,232                           |       |
| Other noncurrent  liabilities                                                                                                                           |       | 6,027                    |       | 6,429                           |       |
| Deferred tax  liability                                                                                                                                 |       | 1,128                    |       | 1,128                           |       |
| Commitments and  contingencies                                                                                                                          |       |                     |       |                            |       |
| Stockholders’  equity:                                                                                                                             |       |                     |       |                            |       |
| Preferred stock,  $0.001 par value; 5,000,000 shares authorized, no shares issued and  outstanding                                                      |       | —                   |       | —                          |       |
| Common stock,  $0.001 par value; 100,000,000 shares authorized, 49,850,392 and 49,324,699  shares issued and outstanding in 2010 and 2009, respectively |       | 50                       |       | 49                              |       |
| Additional  paid-in capital                                                                                                                             |       | 383,377                  |       | 383,306                         |       |
| Accumulated  deficit                                                                                                                                    |       | (312,855                 | )          | (310,637                        | )          |
| Accumulated  other comprehensive income                                                                                                                 |       | 45                       |       | 292                             |       |
| Total  stockholders’ equity                                                                                                                        |       | 70,617                   |       | 73,010                          |       |
| Total  liabilities and stockholders’ equity                                                                                                        |       | $                        | 127,502    |                            | $          | 134,472 |   |

 

*Seeaccompanying notes.*

 

2

----

Tableof Contents

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                                                             | ** ** | **Three Months Ended********March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2010**                                               | ** ** | **2009** | ** ** |
| Revenues:                                                              |       |                                                   |       |   |   |
| Product revenue                                                        |       | $                                                      | 20,367     |   | $ | 18,309 |   |
| Service revenue                                                        |       | 5,081                                                  |       | 7,657 |   |
| License fees and  contract revenue                                     |       | 3,204                                                  |       | 2,506 |   |
| Total revenue                                                          |       | 28,652                                                 |       | 28,472 |   |
| Costs and  expenses:                                                   |       |                                                   |       |   |   |
| Cost of product  revenue                                               |       | 10,296                                                 |       | 11,253 |   |
| Cost of service  revenue                                               |       | 3,190                                                  |       | 5,707 |   |
| Cost of license  revenue                                               |       | 405                                                    |       | 392 |   |
| Research and  development                                              |       | 4,347                                                  |       | 4,551 |   |
| Selling, general  and administrative                                   |       | 10,858                                                 |       | 11,185 |   |
| Amortization of  intangible assets                                     |       | 1,254                                                  |       | 1,557 |   |
| Restructuring  charges, net                                            |       | 31                                                     |       | 23 |   |
| Total costs and  expenses                                              |       | 30,381                                                 |       | 34,668 |   |
| Operating loss                                                         |       | (1,729                                                 | )          | (6,196 | ) |
| Interest  expense, net                                                 |       | (130                                                   | )          | (212 | ) |
| Other expense,  net                                                    |       | (351                                                   | )          | (183 | ) |
| Loss before  income taxes                                              |       | (2,210                                                 | )          | (6,591 | ) |
| Provision for  income taxes                                            |       | (8                                                     | )          | (54 | ) |
| Net loss                                                               |       | $                                                      | (2,218     | ) | $ | (6,645 | ) |
|                                                                   |       |                                                   |       |   |   |
| Net loss per  common share, basic and diluted                          |       | $                                                      | (0.04      | ) | $ | (0.14 | ) |
| Shares used in  computing net loss per common share, basic and diluted |       | 49,479                                                 |       | 48,626 |   |

 

*Seeaccompanying notes.*

 

3

----

Tableof Contents

 

**CALIPERLIFE SCIENCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited,in thousands)**

 
| ** **                                                                | ** ** | **Three  Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                | ** ** | **2010**                          | ** ** | **2009** | ** ** |
| **Operating  activities**                                                 |       |                              |       |   |   |
| Net loss                                                                  |       | $                                 | (2,218     | ) | $ | (6,645 | ) |
| Adjustments to  reconcile net loss to net cash from operating activities: |       |                              |       |   |   |
| Depreciation and  amortization                                            |       | 1,895                             |       | 2,376 |   |
| Stock-based  compensation expense, net                                    |       | 1,012                             |       | 915 |   |
| Non-cash  restructuring charges, net                                      |       | 31                                |       | 23 |   |
| Foreign currency  exchange losses                                         |       | 401                               |       | 174 |   |
| Changes in  operating assets and liabilities:                             |       |                              |       |   |   |
| Accounts  receivable                                                      |       | 5,206                             |       | 4,621 |   |
| Inventories                                                               |       | (849                              | )          | 22 |   |
| Prepaid expenses  and other current assets                                |       | (970                              | )          | (902 | ) |
| Accounts payable  and other accrued liabilities                           |       | (1,012                            | )          | (2,391 | ) |
| Accrued  compensation                                                     |       | (3,906                            | )          | 36 |   |
| Deferred revenue  and customer deposits                                   |       | 478                               |       | (368 | ) |
| Other noncurrent  liabilities                                             |       | (402                              | )          | 314 |   |
| Payments of  accrued restructuring obligations, net                       |       | (445                              | )          | (470 | ) |
| Net cash from  operating activities                                       |       | (779                              | )          | (2,295 | ) |
|                                                                      |       |                              |       |   |   |
| **Investing  activities**                                                 |       |                              |       |   |   |
| Purchases of  marketable securities                                       |       | (7,390                            | )          | (2,832 | ) |
| Proceeds from  sales of marketable securities                             |       | —                            |       | 400 |   |
| Proceeds from  maturities of marketable securities                        |       | 600                               |       | 1,156 |   |
| Other assets                                                              |       | 1                                 |       | 6 |   |
| Purchases of  property and equipment                                      |       | (620                              | )          | (535 | ) |
| Net cash from  investing activities                                       |       | (7,409                            | )          | (1,805 | ) |
| **Financing  activities**                                                 |       |                              |       |   |   |
| Borrowings under  credit facility                                         |       | (12,900                           | )          | — |   |
| Payments of  credit facility and other obligations                        |       | 12,900                            |       | — |   |
| Proceeds from  issuance of common stock                                   |       | 34                                |       | 22 |   |
| Net cash from  financing activities                                       |       | 34                                |       | 22 |   |
| Effect of  exchange rates on changes in cash and cash equivalents         |       | (268                              | )          | (56 | ) |
| Net decrease in  cash and cash equivalents                                |       | (8,422                            | )          | (4,134 | ) |
| Cash and cash  equivalents at beginning of period                         |       | 34,522                            |       | 23,667 |   |
| Cash and cash  equivalents at end of period                               |       | $                                 | 26,100     |   | $ | 19,533 |   |

 

*Seeaccompanying notes.*

 

4

----

 

 

Tableof Contents

 

**CALIPERLIFE SCIENCES, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**March 31,2010**

**(Unaudited)**

 

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

 

***Basis of Presentation***

 

The accompanyingunaudited consolidated financial statements of Caliper Life Sciences, Inc.and its wholly owned subsidiaries (collectively, the “Company” or “Caliper”)have been prepared by the Company pursuant to the rules and regulations ofthe Securities and Exchange Commission (“SEC”) and generally acceptedaccounting principles for interim financial information. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles (“GAAP”) havebeen condensed or omitted pursuant to such rules or regulations. The December 31,2009 consolidated balance sheet has been derived from the Company’s auditedfinancial statements as of that date, but does not include all disclosuresrequired by U.S. GAAP.  However, in theopinion of management, all adjustments (consisting of normal recurring entries)considered necessary for a fair presentation have been included. Theseunaudited consolidated financial statements should be read in conjunction withCaliper’s Annual Report on Form 10-K for the year ended December 31,2009.

