UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file # 000-28229

CALIPER LIFE SCIENCES, INC.

68 Elm Street
Hopkinton, Massachusetts 01748
(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (508) 435-9500

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [   ]

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON APRIL 30, 2004: 29,037,323

CALIPER LIFE SCIENCES, INC.
TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALIPER LIFE SCIENCES, INC.

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

(1) Stock-based compensation, net, pertains to employees employed in the following areas:

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

See accompanying notes.

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CALIPER LIFE SCIENCES, INC.

1. Summary of Significant Accounting Principles

Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The consolidated balance sheet as of December 31, 2003 has been derived from audited financial statements as of that date. For further information, refer to the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2003 filed by Caliper Life Sciences, Inc.

Principles of Consolidation

     Caliper’s financial statements include the accounts of its wholly owned subsidiaries Caliper Life Sciences Ltd. (UK), Caliper Life Sciences Ltd. (Canada), Caliper Life Sciences N.V. (Belgium), Caliper Life Sciences GmbH (Germany), Caliper Life Sciences S.A. (France), and Caliper Life Sciences AG (Switzerland). All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates and Reclassifications

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

     Certain prior period amounts have been reclassified to conform to the current period presentation.

Revenue Recognition

General Policy

     Caliper recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue is recognized on product sales when goods are shipped under Caliper’s standard terms of “FOB origin”. Revenues on shipments subject to customer acceptance provisions are recognized only upon customer acceptance, provided all other revenue recognition criteria are met. Services offered by Caliper are generally recognized as revenue as the services are performed. Revenue from licensing agreements is deferred and recognized over the term of the agreement, or in certain circumstances, when milestones are met. Revenue recognized is not subject to repayment. Cash received that is related to future performance under such contracts is deferred and recognized as revenue when earned. No sales made by Caliper include any return rights or privileges. Based upon Caliper’s prior experience, sales returns are not significant, and therefore, Caliper has made no provision for sales returns or other allowances. Provision is made at the time of sale for estimated costs related to Caliper’s warranty obligations to customers.

Product Revenue

     Product revenue is recognized upon the shipment and transfer of title to customers and is recorded net of discounts and allowances. Revenues on shipments subject to customer acceptance provisions are recognized only upon customer acceptance, provided all other revenue recognition criteria are met. Customer product purchases are delivered under standardized terms of “FOB

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origin” with the customer assuming the risks and rewards of product ownership at the time of shipping from Caliper’s warehouse with no return rights or privileges. In accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” Caliper defers the fair value of any elements that remain undelivered after product shipment and/or acceptance (as applicable). Undelivered elements may generally consist of annual maintenance agreements, installation and/or training.

     In certain cases, customers will be charged on a datapoint pricing basis for their usage of chips. A datapoint is generated each time a Caliper instrument system introduces a sample into a chip through a sipper in order to perform a particular LabChip® technology assay. Datapoints are the test-results that Caliper’s customers record when they use Caliper’s LabChip instruments. Caliper records datapoint revenues in the period that Caliper’s customers attain the datapoints and communicate such use to Caliper. Datapoint rates are contractually negotiated between Caliper and its customers. Under minimum datapoint fee arrangements, datapoint revenues are recorded over the period of which the minimum applies, provided Caliper has no ongoing performance obligations with respect to the minimum fees.

Agilent Product Revenue

     Under the surviving terms of Caliper’s terminated agreement with Agilent, Caliper supplies Agilent with chips and reagents at cost and receives a share of Agilent’s gross margin on components of the LabChip systems sold by Agilent. Revenue related to the reimbursement of costs for the supply of chips and reagents is recognized as product revenue upon shipment to Agilent, and Caliper’s share of gross margin on sales made by Agilent is recognized as product revenue upon shipment by Agilent to its end users. Caliper has no continuing obligations at the time these sales are made and Agilent has no return privileges. Caliper’s transfer of title on products sold to Agilent is not contingent on Agilent’s resale of these products. The instruments, chips and reagents as sold, are useable by Agilent and their customers without additional support from Caliper.

Service and Annual Maintenance Agreements

     Service revenue is recognized as services are performed or, as applicable, ratably over the contract service term in the case of annual maintenance contracts. Customers may purchase optional warranty coverage during the initial standard warranty term and annual maintenance contracts beyond the standard warranty expiration. These optional service offerings are not included in the price Caliper charges customers for the initial product purchase. Under Caliper’s standard warranty, the customer is entitled to repair or replacement of defective goods. No upgrades are included in the standard warranty.

Contract Revenue

     Revenue from contract research and development services is recognized as earned based on the performance requirements of the contract. Nonrefundable contract fees for which no further performance obligations exist, and there is no continuing involvement by Caliper, are recognized on the earlier of when the payments are received or when collection is assured. Contract fees received in advance of work performed are recorded as deferred revenue. These upfront fee payments are recognized as revenue as the work is performed. Contract fees received that are related to substantive at-risk milestones are recognized when Caliper’s performance of the milestone under the terms of the contract is achieved and no further performance obligations exist.

