This Management's Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2009 and for the three and six months ended June 30, 2009 should be read in conjunction with our financial statements included in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis of Financial Condition and Results of Operations and our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 13, 2009.

The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed under the caption "Risk Factors" below, as well as those discussed elsewhere. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.

Executive Summary

Business

Caliper develops and sells innovative and enabling products and services to the life sciences research community, a customer base that includes pharmaceutical and biotechnology companies, and government and other not-for-profit research institutions. We believe our integrated systems, consisting of instruments, software and reagents, our laboratory automation tools and our assay development and discovery services enable researchers to better understand the basis for disease and more effectively discover safe and effective drugs. Our strategy is to transform drug discovery and development by offering technologies and services that ultimately enhance the ability to predict the effects that new drug candidates will have on humans. Our offerings leverage our extensive portfolio of molecular imaging, microfluidics, automation and liquid handling technologies, and scientific applications expertise to address key opportunities and challenges in the drug discovery and development process-namely, the complex and costly process to conceive of and bring a new drug to market.

We believe that increasing the clinical relevance of drug discovery experimentation, whether at early stage, lower cost, in vitro (artificial environment) testing or later stage, more expensive preclinical in vivo (in a living organism) testing, will have a profound impact in helping our customers to determine the ultimate likelihood of success of drugs in treating humans. We believe our enabling offerings in both the in vitro and in vivo testing arenas, and a unique strategy of enhancing the "bridge" or linkages between in vitro, in vivo and the clinic in order to optimize the cost of the experiment versus the clinical insight gained, allow us to address growing, unmet needs in the market and drive ongoing demand for our products and services. These market needs are underscored by key challenges that face the pharmaceutical and biotechnology industry, including late-stage drug failures and unforeseen side effects coming to light late in the development process or after drugs are on the market.

We presently offer an array of products and services, many based on highly enabling proprietary technologies that address critical experimental needs in drug discovery and preclinical development and related processes. Our technologies are also enabling for other life sciences applications beyond drug discovery, such as environmental-related testing, and in applied markets such as agriculture and forensics. We also believe that our technology platforms may be able to provide ease of use, cost and data quality benefits for certain in vitro and in vivo diagnostic applications.

We have multiple channels of distribution for our products: direct to customers, indirect through our international network of distributors, through partnership channels under our Caliper Driven program and through joint marketing agreements. Through our direct and indirect channels, we sell products, services and complete system solutions, developed by us, to end customers. Our Caliper Driven program is core to our business strategy and complementary to our direct sales and distribution network activities, as it enables us to extend the commercial potential of our LabChip and advanced liquid handling technologies into new industries and new applications with experienced commercial partners. We also utilize joint marketing agreements to enable others to market and distribute our products. By using direct and indirect distribution, and out-licensing our technology under our Caliper Driven program, we seek to maximize penetration of our products and technologies into the marketplace and position Caliper as a leader in the life sciences tools market.

Our product and service offerings are organized into three core business areas-Imaging, Discovery Research (Research), and Caliper Discovery Alliances and Services (CDAS)-with the goal of creating a more scalable infrastructure while putting increased focus on growth and profitability.

† The Imaging business area is focused on preclinical imaging, where Caliper believes it holds a global leadership position. Principal activities of this business area include the expansion of the IVIS imaging instrument and related reagent product lines, development of new therapeutic area applications and facilitating additional imaging modalities.

† The Research business area is responsible for utilizing Caliper's core automation and microfluidic technologies to address an expanding array of opportunities in drug discovery and life science research, including molecular biology sample

preparation and analysis for genomics, proteomics, diagnostics, cellular screening and forensics.

† The CDAS business area is responsible for expanding drug discovery collaborations and alliances, and increasing sales of drug discovery services. The focus of CDAS is to capitalize on market "outsourcing" trends, and to offer complementary services to Caliper's Imaging and Research platform solutions.

Second Quarter Overview

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

The table below provides a reconciliation of our GAAP basis revenue to pro forma revenue results for the quarters ended June 30, 2009 and 2008, after giving effect to our divestures of the PDQ and AutoTrace product lines during the fourth quarter of 2008. We believe this is a useful measure in evaluating revenue performance between comparative periods; however, these non-GAAP comparisons are not intended to substitute for GAAP financial measures.