 

Operating results for thethree months ended March 31, 2010, are not necessarily indicative of theresults that may be expected for the full fiscal year or for any futureperiods. For example, the Company typically experiences higher revenue in thefourth quarter of its fiscal year due to spending patterns of its customers,and may realize significant periodic fluctuations in license and contractrevenue depending on the timing and circumstances of underlying individualtransactions.

 

***Summary of Significant Accounting Principles***

 

The accounting policiesunderlying the accompanying unaudited consolidated financial statements arethose set forth in Note 2 to the consolidated financial statementsincluded in the Company’s Annual Report on Form 10-K for the year ended December 31,2009, filed with the SEC on March 12, 2010. Those policies are notpresented herein, except to the extent that new policies have been adopted orthat the description of existing policies has been meaningfully updated.

 

***Revenue Recognition***

 

*GeneralPolicy*

 

Caliper recognizesrevenue when persuasive evidence of an arrangement exists, delivery hasoccurred or services have been rendered, the fee is fixed or determinable, andcollectability is reasonably assured or probable, as applicable.  Sales made by Caliper do not typicallyinclude general return rights or privileges. In the limited circumstance wherea right of return exists, Caliper recognizes revenue when the right has lapsed.Based upon Caliper’s prior experiences, sales returns have not been significantand therefore a general provision for sales returns or other allowances is notrecorded at the time of sale. Provision is made at the time of sale forestimated costs related to Caliper’s warranty obligations to customers.

 

Cash received fromcustomers as advance deposits for undelivered products and services includingcontract research and development services, is recorded within customerdeposits until revenue is recognized. Revenue related to annual maintenancecontracts or other remaining undelivered performance obligations is deferredand recognized upon completion of the underlying performance criteria.

 

*ProductRevenue*

 

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

 

5

----

Tableof Contents

 

*Serviceand Annual Maintenance Agreements*

 

Caliper’s general policyis to recognize revenue as services are performed, typically using theproportional performance method based upon defined outputs or other reasonablemeasures as applicable, or ratably over the contract service term in the caseof annual maintenance contracts. Customers may purchase optional warrantycoverage during the initial standard warranty term and annual maintenancecontracts beyond the standard warranty expiration. These optional serviceofferings are not included in the price Caliper charges customers for theinitial product purchase. Under Caliper’s standard warranty, the customer isentitled to repair or replacement of defective goods.

 

*Licensingand Royalty*

 

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

 

*ContractRevenue*

 

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

 

***FairValues of Assets and Liabilities***

 

Caliper measures fairvalue at the price that would be received to sell an asset or paid to transfera liability in an orderly transaction between market participants at themeasurement date.  Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) 820, *Fair ValueMeasurements*, prioritizes the assumption that market participantswould use in pricing the asset or liability (the “inputs”) into a three-tierfair value hierarchy.  This fair value hierarchy gives the highestpriority (Level 1) to quoted prices in active markets for identical assets orliabilities and the lowest priority (Level 3) to unobservable inputs in whichlittle or no market data exists, requiring companies to develop their ownassumptions.

 

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

 

On March 31, 2010,Caliper’s investments were valued in accordance with the fair value hierarchyas follows (in thousands):

 
| ** **                       | ** ** | **Total  Fair********Value** | ** ** | **Quoted********Prices in********Active********Markets********(Level 1)** | ** ** | **Observable********Inputs********(Level 2)** | ** ** | **Unobservable********Inputs********(Level 3)** | ** ** |
|----------------------------------|------------|------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------|------------|
| Money  market funds              |       | $                            | 2,396      |                                                                      | $          | 2,396                                         |       | $                                               | —     |   | $ | — |   |
| Government  treasuries and bonds |       | 3,498                        |       | 3,498                                                                     |       | —                                        |       | —                                          |       |
| Commercial  paper                |       | 2,498                        |       | —                                                                    |       | 2,498                                         |       | —                                          |       |
| U.S.  corporate notes and bonds  |       | 2,818                        |       | —                                                                    |       | 2,818                                         |       | —                                          |       |
| Other                            |       | 767                          |       | —                                                                    |       | 767                                           |       | —                                          |       |
| Total                            |       | $                            | 11,977     |                                                                      | $          | 5,894                                         |       | $                                               | 6,083      |   | $ | — |   |

 

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

 

As of March 31,2010, Caliper’s cash and available for sale securities of $36.4 million allhave contracted maturities of less than one year, with the exception of onesecurity with a value of $0.5 million.  In addition, Caliper heldsecurities that were in an unrealized 

 

6

----

Tableof Contents

 

loss position as of March 31,2010; however, these unrealized losses were not material to Caliper eitherindividually or in the aggregate.

 

***Income Taxes***

 

Caliper accounts forincome taxes in accordance with FASB ASC 740, *Accountingfor Income Taxes*, (“FASB ASC 740”), and accounts for uncertainty inincome taxes recognized in financial statements in accordance with FASB ASC 740*.* FASB ASC 740 prescribes a comprehensive model for the recognition,measurement, and financial statement disclosure of uncertain tax positions.Unrecognized tax benefits are the differences between tax positions taken, orexpected to be taken, in tax returns, and the benefits recognized foraccounting purposes pursuant to FASB ASC 740. Caliper classifies uncertain taxpositions as short-term liabilities within accrued expenses.  During thethree months ended March 31, 2010 and 2009, Caliper’s tax provisionsprimarily relate to foreign taxes in jurisdictions where its wholly ownedsubsidiaries are subject to current taxes.

 

***Goodwill***

 

Caliper performs a testfor the impairment of goodwill annually, or more frequently if events orcircumstances indicate that goodwill may be impaired. Because Caliper has asingle operating segment, which is the sole reporting unit, Caliper performsthis test by comparing the fair value of Caliper with its carrying value, includinggoodwill. If the fair value exceeds the carrying value, goodwill is notimpaired. If the book value exceeds the carrying value, Caliper would calculatethe potential impairment loss by comparing the implied fair value of goodwillwith the book value of goodwill. If the implied fair value of goodwill is lessthan the book value, an impairment charge would be recorded equal to thedifference.  As of March 31, 2010,Caliper analyzed its goodwill for indicators of impairment, and concluded thatthere were none.

 

***Recently Issued Accounting Standards***

 

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

 

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

 

**2. Divestitures**

 

***XenogenBiosciences Divestiture***

 

On December 11,2009, Caliper entered into a Stock Purchase Agreement (the “Stock PurchaseAgreement”) with Taconic Farms, Inc. (“Taconic”), a New York corporation.The Stock Purchase Agreement provided for the sale of Caliper’s XenogenBiosciences Corporation (“XenBio”) operations to Taconic for a purchase priceof approximately $10.8 million, which included $9.7 million in cashtogether with $1.1 million which was placed into an escrow account until April 30,2011. The escrow secures Caliper’s indemnification obligations to Taconic, ifany, under the Stock Purchase Agreement. The Stock Purchase Agreement alsocontains representations, warranties and indemnities that are customary instock purchase transactions. As of the transaction date, XenBio had net assetsof $4.9 million comprised of $2.6 million in identified intangibles,$1.9 million of goodwill allocated on a relative fair value basis, and$0.4 million of other net assets. The sale of XenBio resulted in a$4.2 million gain based upon the net proceeds received to date, excludingthe amount held in escrow, in excess of total divested net assets.