Licensing and Royalty

     Revenue from up-front license fees is recognized when the earnings process is complete and no further obligations exist. If further obligations exist, the up-front license fee is recognized ratably over the obligation period. Royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms, when third-party results are reliably measured and collectibility is assured.

Software

     Caliper has developed software that is marketed with its solutions as a component to operate and run its instruments and systems. Caliper does not sell or otherwise market the software. Caliper’s customers are purchasing the instruments and systems in order to be able to conduct scientific research, and the software is incidental to the overall cost of the instrument’s development and marketing effort. Caliper does not provide post-sale software support, except for functional defects in the software as contemplated in Caliper’s warranty on its instruments.

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Goodwill

     Caliper performs a test for the impairment of goodwill annually in the fourth quarter of its fiscal year, or more frequently if events or circumstances indicate that goodwill may be impaired. Because Caliper has a single operating and reportable business segment, Caliper performs this test by comparing the fair value of the Company with its book value, including goodwill. If the fair value exceeds the book value, goodwill is not impaired. If the book value exceeds the fair value, Caliper would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value. If the implied goodwill is less than the book value, an estimate of the impairment charge would be determined by performing a detailed assessment of the fair value of goodwill as compared to its carrying value.

Segment Reporting

     Caliper currently operates in one business segment, the development and commercialization of life science instruments and related consumables and services for use in drug discovery and other life sciences research and development. The entire business is comprehensively managed by an executive management team that reports to the Chief Executive Officer. Caliper does not operate separate lines of business or separate business entities with respect to its products or product candidates. Accordingly, Caliper does not accumulate discrete financial information with respect to separate product areas and does not have separately reportable segments as defined by SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.”

Foreign Currency Translation

     The financial statements of Caliper’s foreign subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, stockholders’ equity is translated at historical rates, while assets and liabilities are translated at the rate of exchange in effect as of the end of the period. Revenue and expense transactions are translated using the weighted-average exchange rate in effect during the period in which they arise. The resulting foreign currency translation adjustments are reflected as a separate component of stockholders’ equity.

     Foreign currency transaction gains and losses from the settlement of account balances denominated in another currency are included in current period other income, net as incurred. Cumulative translation adjustments included in stockholders equity as of March 31, 2004 and December 31, 2003 were $126,000 and $98,000, respectively.

Research and Development

     Caliper charges research and development costs to expense as incurred. Research and development costs consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for chip development, material cost of prototypes and test units, legal expenses resulting from intellectual property prosecution and litigation, facility and other research related allocation expenses, and other expenses related to the design, development, testing and enhancement of Caliper’s products.

Warranty Expense

     At the time product revenue is recognized, Caliper establishes an accrual for estimated warranty expenses associated with sales, recorded as a component of cost of revenue. Caliper offers a one-year limited warranty on instrumentation products and a 90-day warranty on chips, which is included in the sales price of many of its products. Caliper’s standard limited warranty covers repair or replacement of defective goods, a preventative maintenance visit on certain products, and telephone based technical support. No upgrades are included in the standard warranty. In accordance with SFAS No. 5, “Accounting for Contingencies,” provision is made for estimated future warranty costs at the time of sale. Factors that affect Caliper’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. Caliper periodically assesses the adequacy of its recorded warranty liabilities and adjusts amounts as necessary.

     Changes in Caliper’s warranty obligation during the three months ended March 31, 2004 and 2003 are as follows (in thousands):

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Net Income (Loss) Per Share

     Basic net income (loss) per share is calculated based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share would give effect to the dilutive effect of common stock equivalents consisting of stock options and warrants (calculated using the treasury stock method). Potentially dilutive securities have been excluded from the diluted earnings per share computations where they have an anti-dilutive effect due to Caliper’s net loss. For the three months ended March 31, 2004 and 2003, options, unvested restricted stock, and warrants to purchase 8,315,000 and 4,657,000 shares, respectively, have been excluded from the calculation of diluted net loss per share because they are anti-dilutive.

Stock-Based Compensation

     Caliper accounts for its stock options and equity awards in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and has elected to follow the “disclosure only” alternative prescribed by Financial Accounting Standards Board’s SFAS No. 123, “Accounting for Stock-Based Compensation”. Accordingly, no compensation expense is recognized in Caliper’s financial statements for stock options granted to employees, which had an exercise price equal to the fair value of the underlying common stock on date of grant. Caliper accounts for stock options issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, “Accounting for Equity Instruments that are issued to other than Employees for Acquiring, or in Conjunction with selling Goods or Services”. For the three months ended March 31, 2004, and 2003, compensation expense related to stock options issued to non-employees was not material.

     The following table illustrates the effect on net income (loss) and net income (loss) per share if Caliper had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — and amendment of FASB Statement No. 123.” For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using the straight-line allocation method. Caliper’s pro forma information is as follows (in thousands except per share data):

     The effects of applying SFAS No. 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years.

Guarantees and Indemnifications

     Caliper recognizes liabilities for guarantees in accordance with FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations in assumes under that guarantee.