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

(1) For purposes of comparing growth rates for each of the three principal areas of our business, the above non-GAAP table reconciliations exclude revenues related to the PDQ and AutoTrace product lines divested in November 2008. We anticipate no further revenue from either of the former PDQ or AutoTrace product lines in 2009.

Revenue Highlights by Strategic Business Unit

Research revenues (excluding revenue of divested product lines), which are comprised primarily of microfluidics and laboratory automation products and services, increased by 1% on a non-GAAP basis (or 5% after negative foreign currency effects) to $15.1 million during the second quarter of 2009 from $14.9 million during the second quarter of 2008. Research growth was strong, primarily due to increased sales of our proprietary EZ Reader platform, which was a result of continued strong adoption of our ProfilerPro plates in response to industry demand for rapid enzymatic profiling applications and medicinal chemistry lead optimization research, and sales of our proprietary LabChip GX instrument, which we believe is the "best-in-class" proprietary solution for characterizing proteins in the fast growing biologicals market.

Imaging revenues increased by 17% (or 21% after adjusting for negative foreign currency effects) to $12.9 million during the second quarter of 2009 from $11.0 million during the second quarter of 2008. Imaging growth was driven by continued strong global demand for our IVIS instruments and accessories, reagents and services.

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

Second Quarter Financial Performance

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

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

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

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in our Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on March 13, 2009.

Results of Operations for the Three and Six Months Ended June 30, 2009

Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For example, we typically experience higher revenues in the fourth quarter of our fiscal year as a result of the capital spending patterns of our customers.

Revenue



                                 Three Months Ended                             Six Months Ended
                                      June 30,                                      June 30,
(In thousands)         2009       2008     $ Change    % Change      2009       2008     $ Change    % Change
Product revenue      $ 21,499   $ 22,024   $    (525 )       (2 )% $ 39,808   $ 39,689   $     119          - %
Service revenue         7,905      9,290      (1,385 )      (15 )%   15,562     18,298      (2,736 )      (15 )%
License fees and
contract revenue        2,707      2,717         (10 )        - %     5,213      5,331        (118 )       (2 )%

Total Revenues       $ 32,111   $ 34,031   $  (1,920 )       (6 )% $ 60,583   $ 63,318   $  (2,735 )       (4 )%

Product Revenue. Product revenue decreased $0.5 million during the three months ended June 30, 2009, compared to the same period in 2008 due primarily to revenues of $2.1 million from divested product lines that were included in our second quarter 2008 revenues. The increase in product revenues from ongoing product lines was primarily related to Imaging product sales, which increased by $1.6 million, or approximately 21%, compared to the second quarter of 2008. This increase was due to a 6% increase in IVIS instrument unit placements compared to the second quarter of 2008, as well as a 43% increase in reagent sales related to the IVIS product lines. The IVIS instrument product mix during the second quarter of 2009 was more heavily comprised of IVIS Spectrum and Kinetic instruments, resulting in a higher average selling price of total units sold. Total Research product sales of ongoing product lines were relatively unchanged during the second quarter of 2009 compared to the same quarter in 2008. However, within Research, microfluidic product revenues increased by $2.3 million, or 64%, while automation product revenues decreased by $2.3 million, or 26%. The increase in microfluidic revenues during the three months ended June 30, 2009, compared to the same period in 2008, was primarily due to (a) a $1.4 million increase in sales of our EZ Reader platform, which was a result of continued adoption of our ProfilerPro plates for rapid kinase profiling, as well as favorable timing of initial instrument sales within the quarter, (b) a $0.5 million increase in our LabChip GX and LabChip GXII microfluidic benchtop instruments (the "LabChip GX series"), and (c) $0.4 million from continued growth in revenues from microfluidic consumables (chips, kits and reagents) within our direct sales channel, which increased by 30% within the 2008 period. The decrease in automation product revenues during the three months ended June 30, 2009, compared to the same period in 2008, was primarily due to a $1.8 million decrease in revenue from sales of our Staccato Automated Workstation instruments, which was a result of a specific sale in 2008 that resulted in $1.4 million in product revenues within the period, with the remaining decrease resulting primarily from lower parts and accessories sales.