 

***AutoTrace Product Line Divestiture***

 

On November 10,2008, Caliper entered into an Asset Purchase Agreement (the “Asset PurchaseAgreement”) with Dionex Corporation (“Dionex”), a publicly traded Delawarecorporation. The Asset Purchase Agreement provided for the sale of Caliper’sAutoTrace product line to Dionex which is disclosed within Note 3 to theconsolidated financial statements included in Caliper’s Annual Report on Form 10-Kfor the year ended December 31, 2009 filed with the SEC on March 12,2010.  Caliper continued to manufacturethe AutoTrace products for Dionex for approximately three months following theclosing of this transaction under a transition services agreement, whichresulted in the recognition of approximately $0.3 million in revenue from thisbusiness during the first quarter of 2009.

 

7

----

Tableof Contents

 

**3.Inventories**

 

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

 
| ** **      | ** ** | **March 31,  2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------|------------|--------------------------|------------|---------------------------------|------------|
| Raw  material   |       | $                        | 6.184      |                            | $          | 5,879 |   |
| Work-in-process |       | 1,084                    |       | 859                             |       |
| Finished  goods |       | 4,936                    |       | 4,787                           |       |
|            |       | $                        | 12,204     |                            | $          | 11,525 |   |

 

**4.Intangibles**

 

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

 
| ** **                                   | ** ** | **March 31,  2010** | ** ** | **December 31, 2009** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|---------------------------------|------------|
| Core  technologies                           |       | $                        | 17,577     |                            | $          | 18,437 |   |
| Developed  and contract technologies         |       | 1,532                    |       | 1,771                           |       |
| Customer  contracts, lists and relationships |       | 1,962                    |       | 2,116                           |       |
| Trade  names                                 |       | 2,898                    |       | 2,898                           |       |
|                                         |       | $                        | 23,969     |                            | $          | 25,222 |   |

 

**5.Warranty Obligations**

 

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

 

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

 
| ** **                                          | ** ** | **Three  Months Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                          | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
| Balance  at beginning of period                     |       | $                                                | 1,557      |   | $ | 1,362 |   |
| Warranties  issued during the period                |       | 602                                              |       | 559 |   |
| Settlements  and adjustments made during the period |       | (792                                             | )          | (371 | ) |
| Balance  at end of period                           |       | $                                                | 1,367      |   | $ | 1,550 |   |

 

**6.Comprehensive Loss**

 

Comprehensive loss is asfollows (in thousands):

 
| ** **                                       | ** ** | **Three Months Ended March 31,** | ** **   |
|--------------------------------------------------|------------|------------------------------------------------------|--------------|
| ** **                                       | ** ** | **2010**                                             | ** **   | **2009** | ** ** |
| Net  loss                                        |       | $                                                    | (2,218       | ) | $ | (6,645 | ) |
| Unrealized  (loss) gain on marketable securities |       | (4                                                   | )            | 7 |   |
| Foreign  currency translation loss               |       | (243                                                 | )            | (361 | ) |
|                                             |       | $                                                    |  (2,465 | ) | $ | (6,999 | ) |

 

**7.Accrued Restructuring Costs**

 

Caliper’s accruedrestructuring costs as of March 31, 2010 were comprised of futurecontractual obligations pursuant to facility 

 

8

----

Tableof Contents

 

operating leases coveringcertain idle space as further described below.  The following tablesummarizes changes in accrued restructuring obligations during the three monthsended March 31, 2010 (in thousands):

 
| ** **                            | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-----------|------------|
| Balance,  December 31, 2009      |       | $         | 3,681      |   |
| Restructuring  charges                |       | —    |       |
| Adjustments  to estimated obligations |       | (6        | )          |
| Interest  accretion                   |       | 30        |       |
| Payments                              |       | (445      | )          |
| Balance,  March 31, 2010         |       | $         | 3,260      |   |

 

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

 
| **Years Ended December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2010  (remainder of fiscal year)            |       | $          | 1,125      |   |
| 2011                                        |       | 1,236      |       |
| 2012                                        |       | 621        |       |
| 2013                                        |       | 597        |       |
| 2014                                        |       | 97         |       |
| Thereafter                                  |       | 93         |       |
| Total  minimum payments                     |       | 3,769      |       |
| Less:  Amount representing interest         |       | 509        |       |
| Present  value of future payments           |       | 3,260      |       |
| Less:  Current portion of obligations       |       | 1,290      |       |
| Non-current  portion of obligations         |       | $          | 1,970      |   |

 

The restructuringobligations reflected above resulted from the following actions:

 

*FacilityClosures*

 

During 2008, Caliperconsolidated its West Coast business operations to reduce overall facilitycosts and improve productivity and effectiveness of its research anddevelopment spending. The consolidation plan entailed vacating approximately26,300 square feet of occupied space in Mountain View, California. In 2009,Caliper revised its assumptions around the restructuring charge taken in 2008regarding the facility. The effect of the change was to update the subleasetiming and rates assumed as a result of conditions in the current real estatemarket, as well as to correct an error in the amount of vacated space byapproximately 10,200 square feet (see notes to the consolidated financialstatements included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2009 filed with the SEC on March 12, 2010 foradditional details). This facility closure was accounted for in accordance withFASB ASC 420,*Accounting for Costs Associatedwith Exit or Disposal Activities*, pursuant to which Caliper recordeda liability equal to the fair value of the remaining lease payments as of thecease-use date. Fair value was determined based upon the discounted presentvalue of remaining lease rentals (using a discount rate of 5.5%) for the spaceno longer occupied, considering future estimated sublease income, estimatedbroker fees and required tenant improvements. The lease term expires on November 30, 2013.

 

In July 2009,Caliper vacated approximately 19,000 square feet at its Hopkinton,Massachusetts facilities. This facility consolidation was enabled as the resultof the product line divestitures completed in the fourth quarter of 2008 andcontinued efforts to reduce idle capacity. Caliper recorded a restructuringcharge of approximately $1.0 million related to this action in the thirdquarter of 2009. Caliper has accounted for this restructuring activity inaccordance with FASB ASC 420, pursuant to which Caliper has recorded aliability equal to the fair value of the remaining lease payments as of thecease-use date. Fair value was determined based upon the discounted presentvalue of remaining lease payments (using a discount rate of 6.5%), consideringfuture estimated sublease income, estimated broker fees and required tenantimprovements. The lease term expires on December 31, 2015.

 

In connection withCaliper’s acquisition of Xenogen Corporation in 2006, Caliper assumed a$1.0 million obligation related to Xenogen’s St. Louis, Missourifacility. The facility closure was previously accounted for by Xenogen inaccordance with EITF 94-3,*LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (Including Certain Costs Incurred in a Restructuring)*.The fair value of the assumed obligation was determined based upon thediscounted present value of remaining lease rentals (using a discount rate of8.75%) for the space no longer occupied, net of sublease income from theproperty. The lease term expired on April 30, 2010.