     Caliper, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at Caliper’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. Caliper may terminate the indemnification agreements

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with its officers and directors upon 90 days written notice, but termination will not affect claims for indemnification relating to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited; however, Caliper has a director and officer insurance policy that limits its exposure and may enable it to recover a portion of any future amounts paid. Caliper believes the fair value of these indemnification agreements is minimal. Accordingly, Caliper has not recorded any liabilities for these agreements as of March 31, 2004.

2. Acquisition of Zymark Corporation

     On July 14, 2003, Caliper completed the acquisition of 100% of ZYAC Holding Corporation (ZYAC was the parent holding company of Zymark Corporation and had no operating activities) from The Berwind Company LLC (“Berwind”) for an aggregate purchase price of approximately $72.8 million in the form of $55.7 million in cash, 3.15 million shares of Caliper’s common stock valued at $14.6 million, and acquisition costs of $2.5 million. The purchase terms also provided for Caliper to issue Berwind an additional 1.575 million contingent shares if certain financial targets are met in 2003 and 2004. These targets were not achieved in 2003 causing the obligation to issue 787,500 contingent shares to lapse. If the 2004 targets are achieved, the fair value of the additional shares issued will be added to the purchase price and allocated to goodwill.

     Zymark’s operations, assumed as of the date of the acquisition, have been included in the results of operations of Caliper beginning on July 14, 2003 and, as a result, are not reflected in the results of operations for the quarter ended March 31, 2003. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, “Accounting for Business Combinations”, and Caliper accordingly allocated the purchase price of Zymark based upon the estimated fair value of net assets acquired and liabilities assumed. The components and allocation of the purchase price consisted of the following (in thousands):

     Acquired intangible assets consisted of the following as of March 31, 2004 (in thousands):

     Fair value was determined by an independent appraisal and was based upon expected future discounted cash flows taking into account risks related to the characteristics and application of the technology, existing and future markets and assessments of the life cycle stage of the technology. Amortization expense was $1.0 million during the quarter ended March 31, 2004. Scheduled amortization expense related to the intangible assets in the current and future fiscal periods is as follows (in thousands):

     Unaudited pro forma operating results for Caliper for the three months ended March 31, 2004 and 2003, assuming the acquisition was completed as of January 1, 2002, is as follows (in thousands, except per share amounts):

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     The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of Caliper’s operating results had the acquisition been completed on the date for which the pro forma results give effect.

3. Inventories

     Inventories for use in the manufacture of Caliper’s instruments include electronic components, devices and accessories either produced or purchased from original equipment manufacturers. Inventories for use in the manufacture of LabChip technologies consist primarily of glass, quartz and reagents. Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market, reflect appropriate reserves for potential obsolete, slow moving or otherwise impaired material, and include appropriate elements of material, labor and indirect costs. Inventories consist of the following (in thousands):

     Caliper reserves or writes off 100% of the cost of inventory that it specifically identifies and considers obsolete or excessive to fulfill future sales estimates. Caliper defines obsolete inventory as inventory that will no longer be used in the manufacturing process. Excess inventory is generally defined as inventory in excess of projected usage, and is determined using management’s best estimate of future demand at the time, based upon information then available to Caliper. Caliper uses a twelve-month demand forecast and, in addition to the demand forecast, Caliper also considers: (1) parts and subassemblies that can be used in alternative finished products; (2) parts and subassemblies that are unlikely to be engineered out of Caliper’s products; and (3) known design changes which would reduce Caliper’s ability to use the inventory as planned. During the three months ended March 31, 2004, Caliper recorded charges of $244,000 to cost of product revenues to reserve for excess and obsolete inventories. During three months ended March 31, 2003, there were no charges recorded.

4. Comprehensive Income (Loss)

     The components of comprehensive loss included within stockholders’ equity for the three months ended March 31, 2004 and 2003 are as follows (in thousands):

5. Related Party

     The Company holds an investment in a privately-held entity, Amphora Discovery Corp. As of December 31, 2003, Amphora was no longer considered a related party as Caliper’s ownership interest in Amphora declined to a fraction of 1%. Caliper no longer employs the equity method of accounting for its investment in Amphora, and fully recognized all previously deferred revenues on sales to Amphora as of December 31, 2003. For the quarter ended March 31, 2003, Caliper had recognized $586,000 in related-party revenue consisting of sales of Caliper 250 drug discovery system products, LabChip devices, and datapoints to Amphora.

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6. Significant Concentrations

     In the first quarter of 2004, one customer, Agilent, represented approximately 10% of total revenues. In the first quarter of 2003, Agilent, Aclara and Amphora represented 46%, 11%, and 10%, respectively, of total revenues.

     One customer represented 13% of Caliper’s outstanding accounts receivable balance as of March 31, 2004. As of December 31, 2003, no individual customer accounted for greater than 10% of outstanding accounts receivable.

7. Restructuring Activities

     On May 6, 2003, due to the continuing broad economic slowdown and reduced research and development spending by biopharmaceutical companies, Caliper conducted a reduction in force that resulted in a further downsizing of its employee work force by 26 people, or approximately 10%. Caliper believed this planned action, was necessary to better align Caliper’s organizational structure with these depressed market conditions and customer demand. The May 2003 downsizing primarily affected Caliper’s research and development staff where it continues to change the focus of its product development and technology research to align more with the changing needs of its customers. Caliper incurred a charge of $322,000 in the second quarter of 2003 for severance payments and related benefits, with all employee separations completed and payments distributed by the end of June 2003.