Product revenue increased by $0.1 million during the six months ended June 30, 2009, compared to the same period in 2008, including a decline of $3.4 million from divested product lines. The resulting $3.5 million increase from ongoing product lines during the 2009 period included a $2.4 million, or 17%, increase in Imaging product sales compared to the six months ended June 30, 2008. The Imaging increase was due to a 15% increase in IVIS instrument placements as well as a 27% increase in reagent sales related to the IVIS product lines. The increase in product revenues also included a $1.1 million, or 5%, increase in Research product sales compared to the first six months of 2008. The Research increase was comprised of an increase in microfluidic product revenues of $3.5 million, or 52%, while automation product revenues decreased by $2.4 million, or 16%. The increase in microfluidic revenues during the six months ended June 30, 2009, compared to the same period in 2008, was primarily due to (a) a $1.4 million increase in sales of our EasyReader instrument discussed above, (b) a $1.0 million increase in sales of our LabChip GX series, and (c) continued growth in revenues from microfluidic consumables (chips, kits and reagents) within our direct sales channel, which increased by $0.8 million, or 36%, within the period. The decrease in automation product revenues during the six months ended June 30, 2009, compared to the same period in 2008, was primarily due to
(a) a $1.7 million decrease in revenue from sales of our Staccato Automated Workstation instruments, which was a result of a specific sale in 2008 that resulted in $1.4 million in product revenues

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

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

During the six months ended June 30, 2009, the remaining service revenue decline of $0.3 million, after excluding service revenues from the divested product lines, consisted of a $0.5 million decrease in CDAS service revenues, offset by a $0.2 million increase in all other instrument services, primarily related to our IVIS product line. CDAS service revenues were down on a net basis in the six months ended June 30, 2009, as compared to the same period in 2008, due to a $1.9 million decline in in vitro government contract services, partially offset by an increase in all other CDAS service revenues.

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

Costs of Revenue



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

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

Cost of product revenue decreased during the six months ended June 30, 2009, compared to the six months ended June 30, 2008, as a result of a 3% reduction in material cost spending, as a percentage of sales, resulting from product mix and a $0.2 million decrease in overall manufacturing spending comprised primarily of reduced labor costs incurred with respect to manufacturing operations. These decreases were partially offset by an increase in warranty parts, inventory provisions and other variable manufacturing costs, as a percentage of sales, by approximately 3%, or $1.3 million.

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

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

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

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

first six months of 2009. This decrease was partly offset by reduced service costs within the instrument services business, as a result of the strategic business unit realignment in 2008, and other cost reduction initiatives.

Expenses



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

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

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

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

Selling, general and administrative expenses decreased by $4.2 million during the six months ended June 30, 2009, compared to the same period in 2008 due primarily to lower salaries and related costs, a reduction in travel costs and a reduction in legal costs. Selling and marketing expenses decreased by $2.7 million during the six months ended June 30, 2009, as compared to the same period in 2008, primarily due to a $1.2 million reduction in salaries and related costs due to reduced headcount from the divested product lines as well as cost reduction initiatives in 2008 to align our business along strategic business units, a $0.7 million reduction in travel and related costs, a $0.4 million reduction in office and operating supplies and a reduction of $0.4 million in all other costs. General and administrative expenses decreased by $1.6 million during the six months ended June 30, 2009, as compared to the same period in 2008, primarily due to a $0.5 million reduction in legal costs as a result of litigation that was settled in the first quarter of 2008, a $0.4 million reduction in consulting costs, $0.2 million in reduced severance related primarily to the consolidation of responsibilities within our finance department, and a $0.5 million reduction in all other costs.

Amortization of Intangible Assets. The amortization of intangible assets for the three and six months ended June 30, 2009 relates to assets acquired in our previous business combinations. Amortization is computed based upon the estimated timing of the undiscounted cash flows used to value each respective asset over the estimated useful life of the particular intangible asset, or using the straight-line method over the estimated useful life of the intangible asset when the pattern of cash flows is not necessarily reflective of the true consumption rate of the particular intangible asset. The decrease in amortization during the three and six months ended June 30, 2009 is the result . . .