 

**8.Revolving Credit Facility**

 

On March 6, 2009,Caliper entered into a Second Amended and Restated Loan and Security Agreement(the “credit facility”) with 

 

9

----

Tableof Contents

 

a bank, which permitsCaliper to borrow up to $25 million in the form of revolving loanadvances, including up to $5 million in the form of letters of credit andother contingent reserves. Principal borrowings under the credit facilityaccrue interest at a floating annual rate equal to the prime rate plus onepercent if Caliper’s unrestricted cash held at the bank exceeds or is equal to$20 million, or prime plus two percent if Caliper’s unrestricted cash heldat the bank is below $20 million. Under the credit facility, Caliper ispermitted to borrow up to $25 million, subject to a borrowing base limitconsisting of (a) 80% of eligible accounts receivable plus (b) thelesser of 70% of Caliper’s unrestricted cash at the bank or $12 million;provided, that on each of the first three (3) business days and each ofthe last three (3) business days of each fiscal quarter, the borrowingbase is (a) 80% of eligible accounts receivable plus (b) the lesserof 90% of Caliper’s unrestricted cash at the bank or $12 million. Eligibleaccounts receivable do not include internationally billed receivables, unbilledreceivables, and receivables aged over 90 days from invoice date. On December 11,2009, Caliper entered into a First Loan Modification Agreement with the bankwhich extended the maturity of the credit facility to April 1, 2011 andset new covenants in light of the XenBio divestiture. The credit facilityserves as a source of capital for ongoing operations and working capital needs.

 

The credit facilityincludes traditional lending and reporting covenants including that certainfinancial covenants applicable to liquidity and earnings are to be maintainedby Caliper and tested as of the last day of each quarter. As of March 31,2010, Caliper was in compliance with all of its covenants.

 

The credit facility alsoincludes certain rights for the bank to accelerate the maturity of the debt,lower the borrowing base or stop making advances, which are typical within asset-basedlending arrangements. Caliper does not believe the bank will exercise theserights as long as it is meeting its covenants and achieving its forecast. Thecredit facility also includes several potential events of default such aspayment default, material adverse change conditions and insolvency conditionsthat could cause interest to be charged at the interest rate in effect as ofthe date of default plus two percentage points, or in the event of any uncuredevents of default (including non-compliance with liquidity and earningsfinancial covenants), could result in the bank’s right to declare alloutstanding obligations immediately due and payable.

 

Outstanding obligationsunder the credit facility were $14.9 million as of March 31, 2010 andDecember 31, 2009. The credit facility is classified as short-termconsistent with Caliper’s intent to utilize the credit facility to fundoperations and working capital needs on a revolving loan basis and pay down theobligation within the year to minimize interest costs. Interest is due monthlyand has been 5.5% during the three months ended March 31, 2010, and was4.5% during the three months ended March 31, 2009.

 

**9.Commitments and Contingencies**

 

Caliper’s commitments andcontingencies are disclosed within Note 10 to the consolidated financialstatements included in Caliper’s Annual Report on Form 10-K for the yearended December 31, 2009 filed with the SEC on March 12, 2010.  The following represent changes within thecurrent period and all other commitments and contingencies have not materiallychanged.

 

In March 2010,Caliper received a letter from AntiCancer Incorporated (“AntiCancer”) whichclaimed that Caliper had underpaid royalties, during the period from July 2008through December 2009, under a cross-license agreement entered into in February 2008.  The claim is based upon a differentinterpretation of the royalty sharing provisions within the cross licensingagreement.  Caliper is contesting theclaim that additional royalties are due, and as a result, has not accrued forany additional liability. The amount of any remaining contingent obligation, ifany, cannot currently be estimated, nor does Caliper believe that it isprobable that a liability exists. At any time, either party may choose bindingarbitration to resolve any dispute over the amount of back royalties owed, ifany.

 

**10.Legal Proceedings**

 

On February 23,2010, Caliper, its wholly owned subsidiary Xenogen Corporation, and StanfordUniversity filed a complaint against Carestream Health, Inc. (“Carestream”)for patent infringement in the U.S. District Court for the Eastern District ofTexas. In the suit, Caliper, Xenogen and Stanford University seek a finding ofwillful infringement by Carestream, compensatory damages, a trebling of damagesdue to willfulness, a permanent injunction and attorneys’ fees againstCarestream for the ongoing, unauthorized and willful use of a number of UnitedStates patents that Caliper, through Xenogen, exclusively licenses fromStanford University. This complaint was served on Carestream on February 26,2010.  On April 20, 2010, Carestreamfiled its answer to the complaint filed by Caliper and Stanford.  In its answer, Carestream denied infringementof the patents asserted against Carestream in the complaint.  Carestream also counterclaimed for a findingof non-infringement and invalidity of the asserted patents.  Carestream also filed a motion to transferthe venue of the litigation to another District Court.

 

From time to time Caliperis involved in litigation arising out of claims in the normal course ofbusiness, and when a probable loss contingency arises, records a loss provisionbased upon actual or possible claims and assessments. The amount of possibleclaim recorded is determined on the basis of the amount of the actual claim,when the amount is both probable and the amount of the claim can be reasonablyestimated. If a loss is deemed probable, but the range of potential loss iswide, Caliper records a loss provision based upon the low end estimate of the probablerange and may adjust that estimate in future periods as more informationbecomes available. Litigation loss provisions, when made, are reflected withingeneral and administrative expenses in the Statement of 

 

10

----

Tableof Contents

 

Operations and areincluded within accrued legal expenses in the accompanying balance sheet. Basedon the information presently available, management believes that there are nooutstanding claims or actions pending or threatened against Caliper, theultimate resolution of which will have a material adverse effect on ourfinancial position, liquidity or results of operations, although the results oflitigation are inherently uncertain, and adverse outcomes are possible.

 

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

 

***Stock-Based Compensation***

 

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

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Cost  of product revenue             |       | $                                                    | 90         |   | $ | 78 |   |
| Cost  of service revenue             |       | 16                                                   |       | 15 |   |
| Research  and development            |       | 145                                                  |       | 129 |   |
| Selling,  general and administrative |       | 761                                                  |       | 693 |   |
| Total                                |       | $                                                    | 1,012      |   | $ | 915 |   |

 

On March 31, 2010,Caliper had share-based compensation plans (the “Plans”), which are describedwithin Note 12 to the consolidated financial statements included inCaliper’s Annual Report on Form 10-K for the year ended December 31,2009 filed with the SEC on March 12, 2010.

 

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

 
| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| Expected  volatility (%)     |       | 82.9                                                 |       | 74.8 |   |
| Risk-free  interest rate (%) |       | 2.2                                                  |       | 1.7-2.3 |   |
| Expected  term (years)       |       | 4.6                                                  |       | 4.5 |   |
| Expected  dividend yield (%) |       | —                                               |       | — |   |

 

11

----

Tableof Contents

 

***Options and Restricted Stock Activity***

 