     As a result of the acquisition of Zymark, on August 5, 2003, Caliper conducted a reduction in force that downsized its workforce by 37 positions, or 7% of the total headcount of Caliper and the newly acquired Zymark. The reduction was the first of two phases of reductions designed to eliminate redundancies and increase organizational efficiencies within the newly combined company and primarily affected manufacturing, sales and administration. Of the 37 positions, 33% occurred in August 2003 with the remainder to take place by the end of June 2004. Caliper incurred a charge of $774,000 in the third quarter of 2003 for severance payments and related benefits. Of the amount included in other accrued liabilities as of March 31, 2004, $101,000 is related to the August 2003 downsizing. All separations and related payments are expected to be completed in 2004.

     In November 2003, Caliper closed one of its three facilities in Mountain View, California that was used primarily for instrument manufacturing and research and development activities, and recognized a $7.7 million charge for costs to be incurred over the remainder of the lease for which there is no expected ongoing economic benefit. In accordance with Statement of Financial Accounting Standard No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” Caliper recorded a liability equal to the fair value of the remaining lease payments as of the cease-use date. Fair value was determined based upon the discounted present value of remaining lease rentals (5% discount rate used) for the 28,800 square feet previously occupied, reduced by the discounted present value of future estimated sublease rentals, starting from January 2005 through the end of the lease, that could be obtained for the property even if Caliper does not enter into a sublease.

     On December 3, 2003, in connection with consolidating the previously separate operations of Caliper and Zymark, Caliper conducted a second reduction in force that downsized its workforce by 37 positions, or 8% of total headcount. This second phase primarily affected research and development staff as a result of strategy and priority decisions finalized during the fourth quarter of 2003. Caliper incurred a charge of $2.7 million in the fourth quarter of 2003 for severance payments and related benefits. Of the amount included in other accrued liabilities at March 31, 2004, $162,000 is related to the December 2003 downsizing. All separations and related payments are expected to be completed in 2004.

     The following table summarizes the restructuring activity (in thousands):

8. Commitments

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     The following are contractual commitments as of March 31, 2004 associated with debt and lease obligations:

Letters of Credit

     Caliper has pledged a certificate of deposit of $2.5 million as collateral on outstanding letters of credit related to Caliper’s Mountain View, California facility lease agreements. In addition to the outstanding letters-of-credit related to the Mountain View operating lease agreements described above, Caliper issued a $663,000 letter-of-credit to secure certain customer deposits in Germany. These commitments are classified as security deposits in the accompanying balance sheet.

Other Long-Term Obligation

     In connection with the acquisition of Labotec by Zymark in August 2002, Caliper is obligated to make non-interest-bearing deferred purchase price payments of 900,000 Euros to the former owner. As of March 31, 2004, the U.S. dollar value of the remaining obligation totaled $716,000 and is due in two remaining installments on August 13, 2004 and 2005.

Inventory Purchases

     As of March 31, 2004, Caliper had a non-cancelable purchase commitment in the amount of approximately $252,000 with its foreign supplier for the purchase of proprietary glass stock used in the manufacture of certain types of its chips.

Royalties

     During the fourth quarter of 2002, Caliper entered into an amendment and restatement of Caliper’s existing license agreements with UT-Battelle, LLC under which Caliper obtained an exclusive license to the patents covering the inventions of Dr. J. Michael Ramsey. Royalty obligations to UT-Batelle during the three months ended March 31, 2004 and 2003, were $18,000 and $89,000, respectively. Caliper also has an exclusive license from the Trustees of the University of Pennsylvania to certain patents relating to microfluidic applications and chip structures. The minimum royalty obligations under these licenses rise over time, but never exceed $213,000 per year.

9. Adopted Pronouncement

     In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an interpretation of ARB 51” and in December 2003, the FASB issued FIN No. 46 (revised December 31, 2003), “Consolidation of Variable Interest Entities” (“FIN 46-R”) to address certain FIN 46 implementation issues. The primary objectives of FIN 46 and FIN 46-R are to

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provide guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities”) and how to determine when and which business enterprise (the “primary beneficiary”) should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either: (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 and FIN 46-R require that the primary beneficiary, as well as all other enterprises with a variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. The implementation provisions of FIN 46-R became effective for Caliper during the quarter ended March 31, 2004.

     The adoption of the provisions of both Fin 46 and Fin 46-R did not impact Caliper’s financial statements.

10. Subsequent Event

     On April 15, 2004, Caliper purchased from Amphora Discovery Corp. certain technology rights and know-how related to improving the performance of certain types of cell-based assays on a microfluidic chip. Caliper paid $200,000 in cash and issued to Amphora $900,000 in credit to purchase products from Caliper in exchange for the acquired technology and know-how. Caliper will also pay royalties to Amphora based on future sales of cell-based assays. Caliper expects to further develop the acquired technology and adapt it for potential applications and uses on the Caliper 3000 instrument platform. Given that additional development work is necessary to produce a commercially saleable product based on this technology, and the absence of material revenue streams currently derived from the acquired technology, the entire $1.1 million in consideration will be recorded as research and development expense during the second quarter of 2004.

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

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2004 and for the three month periods ended March 31, 2004 and March 31, 2003 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, 2003.

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

Executive Summary

Business

     Caliper uses its core technologies of liquid handling, automation, and LabChip microfluidics to create leading edge tools for the life sciences industry. Within the life sciences industry, Caliper is currently addressing three major markets: drug discovery and development, genomics and proteomics and molecular diagnostics. Caliper is well positioned to lead the industry in these markets by evolving the company’s liquid handling, detection, and integration platforms into technologically advanced LabChip systems that offer efficiency, versatility, and high quality data.

     In July 2003, Caliper acquired Zymark Corporation, a pioneer and leader in the field of laboratory automation, robotics and advanced liquid handling solutions. Our financial results include the results of the acquired Zymark business for all periods after July 14, 2003. Zymark, founded in 1981, manufactured and sold products and services to a multitude of customers in the pharmaceutical, biotechnology, chemical, agriculture and food industries worldwide. We substantially completed our integration of the Zymark business by the end of 2003 and, effective April 2, 2004, we completed a legal merger of Zymark into Caliper. We no longer actively market our products under the Zymark trade name, although we will continue to sell products under Zymark trademarks on a transitional basis.

     Our strategy is to evolve the company’s various product platforms into technologically advanced liquid handling and LabChip systems that offer efficiency, versatility, and high quality data to customers for genomics and proteomics, and drug discovery research applications. In addition, we believe that our microfluidics technology may be particularly suitable for certain applications in molecular diagnostics, and we are actively investigating opportunities in this area.

     We utilize three distribution channels for our products. In some cases, we sell instruments and chips directly to end-users. In other instances we sell products to commercial partners, who in turn sell these products to end-users. Following the acquisition of Zymark, we also sell our products through a global network of approximately 30 independent distributors, who in turn sell our products to end-users.

Overview of First Quarter- 2004

     Revenue for the first quarter of 2004 was $16.9 million, an increase of $11.3 million from $5.6 million in the same quarter a year ago. This increase is principally attributable to sales of the acquired Zymark products and service revenues associated with the installed base of products of the acquired Zymark business. As a result of the Zymark acquisition, we have greater resources dedicated to sales and marketing, including approximately 86 employees as of March 31, 2004 versus 18 employees as of March 31, 2003, and an expanded global reach through our international subsidiaries and network of distributors.

     Our goal is to attain more stable and sustainable revenue growth through increased sales of our instruments and equipment to a more diversified customer base and by increasing the percentage of our total revenue that arises from recurring revenue sources, such as chips, services, annual maintenance contracts and other consumable products (which we refer to as aftermarket revenue). Attaining this goal will represent a significant change for Caliper. Prior to our acquisition of Zymark, our revenues had been derived from a

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relatively small number of customers, which revenues in some cases were expected to cease or decline substantially as existing contractual commitments were satisfied. For example, for the quarter ended March 31, 2003 revenue from Agilent, Aclara Biosciences and Amphora Discovery Corp. in the aggregate represented approximately 67% of our total revenue, whereas for the quarter ended March 31, 2004 we had no revenue from either Aclara or Amphora, and revenue from sales to Agilent only represented approximately 10% of our total revenue for the quarter. Aftermarket revenue from customers using our liquid handling, automation and LabChip products, was approximately 40% of our total revenue during the first quarter of 2004, although this percentage in any given quarter is not necessarily indicative of the amount of aftermarket revenue that we will achieve for the entire fiscal year. Our long-term goal is to increase this percentage to 50% of total revenues by 2008.

     In addition to our enhanced commercial infrastructure, we are targeting the development of new and innovative product solutions that combine our microfluidic technologies and laboratory automation expertise. In the first quarter of 2004, we announced a multi-year collaboration and supply agreement to develop and provide automated target sample preparation instruments for Affymetrix’ commercialized proprietary microarray system and future GeneChip® platforms. We expect these new automation systems to substantially reduce array processing time, reduce variability and labor costs, and enable researchers to industrialize their genomic research. The two companies are working together to develop products that leverage Caliper’s expertise in high-throughput automation and microfluidics with Affymetrix’ expertise in microarray technology and applications. We expect the first products to be launched by late 2004, which will automate microarray target preparation steps including hybridization, washing and staining. We are currently in the initial development phase of this collaboration. Also occurring in the first quarter was the formation of a drug development consortium between Caliper and three major pharmaceutical companies to develop upgrades for Caliper’s broadly deployed tablet processing workstations. The consortium is another example of the “shared investment” model that Caliper uses to ensure the commercial relevance of products to the customer.