A summary of stock optionand restricted stock activity under the Plans as of March 31, 2010, andchanges during the three months then ended is as follows:

 
| **Stock Options**                              | ** ** | **Shares** | ** ** | **Weighted********Average********Exercise********Price** | ** ** | **Weighted********Average********Remaining********Contractual********Term** | ** ** | **Aggregate********Intrinsic Value** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | ** **                                               | ** ** | ** **                                                                  | ** ** | **(in thousands)**                   | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | ** **                                               | ** ** | ** **                                                                  | ** ** | ** **                                | ** ** |
| Outstanding  at December 31, 2009              |       | 7,922,392  |       | $                                                        | 4.67       |                                                                        | 6.43       |                                      | $          | 1,854 |   |
| Granted                                             |       | 747,000    |       | 3.42                                                     |       | —                                                                      |       | —                                    |       |
| Exercised                                           |       | (13,246    | )          | 2.59                                                     |       | —                                                                      |       | 13                                        |       |
| Canceled                                            |       | (143,544   | )          | 11.24                                                    |       | —                                                                      |       | —                                    |       |
| Outstanding  at March 31, 2010                 |       | 8,512,602  |       | $                                                        | 4.45       |                                                                        | 6.50       |                                      | $          | 5,029 |   |
| Exercisable  at March 31, 2010                 |       | 5,417,411  |       | $                                                        | 5.37       |                                                                        | 5.18       |                                      | $          |  988 |   |
| Vested  and expected to vest at March 31, 2010 |       | 8,364,420  |       | $                                                        | 4.48       |                                                                        | 6.46       |                                      | $          | 8,204 |   |

 
| **Restricted Stock Units**                  | ** ** | **Shares** | ** ** | **Weighted Average********Grant Date********Fair Market per********Share Value** | ** ** |
|-------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
| Outstanding  and non-vested at December 31, 2009 |       | 2,134,449  |       | $                                                                                                         | 1.52       |   |
| Granted                                               |       | 316,000    |       | 3.42                                                                                                      |       |
| Vested                                                |       | (777,207   | )          | 1.81                                                                                                      |       |
| Forfeited                                             |       | (524       | )          | 0.98                                                                                                      |       |
| Outstanding  and non-vested at March 31, 2010    |       | 1,672,718  |       | 1.24                                                                                                      |       |
|                                                       |            |            |            |                                                                                                           |            |  |

 

Restricted stock units donot carry an exercise price and typically vest over a four-year period,although the vesting period of certain awards may vary. As of March 31,2010, the weighted average remaining vesting term is 1.95 years and the aggregateintrinsic value of outstanding and non-vested restricted stock is approximately$6.5 million.

 

During the three monthsended March 31, 2010, Caliper granted 747,000 options at a weightedaverage grant date fair value, using the Black-Scholes-Merton option pricingmodel, of $2.21 per share, and 316,000 restricted stock units at a weightedaverage grant date fair value of $3.42 per share. The total fair value ofrestricted stock that vested during the three months ended March 31, 2010was approximately $1.4 million.

 

As of March 31,2010, there was $5.9 million of total unrecognized compensation cost related tounvested stock-based compensation arrangements granted under the Plans. Thatcost is expected to be recognized over a weighted-average remaining serviceperiod of approximately 2.87 years.

 

***Common Shares Outstanding***

 

During the three monthsended March 31, 2010, Caliper issued 525,693 shares of common stock as aresult of stock option exercises and vesting of restricted stock.

 

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

 

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

 

Common stock equivalentsequal to 16.7 million shares and 16.5 million shares (prior to the applicationof the treasury stock method) were excluded from the computation of net lossper share in each of the three months ended March 31, 2010 and 2009,respectively, as they would have an antidilutive effect due to Caliper’s netloss.

 

12

----

Tableof Contents

 

**12.Subsequent Event**

 

In April 2010,Caliper vacated approximately 5,400 square feet of its Mountain View,California facility.  This facility consolidation was due to the ongoingefforts to streamline chip manufacturing operations and increase the likelihoodof securing a sub-tenant.  Caliper expects to record a restructuringcharge of approximately $0.5 million related to this action in the secondquarter of 2010.  This partial facility abandonment will be accounted forin accordance with FASB ASC 420, pursuant to which Caliper will record aliability equal to the fair value of the remaining lease payments as of thecease-use date.  Fair value was determined based upon the discountedpresent value of remaining lease payments (using a discount rate of 5.5%) forthe space no longer occupied, considering future estimated sublease income,estimated broker fees and required tenant improvements.  Calipercalculated the fair value based on the best known assumptions at the cease-usedate.

 

13

----

 

Tableof Contents

 

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

 

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

 

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

 

**ExecutiveSummary**

 

***Business***

 

Caliper develops andsells innovative and enabling products and services to the life sciencesresearch community, a customer base that includes pharmaceutical andbiotechnology companies, and government and other not-for-profit researchinstitutions. We believe our integrated systems, consisting of instruments,software and reagents, our laboratory automation tools and our assaydevelopment and discovery services enable researchers to better understand thebasis for disease and more effectively discover safe and effective drugs. Ourstrategy is to transform drug discovery and development by offeringtechnologies and services that ultimately enhance the ability to predict theeffects that new drug candidates will have on humans. Our offerings leverage ourextensive portfolio of molecular imaging, microfluidics, automation and liquidhandling technologies, and scientific applications expertise to address keyopportunities and challenges in the drug discovery and developmentprocess—namely, the complex and costly process to conceive of and bring a newdrug to market.

 

We believe thatincreasing the clinical relevance of drug discovery experimentation, whether atearly stage, lower cost in vitro (in an artificial environment) testing orlater stage, more expensive, preclinical in vivo (in a living organism)testing, will have a profound impact in helping our customers to determine theultimate likelihood of success of drugs in treating humans. With enablingofferings in both the in vitro and in vivo testing arenas, and a uniquestrategy of enhancing the “bridge” or linkages between in vitro and in vivoresearch testing and between research testing and clinical diagnostic testing,we expect to continue to address growing, unmet needs in the market and driveon-going demand for our products and services. These market needs areunderscored by key challenges that face the pharmaceutical and biotechnologyindustry, including late-stage drug failures and unforeseen side effects comingto light late in the development process or even after drugs are on the market.

 

We offer an array ofproducts and services, many of which are based on our own proprietarytechnologies, to address critical experimental needs in drug discovery andpreclinical development. Our technologies are also enabling for other lifesciences applications beyond drug discovery, such as environmental-relatedtesting, and in applied markets such as agriculture and forensics. We alsobelieve that our technology platforms may be able to provide ease of use, costand data quality benefits for certain in vitro and in vivo diagnosticapplications.

 

We have multiple channelsof distribution for our products: direct to customers, indirect through ourinternational network of distributors, through partnership channels under ourCaliper Driven program and through joint marketing agreements. Through ourdirect and indirect channels, we sell products, services and complete systemsolutions, developed by us, to end customers. Our Caliper Driven program iscore to our business strategy and complementary to our direct sales anddistribution network activities, as it enables us to extend the commercialpotential of our LabChip and advanced liquid handling technologies into newindustries and new applications with experienced commercial partners. We alsoutilize joint marketing agreements to enable others to market and distributeour products. By using direct and indirect distribution, and out-licensing ourtechnology under our Caliper Driven program, we seek to maximize penetration ofour products and technologies into the marketplace and position Caliper as aleader in the life sciences tools market.

 

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

 

·                  The Imaging business holds, we believe, aglobal leadership position in the high-growth optical molecular imaging market.Principal activities of this business area include the expansion of the IVISimaging instrument system and related reagent product lines, development of newtherapeutic area applications and facilitating additional imaging modalities.

 

·                  The Research business area is responsiblefor utilizing Caliper’s automation and microfluidic technologies to address an 

 

14

----

Tableof Contents

 

expanding array ofopportunities in drug discovery and life science research, including molecularbiology sample preparation and analysis for genomics, proteomics, diagnostics,cellular screening and forensics.

 

·                  The CDAS business area is responsible forexpanding drug discovery collaborations and alliances, and increasing sales ofdrug discovery services. The focus of CDAS is to capitalize on market “outsourcing”trends, and to offer complementary services to Caliper’s Imaging and Researchplatform solutions.