     We are also seeking to grow our revenue through the commercialization of new products for drug discovery, drug development, and genomics and proteomics research. During the first quarter of 2004, we announced several new products, including: the LabChip 3000 drug discovery system; the LabChip 90 automated electrophoresis system; the Sciclone inL10 automated liquid handling system; and the Staccatto iBLOX automated workstation. We have received positive customer feedback and some initial orders for these new products, but because these products have only recently been made available to customers, we are uncertain as to the impact these new products will have on our revenue in future periods.

     In addition to our goal of attaining more stable and sustainable revenue growth, we are continuing to focus on improving our gross margins and controlling costs in order to be able to achieve operating cash flow break-even at lower overall revenues. We believe that we are on target to achieve our objective to end 2004 with at least $40 million in cash, cash equivalents and marketable securities, and our longer term objective of achieving positive cash flows from operating activities by the fourth quarter of 2005.

Critical Accounting Policies

     The critical accounting policies used in the preparation of our financial statements that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. There have been no material changes to the critical accounting policies.

Results of Operations for the Three Months Ended March 31, 2004 and 2003

Revenue

     The increase in total revenue in 2004 was due principally to the additional product and service revenues added by the acquired Zymark business, offset in part by the decrease in license fees and contract revenue, and the decrease in sales to Amphora, a former related party. During the quarter ended March 31, 2004, we had no datapoint revenue from Amphora in comparison to $450,000 of minimum datapoint revenue included in related party revenue in the first quarter of 2003. Amphora is not obligated to make any further datapoint payments to us until they fully utilize the number of datapoints to which they are entitled due to a prior $1.8 million required minimum payment to us that was fully recognized as revenue over the twelve month period ended November 30, 2003. We do not expect to receive any additional datapoint revenues from Amphora for at least the remainder of 2004. License fees and contract revenues decreased as a result of the decreases in Aclara license fees in the amount of $625,000 and Agilent contract revenue in the amount of $737,000, offset by an increase of $1.1 million consisting primarily of contract revenue from other collaboration partners. The decrease in contract revenue from Agilent is the result of there being no current product development activity with Agilent. However, we anticipate we will receive some level of development funding from Agilent this year. The increase in contract revenues from our other collaboration partners is due, in part, to our efforts to develop applications with new commercial partners.

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Costs

     The increase in cost of product revenue is due primarily to the increase in product revenues generated from sales of Zymark products and includes an approximate $1.0 million increase in the amount of overhead costs reflected in cost of product revenues in the first quarter of 2004, whereas in the first quarter of 2003 this approximate $1.0 million of manufacturing overhead was reflected in research and development expenses. After our acquisition of Zymark, we undertook an extensive evaluation of our then-ongoing R&D programs and prioritized our R&D investments on the basis of their commercial attractiveness. As a result of our new commercial product focus, unabsorbed overhead associated with chip manufacturing is included in of cost of product revenue whereas prior to September 2003 we treated these unabsorbed costs as R&D expense.

     Our gross margin on product revenue increased to 28.2% in the first quarter of 2004 as compared to 23.7% in the first quarter of 2003. This improvement occurred as a result of the incremental contribution from the additional product revenue added from the Zymark business. The improvement occurred despite the reallocation of $1.0 million to manufacturing overhead that was previously reflected in research and development expenses as described above. The effect of the reallocation of overhead on gross margin was substantially offset by $850,000 of revenue as a result of software product upgrades sold to a customer during the first quarter of 2004 for which there were no associated product costs. Software sales of this magnitude are infrequent in nature and are not expected to be a material source of revenues in future periods. On an overall basis, our total gross margin (total revenues minus total cost of revenues divided by total revenues) declined, consistent with our expectations, to 39.3% in the first quarter of 2004 from 59.1% in the first quarter of 2003. This decrease was the result of the overwhelming decrease in the percentage of total revenues represented by license fees and contract revenue, with which no costs are associated. Cost of service revenue in the first quarter of 2004 represents costs incurred in relation to providing billable services and supporting installed systems under annual maintenance contracts, including parts replacement and service labor and overhead. Gross margin on service revenue was 46.4% during the first quarter of 2004. We had no service revenues in the 2003 period.

Expenses

     During the first quarter of 2004, research and development and selling, general and administrative expenses totalled $14.2 million compared to $14.0 million in the comparable quarter of 2003. We achieved this relatively constant level of such expense due to the realization of operating efficiencies following our combination with Zymark and our subsequent integration and restructuring efforts in 2003, which included the elimination of approximately 100 positions, including a number of senior management positions, closure of one of our Mountain View, California facilities, strategic prioritization of our R&D investments on the basis of their commercially attractiveness, favorable resolution of our lawsuit against Molecular Devices Corp., and continued attention on cost containment.

Research and Development Expenses. The decrease in research and development expenses is primarily due to our evaluation and prioritization of R&D programs which led to a lower level of R&D activities and associated employee downsizing actions in 2003 and, as discussed above, the reduced amount of overhead allocated to R&D as a result of our increased commercial emphasis since we

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acquired Zymark. These decreases to research and development more than offset the incremental expenses associated with continuing R&D programs assumed in our acquisition of Zymark. As discussed in Note 10 to the consolidated financial statements in Item I of this report, we expect to incur an approximate $1.1 million charge to research and development in the second quarter of 2004 related to our purchase of certain technology under development which we acquired in April 2004.

     Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased primarily due to the additional costs of Zymark, offset in part by cost synergies realized through our integration efforts.

     Stock-based Compensation. The increase in stock based compensation is primarily due to the option accelerations and other stock-based expenses incurred in connection with employment and separation agreements with former executives and other senior employees whose employment was terminated during the first quarter, and amortization of restricted stock awards granted to retain certain key executives and employees of Zymark. Assuming no changes to current outstanding stock awards or changes in personnel, we estimate stock-based compensation to be approximately $500,000 over the remainder of 2004, including approximately $300,000 during the second fiscal quarter.

     Amortization of Intangible Assets. Amortization of intangible assets consists solely of amortization of the intangible assets acquired in the Zymark acquisition, as more fully described in Note 2 to the consolidated financial statements in Item 1 of this report. Scheduled amortization is $3.6 million for the next five years, with the remaining $1.0 million in the sixth year.

Interest Income, Net

     Interest income, net decreased due to lower cash, cash equivalents and marketable securities balances over the first quarter of 2004 as compared to the same quarter in 2003 and, to a lesser extent, the decline in interest rate yields in the first quarter of 2004 relative to the same period one year ago.

Liquidity and Capital Resources

     Our cash, cash equivalents and marketable securities were $56.0 million at March 31, 2004 compared to $66.7 million as of December 31, 2003.

     We have financed our operations from inception primarily through equity sales, product sales and services, contract and milestone payments and $32.5 million received from the comprehensive settlement agreement with Aclara, and equipment financing under sale lease-back arrangements. The inclusion of Zymark’s results of operations after July 14, 2003 had a significant impact on the business and the comparability of cash flows on a period-over-period basis.

Cash Flows

     Operating Activities. During the first quarter of 2004, we paid out $1.7 million in severance payments, which is included in the overall net change in other accrued liabilities for the quarter, as compared to zero in first quarter of 2003. Accounts receivable used cash of $2.9 million during the first quarter of 2004, as compared to cash used of $722,000 during the first quarter of 2003. The increased use of cash was due to slower collections, and was primarily attributable to delayed payments from three specific large customers, all of which were fully collected in April 2004. Inventories used cash of $158,000 during the first quarter of 2004, as compared to cash generated of $1.2 million during the first quarter of 2003. The increase in use of cash for inventories during the first quarter of 2004 is primarily related to an increase in demonstration inventories and the initial build up of inventories related to the LabChip 3000 system. In 2003, our inventory balances were generally more reactive to specific product sales due to our overall lower level of product sales prior to acquiring Zymark. Deferred revenue generated $977,000 of cash during the first quarter of 2004, as compared to cash used of $457,000 during the first quarter of 2003. The increase in cash generated from deferred revenue during the first quarter of 2004 was due to an increase in advance customer payments and annual maintenance contracts on our products and an increase in the amount of revenue deferred revenue on product shipments not yet recognized as revenue in accordance with our revenue recognition policy; this increase compared to a decrease in deferred revenue in the first quarter of 2003 caused by the recognition of revenues for which cash had been received in prior periods. The remainder of cash used in operations was $6.8 million related to our operations and all other minor non-cash changes in working capital during the first quarter of 2004, as compared to $9.6 million of cash used for operations and all other non-cash changes in working capital in the first quarter of 2003. We expect to utilize less cash to fund our operations each quarter throughout the remainder of 2004.

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Investing Activities. In the first quarter of 2004, we generated $7.4 million in cash from net sales and maturities of marketable securities and used $1.1 million of cash for property and equipment purchases, including $760,000 invested in the purchase and ongoing implementation of our new ERP system during the first quarter of 2004. We expect to invest a total of between $3 - $4 million on property and equipment during 2004 including the investment in the ERP system.

Financing Activities. In the first quarter of 2004, we generated $1.0 million in cash from financing activities, reflecting $1.5 million from the sale of our common stock pursuant to exercises of stock options, offset in part by $500,000 of payments under sales-leaseback arrangements.

     Our commitments under leases and other obligations as of March 31, 2004 were not materially different from that as of December 31, 2003. As of December 31, 2003, we had commitments under leases and other obligations totaling $34.7 million, payable in varying amounts over five years, as more fully described in Item 7 of our Annual Report on Form 10-K.

     Our capital requirements depend on numerous factors including market acceptance of our products, the resources we devote to developing and supporting our products, acquisitions and other factors. We expect to devote substantial capital resources to continue our research and development efforts, to expand our support and product development activities, and for other general corporate activities. Based on our long-term strategic plan updated for the acquisition of Zymark, we believe that our current cash balances, together with the revenue to be derived from our commercial partners and from commercial sales of our microfluidic and lab automation products and services will be sufficient to fund our operations at least through the year 2005. Our future capital requirements will depend on many factors, including, among others:

•		growing market acceptance of our microfluidic and lab automation products;
•		continued scientific progress in our microfluidic, lab automation and robotic research and product development programs;
•		the magnitude and scope of our research and product development programs;
•		our ability to maintain existing, and establish additional, corporate partnerships and licensing arrangements;
•		the time and costs involved in expanding and maintaining our manufacturing facilities;
•		the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
•		the potential need to develop, acquire or license new technologies and products; and
•		other factors not within our control.