 

***First Quarter Key Highlights***

 

*SummaryFinancial Performance*

 

·                  Our total revenues during the firstquarter of 2010 increased by approximately $0.2 million to$28.7 million, from $28.5 million in the first quarter of 2009.  In the fourth quarter of 2009, we divestedXenogen Biosciences Corporation (“XenBio”) which had generated $2.8 million oftotal revenue in the first quarter of 2009.  Excluding the impact of divestitures, including primarily XenBio, totalrevenue from our ongoing business operations increased by approximately$3.3 million, or 13%, in comparison to revenues in 2009 (see non-GAAPrevenue table and related discussion below). This $3.3 million wascomprised of increases in our Imaging and Research business units of$2.8 million and $0.8 million, respectively, offset by a decline inCDAS revenue of approximately $0.3 million.

 

·                  Product gross margins increased to 49% in 2010 versus39% in 2009. The ten point improvement resulted from growth among higher margininstruments such as the LabChip GX II, along with lower cost of salesassociated with Staccato automated systems sold during the first quarter of2010.  In addition, our provision forwarranty costs declined by approximately 300 basis points as a result ofquality initiatives implemented in 2009.

 

·                  Service gross margins increased to 37% in2010 from 25% in 2009 due principally to the divestiture of XenBio whichcontributed only 7% in service gross margin in the first quarter of 2009.

 

·                  Net loss for the first quarter of 2010was $2.2 million, or $0.04 per share, compared to net loss of$6.6 million, or $0.14 per share, in 2009. The decrease in net loss wasprimarily due to the increase in gross margin contribution.

 

*RevenuePerformance by Strategic Business Unit*

 

The table below providesa reconciliation of our GAAP basis revenue to pro forma non-GAAP revenueresults for the first quarters of 2010 and 2009, after giving effect to thedivestures of the XenBio business and the AutoTrace product lines whichoccurred in 2009 and 2008, respectively. We believe this reconciliationprovides a useful comparison for evaluating revenue performance between fiscalperiods, but these non-GAAP comparisons are not intended to substitute for GAAPfinancial measures.

 
|             |   | **Quarter  Ended March 31,** |       | ** **                    |       | ** **          |       |
|------------------|--------|-----------------------------------|------------|-------------------------------|------------|---------------------|------------|
|             |   | **GAAP**                          |       | **Non-GAAP  Adjustments (1)** |       | **Non-GAAP**        |       | ** ** |   | ** ** |   |
|             |   |                              |       |                          |       | **(in  thousands)** |       |   |   |   |   | **GAAP** |   | **Non-GAAP** |   |
|             |   | **2010**                          | ** ** | **2009**                      | ** ** | **2010**            | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** |   | **% Chg** | ** ** | **% Chg(2)** |   |
| Imaging          |   | $                                 | 13,466     |                          | $          | 10,741              |       | $ | — |   | $ | (42 | ) | $ | 13,466 |   | $ | 10,699 |   | 25 | % | 26 | % |
| Research         |   | 14,018                            |       | 13,521                        |       | —              |       | (343 | ) | 14,018 |   | 13,178 |   | 4 | % | 6 | % |
| Services  (CDAS) |   | 1,168                             |       | 4,210                         |       | —              |       | (2,757 | ) | 1,168 |   | 1,453 |   | (72 | )% | (20 | )% |
| Total  revenue   |   | $                                 | 28,652     |                          | $          | 28,472              |       | $ | — |   | $ | (3,142 | ) | $ | 28,652 |   | $ | 25,330 |   | 1 | % | 13 | % |

 

----

*(1)**      *For purposes ofcomparing growth rates for each of the three principal areas of our business,the above non-GAAP table reconciliations exclude revenues related to theAutoTrace product line divested in 2008, as well as revenues related to XenBiowhich was divested in December 2009.

 

*(2)**      *Currency effectsreduced the above growth rates by 2% for both the Research and Imagingstrategic business units, and on a total revenue basis.

 

Imaging revenues, net ofminor divestiture effects, increased by 26% on a non-GAAP basis to$13.5 million during the first quarter of 2010 from $10.7 millionduring the first quarter of 2009. Imaging revenue growth was driven bycontinued strong global demand for our IVIS instruments (resulting in anincrease of 5 units sold within the quarter as compared to 2009)and the marketadoption of the technologies.  Imaginggrowth was also due to the benefit of the recent introduction of the IVIS XRsystem and a favorable unit mix which resulted in ten more IVIS Spectrum sales(which carry a higher average selling price) within the current quarter ascompared to 2009.

 

Research revenues, net ofdivestiture effects, increased by 6% on a non-GAAP basis to $14.0 millionduring the first quarter of 2010 from $13.2 million during the firstquarter of 2009. Overall Research growth was primarily attributable to strongmarket demand for our LabChip GX instruments, increased revenues from microfluidicconsumables (chips, kits and reagents) and an increase in microfluidic contractand license revenue, offset in part by decreased sales of our Zephyr liquidhandling instrument and a last time 

 

15

----

Tableof Contents

 

purchase in 2009 by anautomation OEM customer for product we no longer manufacture. We attribute ourgrowth in LabChip GX sales to market adoption for biotherapeutic applicationsincluding clone selection, protein expression optimization, purification, scaleup, and manufacturing quality control, and for genomics applications such asPCR analysis, genotyping, next generation sequencing library quantification andother high throughput assays.

 

CDAS revenues, net ofdivestiture effects, decreased by 20% to $1.2 million during the firstquarter of 2010 from $1.5 million during the first quarter of 2009. Thenet decrease resulted from a large oncology project with a single customerwhich had peak revenue in the first quarter of 2009 that was substantiallycompleted by the first quarter of 2010, offset in part by growth from othercommercial customers and government contract services.

 

**CriticalAccounting Policies and Estimates**

 

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

 

**Resultsof Operations for the Three Months Ended March 31, 2010**

 

Operating results for thethree months ended March 31, 2010 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2010. Forexample, we typically experience higher revenues in the fourth quarter of ourfiscal year as a result of the capital spending patterns of our customers.

 

***Revenue***

 
| ** **                         | ** ** | **Three Months Ended********March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands)**            | ** ** | **2010**                                               | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product  revenue                   |       | $                                                      | 20,367     |   | $ | 18,309 |   | $ | 2,058 |   | 11 | % |
| Service  revenue                   |       | 5,081                                                  |       | 7,657 |   | (2,576 | ) | (34 | )% |
| License  fees and contract revenue |       | 3,204                                                  |       | 2,506 |   | 698 |   | 28 | % |
| Total  Revenues                    |       | $                                                      | 28,652     |   | $ | 28,472 |   | $ | 180 |   | 1 | % |

 

*ProductRevenue.   *Product revenue increased by $2.1 million, whichwas primarily comprised of an increase of $2.2 million, or 30%, fromImaging product sales. The Imaging product sales increase was due to a 16%increase in IVIS instrument placements (37 units in 2010 compared to 32 unitsin 2009) as well as a product mix more heavily weighted toward IVIS Spectrumand new IVIS Lumina X-ray instruments, both of which resulted in a higheraverage selling price in addition to the increase in the total instrumentssold.  Research product sales wascomprised of a $1.1 million, or 26%, increase in microfluidic productrevenues and a $1.1 million, or 18%, decline in automation productrevenues. The increase in microfluidic revenues during the three months ended March 31,2010, compared to 2009, was primarily due to (a) a $0.4 millionincrease in sales of our LabChip GX instruments from a 25% increase ininstrument placements; (b) a $0.4 million, or 25%, increase in salesof microfluidic consumables (chips, kits and reagents) resulting from growth inthe installed base of LabChip instruments as well as an increase in the usageof ProfilerPro consumables by a single customer in the first quarter comparedto 2009; and (c) a $0.3 million increase in sales of all othermicrofluidic instruments and accessories. The decrease in automation productrevenues during the first quarter of 2010 compared to 2009 was primarily due to(a) a $0.9 million decrease in unit sales of our Zephyr liquid handlinginstrument;  (b) a $0.6 million lasttime purchase of product we no longer manufacture by an automation OEM customerin the first quarter of 2009; and (c) a $0.3 million decrease in revenuesfrom the AutoTrace product line, which we divested in November 2008,resulting from the transition services agreement in the three months ended March 31,2009.  These decreases were partially offsetby increased product revenues generated by our Staccato Automated Workstationinstruments and our Specialty product offerings.

 

*ServiceRevenue.*   Servicerevenue decreased $2.6 million during the three months ended March 31,2010 compared to the same period in 2009, primarily as a result of thedivestiture of XenBio which had revenues of $2.7 million in the first quarterof 2009.  All other continuing serviceofferings increased by $0.1 million, comprised of a $0.3 millionincrease in instrument service revenues from Imaging and Research productofferings and a $0.2 million decrease in CDAS service revenues. The$0.3 million increase in instrument service revenues was primarily due toa $0.3 million increase in service contract revenues generated from the Imaginginstalled base, a $0.2 million increase within Research service contractsand a $0.2 million decrease from all other billable revenues.  The CDAS decrease was comprised of a$0.6 million decline attributed to the completion of a large oncology projectwith a single customer, offset in part by growth from other commercialcustomers and government contract services.

 

*LicenseFees and Contract Revenue.*    License fees and contractrevenue increased during the three months ended March 31, 2010 compared tothe same period in 2009, primarily as a result of a $0.4 million increase inmicrofluidic license and contract revenue 

 

16

----

Tableof Contents

 

received from newpartners secured after the first quarter of 2009 and a $0.3 million increase inImaging license revenue.

 

***Costs of Revenue***

 
| ** **              | ** ** | **Three Months Ended********March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands)** | ** ** | **2010**                                               | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Product                 |       | $                                                      | 10,296     |   | $ | 11,253 |   | $ | (957 | ) | (9 | )% |
| Service                 |       | 3,190                                                  |       | 5,707 |   | (2,517 | ) | (44 | )% |
| License  and contract   |       | 405                                                    |       | 392 |   | 13 |   | 3 | % |
| Total  Costs            |       | $                                                      | 13,891     |   | $ | 17,352 |   | $ | (3,461 | ) | (20 | )% |

 

*Costof Product Revenue.*    Costof product revenue decreased $1.0 million during the three months ended March 31,2010, compared to the same period in 2009, despite an 11% increase in productrevenue within the period.  The overalldecrease in cost of product revenue is due to (a) lower material costs asa percentage of product revenue, $0.9 million, or 9%, due to sourcinginitiatives and favorable changes in product mix; (b) a $0.6 milliondecrease in warranty expenses related to both materials and labor which arerelated to quality initiatives implemented in 2009 which have resulted inreduced spending over the last six months compared to prior periods; and (c) reducedoverhead related to our facility as a result of the shutdown of a portion ofour  Hopkinton, Massachusetts instrumentmanufacturing facility in 2009.

 

*Costof Service Revenue.*    Costof service revenue decreased during the three months ended March 31, 2010compared to the same period in 2009 primarily as a result of our divesture ofXenBio in December 2009, which had $2.5 million of cost of service in thefirst quarter of 2009.

 

*Costof License Revenue.*    Costof license revenue increased slightly during the three months ended March 31,2010 compared to the same period in 2009 due primarily to an increase in costof royalties related to the corresponding increase in imaging license revenues.

 

*GrossMargins.*    Grossmargin on product revenue was 49% for the three months ended March 31,2010 which was an 11% increase in margin as a percent of revenues, reflectingthe effect of incremental margin contribution associated with increased salesvolumes and the effects of reduced cost of revenues discussed above. Gross margin on service revenue was 37% for the three months ended March 31,2010 as compared to 25% for the same period in 2009. This increased servicemargin resulted primarily from the divestiture of XenBio, which had a servicemargin of only 7% in the first quarter of 2009.

 

***Expenses***

 
| ** **                           | ** ** | **Three Months Ended********March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------|------------|
| **(In thousands)**              | ** ** | **2010**                                               | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Research  and development            |       | $                                                      | 4,347      |   | $ | 4,551 |   | $ | (204 | ) | (4 | )% |
| Selling,  general and administrative |       | 10,858                                                 |       | 11,185 |   | (327 | ) | (3 | )% |
| Amortization  of intangible assets   |       | 1,254                                                  |       | 1,557 |   | (303 | ) | (19 | )% |
| Restructuring  charges, net          |       | 31                                                     |       | 23 |   | 8 |   | 35 | % |
|                                      |            |                                                        |            |  |  |  |  |  |  |  |  |  |

 

*Researchand Development Expenses.*    Research and development spending decreased by$0.2 million during the three months ended March 31, 2010 compared to thesame period in 2009 primarily as a result of a reduction in personnel-relatedcosts which was comprised of a reduction in bonus provisions based upon thefinal payout of bonuses for 2009 versus the original accrual estimates at yearend, severance provisions recorded in the three months ended March 31,2009 and slightly reduced headcount within the current quarter compared to2009.

 

*Selling,General and Administrative Expenses.*    Selling, general andadministrative expenses decreased by $0.3 million during the three monthsended March 31, 2010 compared to the same period in 2009 on an overall netbasis due primarily to the divestiture of XenBio in December 2009, whichresulted in a $0.5 million decrease in expenses.  Excluding the impact of the XenBiodivestiture, selling and marketing expenses increased $0.4 million and generaland administrative expenses decreased $0.2 million.  Selling and marketing expenses increased dueto a $0.2 million increase in salaries and related costs from new headcount andan increase in commissions based upon revenue achievement, as well as a $0.1million increase in travel and related costs and a $0.1 million increase in allother costs.   General andadministrative expenses decreased by $0.2 million during the three months endedMarch 31, 2010 compared to the same period in 2009, primarily due toreductions in bonus provisions based upon the final payout of bonuses for 2009versus the original accrual estimates at year end, reduced legal spending andreductions within office and operating costs, offset in part by an increase inconsulting costs.

 

17

----

Tableof Contents

 

*Amortizationof Intangible Assets.*  The amortization of intangible assets for the three monthsended March 31, 2010 relates to assets acquired in our previous businesscombinations. Amortization is computed based upon the estimated timing of theundiscounted cash flows used to value each respective asset over the estimateduseful life of the particular intangible asset, or using the straight-linemethod over the estimated useful life of the intangible asset when the patternof cash flows is not necessarily reflective of the true consumption rate of theparticular intangible asset.  The decrease in amortization during thethree months ended March 31, 2010 is the result of certain intangiblesrelated to the XenBio business that was divested in 2009 and to a lesser extentreduced amortization from our NovaScreen intangibles for which an impairmentcharge was recorded in the fourth quarter of 2009.

 

*RestructuringCharges.*    Weincurred restructuring charges in prior periods related to facility shut downs,as well as acquisition and integration activities that are more fully discussedin Note 7 to the accompanying financial statements. Otherrestructuring charges during the three months ending March 31, 2010 and2009 relate to accretion of interest related to idle facility rent obligations.

 

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

 
| ** **              | ** ** | **Three Months Ended******** March 31,** | ** ** |
|-------------------------|------------|--------------------------------------------------------------|------------|
| **(In thousands)** | ** ** | **2010**                                                     | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Interest  expense, net  |       | $                                                            | (130       | ) | $ | (212 | ) | $ | (82 | ) | (39 | )% |
| Other  expense, net     |       | (351                                                         | )          | (183 | ) | 168 |   | 92 | % |
|                         |            |                                                              |            |  |  |  |  |  |  |  |  |  |

 

*InterestExpense, Net.*    Netinterest expense decreased during the three months ended March 31, 2010compared to the same period in 2009 primarily as a result of a $11.1 milliondecrease in average borrowings under our credit facility during the threemonths ended March 31, 2010 compared to the same period in 2009.

 

*OtherExpense, Net.*    Otherexpense, net, increased on a three-month basis compared to 2009 due totransaction losses on foreign denominated accounts receivable resulting from astrengthening of the U.S. dollar compared to the Euro and the British Poundwhich affected unsettled accounts receivable with our subsidiaries during thefirst quarter of 2010. During the three months ended March 31, 2010, weincurred foreign currency transaction losses of approximately$0.4 million, compared to losses of approximately $0.2 million for thesame period in 2009.

 

**Liquidityand Capital Resources**

 

As of March 31,2010, we had $36.4 million in cash, cash equivalents and marketablesecurities, compared to $38.0 million as of December 31, 2009.   We also had outstanding borrowings of $14.9million as of March 31, 2010 and December 31, 2009 under our creditfacility.  The credit facility matures onApril 1, 2011 and serves as a source of capital for ongoing operations andworking capital needs.  As of March 31,2010, we were in compliance with our covenants under the credit facility. Weexpect to remain in compliance with the covenants through the credit facility’smaturity date based on current forecasts. The terms of our credit facility aremore fully discussed under Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009 filed with the SEC on March 12,2010.

 

We believe our cashbalance, working capital on hand at March 31, 2010 and access to availablecapital under our credit facility are sufficient to fund our ongoing operationsthrough at least April 2011. Nevertheless, our actual cash needs couldvary considerably, depending on opportunities and circumstances that arise overtime. If, at any time, cash generated by operations is insufficient to satisfyour liquidity requirements, we may need to reduce our costs and expenses, selladditional equity or debt securities or draw down on our current creditfacility if we have borrowing capacity.

 

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

 

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

 

18

----

Tableof Contents

 

***Cash Flows***

 
| ** **                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**     | ** ** | **2010**                                             | ** ** | **2009** | ** ** | **$ Change** | ** ** |
| Cash  provided by (used in) |       |                                                 |       |   |   |   |   |
| Operating  Activities       |       | $                                                    | (779       | ) | $ | (2,295 | ) | $ | 1,516 |   |
| Investing  Activities       |       | (7,409                                               | )          | (1,805 | ) | (5,604 | ) |
| Financing  Activities       |       | 34                                                   |       | 22 |   | 12 |   |
|                             |            |                                                      |            |  |  |  |  |  |  |  |

 

*OperatingActivities.*    Duringthe three months ended March 31, 2010, we used $0.8 million of cashfor operating activities which included approximately $0.4 million related toour idle facilities.  We used approximately $0.4 million of cash tofund operations and working capital needs, which primarily related to $3.5million in bonus payments, offset by collections of customer receivables.

 

*InvestingActivities.*    Duringthe three months ended March 31, 2010, we purchased a net $6.8 million inmarketable securities based upon our current working capital needs and ourdesire to maximize our return on investment for existing cash balances. Ourother primary investing activity was the purchase of property and equipment of$0.6 million primarily related to equipment and information systems.

 

*FinancingActivities.*    Duringthe three months ended March 31, 2010, financing cash proceeds wererelated to proceeds from option exercises.

 

**ContractualObligations**

 

Our commitments underleases and other obligations are described in Item 7, “ Management’s Discussionand Analysis of Financial Condition and Results of Operations” and in the Notesto the Consolidated Financial Statements included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009 filed with the SEC on March 12,2010.  There has been no material change during the three months ended March 31,2010 in the contractual obligations disclosed as of December 31, 2009.

 

***Capital Requirements***

 

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

 

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

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

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

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

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

·                           other factors not within our control.

 

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

 

***Interest Rate Sensitivity***

 

Our primary market riskexposures are foreign currency fluctuation and interest rate sensitivity.During the three months ended March 31, 2010, there have been no materialchanges to the information included under Item 7A, “Quantitative andQualitative Disclosures About Market Risk,” in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009 filed with the SEC on March 12,2010.

 

**Item4.            Controlsand Procedures**

 

*Evaluationof disclosure controls and procedures.  *  We have establisheddisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance thatinformation required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934, such as this Quarterly Report on Form 10-Q, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Our officers concluded that our disclosurecontrols and procedures are also effective to ensure that information requiredto be disclosed in the reports that we file or submit under the Exchange Act isaccumulated and communicated to our management, including the principalexecutive officer and principal financial officer to allow timely decisionsregarding required disclosure.

 

Based on their evaluationas of March 31, 2010, our principal executive officer and principalfinancial officer have concluded that 

 

19

----

Tableof Contents

 

our disclosure controlsand procedures are effective to provide reasonable assurance that informationwe are required to disclose in reports that we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms.

 

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

 

*Changesin internal controls.*    There were no changes in our internal controlover financial reporting, identified in connection with the evaluation of suchinternal control that occurred during the first quarter of 2010 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

20

----

Tableof Contents

 

**Part II—OTHER INFORMATION**

 

**Item1.            LegalProceedings**

 

On February 23,2010, Caliper, its wholly owned subsidiary Xenogen Corporation, and StanfordUniversity filed a complaint against Carestream Health, Inc. (“Carestream”)for patent infringement in the U.S. District Court for the Eastern District ofTexas. In the suit, Caliper, Xenogen and Stanford University seek a finding ofwillful infringement by Carestream, compensatory damages, a trebling of damagesdue to willfulness, a permanent injunction and attorneys’ fees againstCarestream for the ongoing, unauthorized and willful use of a number of UnitedStates patents that Caliper, through Xenogen, exclusively licenses fromStanford University.  This complaint wasserved on Carestream on February 26, 2010. On April 20, 2010, Carestreamfiled its answer to the complaint filed by Caliper and Stanford.  In its answer, Carestream denied infringementof the patents asserted against Carestream in the complaint.  Carestream also counterclaimed for a findingof non-infringement and invalidity of the asserted patents.  Carestream also filed a motion to transferthe venue of the litigation to another District Court.

 

From time to time Caliperis involved in litigation arising out of claims in the normal course ofbusiness.  Based on the information presently available, managementbelieves that there are no outstanding claims or actions pending or threatenedagainst Caliper, the ultimate resolution of which will have a material adverseeffect on our financial position, liquidity or results of operations, althoughthe results of litigation are inherently uncertain, and adverse outcomes arepossible.

 

**Item1A.         Risk Factors**

 

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

 

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

 

None.

 

**Item3.            DefaultsUpon Senior Securities**

 

None.

 

**Item4.            Reserved**

 

**Item5.            OtherInformation**

 

None.

 

**Item6.            Exhibits**

 

**EXHIBITINDEX**

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

 

21

----

Tableof Contents

 
| 32.2* |   | Certification of Chief  Financial Officer Required Under Rule 13a-14(b) or  Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended,  and 18 U.S.C. Section 1350. |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

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

 

**SIGNATURES**

 

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

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

 

22

----

Tableof Contents

 

**EXHIBIT INDEX**

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

 

----

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

 

23

----