     We have provided financial projections that we expect to attain positive cash flows from operations by the fourth quarter of 2005, and we believe our current cash balances are more than adequate to satisfy our cash needs at least through the end of 2005. Our actual cash needs could vary considerably, however, depending on opportunities that arise over the course of 2004 and 2005. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we may need to reduce our research and development efforts, or sell additional equity or debt securities or obtain additional credit arrangements. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. Additional financing may not be available on terms acceptable to us or at all. The inability to obtain additional financing may force delays in research and product development activities and, ultimately, cause us to cease operations.

     Financial Projections. We are providing financial projections for the second quarter of 2004, and reaffirming our projections for full year 2004 and our longer-range objectives for generating positive cash flows from operations, as set forth below. The key financial projections we are providing are as follows:

•		We expect full year revenues for 2004 to be approximately $80 million to $85 million, and second quarter 2004 revenues to be approximately $18 to $19 million.
•		We expect full year selling, general and administrative, and research and development expenses to be approximately $59 to $63 million, inclusive of the $1.1 million research and development charge discussed in Note 10 to the consolidated financial statements in Item 1 of this report.

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•		We expect our gross profit, calculated by subtracting projected cost of product and service revenues from our total projected revenues, to be approximately 40% of total revenues in 2004, depending significantly on our overall mix of total revenues. We expect to use cash of between $20 million and $25 million during 2004, including an estimated $3.0 million to $4.0 million to be used for capital expenditures including a new Enterprise Resource Management System to replace our current systems which we deem inadequate to support our expected future growth. We expect cash, cash equivalents and marketable securities to be in excess of $40 million as of December 31, 2004.
•		We expect to attain positive cash flows from operations by the fourth quarter of 2005.

     We have incurred operating losses since our inception and expect to incur losses for the foreseeable future. While we have significantly reduced our research and development expenses, we will continue to make significant investments in R&D over the next several years. We believe that our acquisition of Zymark will have the effect of increasing revenues and decreasing our overall net loss in the near term. The financial projections that we have provided above forward-looking statements that are subject to risks and uncertainties, and are only made as of the date of the filing of this Form 10-Q. These projections are based upon assumptions that we have made and believe to be reasonable. However, actual results may vary significantly from these projections due to the risks and uncertainties inherent in our business as described in the section entitled “Factors Affecting Operating Results” below.

Factors Affecting Operating Results

Risks Related To Our Business

Our LabChip products may not achieve market acceptance, which could cause our revenue to grow slowly or decline.

     Many of our microfluidic technologies, which we developed prior to our acquisition of Zymark on July 14, 2003, are still in the early stages of development, and our drug discovery and automated electrophoresis systems incorporating these technologies have only recently begun to be used commercially. If these systems do not gain further market acceptance, we will be unable to generate significant sales of these products and our revenue may grow more slowly than expected or decline. The commercial success of our LabChip products will depend upon capital spending by our potential customers, and market acceptance of the merits of our drug discovery and automated electrophoresis systems by pharmaceutical and biotechnology companies, academic research centers and other companies that rely upon laboratory experimentation. Market acceptance will depend on many factors, including:

•		our ability to demonstrate the advantages and potential economic value of our LabChip drug discovery systems over alternative well-established technologies;
•		our ability to develop novel functionalities for our LabChip products and instrument systems that enable customers and potential customers to perform functions that are not possible with traditional lab research technologies;
•		capital spending by our customers and potential customers, which has been sluggish as a result of current economic conditions and other industry-specific factors; and
•		our ability to market our drug discovery systems.

     Because the LabChip products and automated electrophoresis systems have been in operation for only a limited period of time, their accuracy, reliability, ease of use and commercial value have not been fully established. If the first customers do not endorse our initial drug discovery systems because these systems fail to generate the quantities and quality of data they expect, are too difficult or costly to use, or are otherwise deficient, market acceptance of these drug discovery systems would suffer and further sales may be limited. We cannot assure you that these customers’ efforts to put our high throughput systems into use will continue or will be expeditious or effective. Potential customers for our drug discovery systems may also wait for indications from our initial drug discovery system customers that our drug discovery systems work effectively and generate substantial benefits. Further, non-acceptance by the market of our initial drug discovery systems could undermine not only those systems but subsequent drug discovery systems as well. Our microfluidic-based drug discovery systems are now being marketed and sold principally by the sales and marketing organization we acquired with our acquisition of Zymark. These systems and the technologies on which they are based are new to this sales and marketing organization, which may limit our ability to effectively market and sell these systems.

If we are not successful in developing new and enhanced liquid handling and other life sciences products, our products may not gain market acceptance and we may lose market share to our competitors.

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     The life sciences productivity tools equipment market, the principal market for the traditional products of Zymark, is very competitive and is characterized by rapid technological change and frequent new product introductions. The commercial success of our liquid handling systems and other products depends upon continued and expanding market acceptance of our systems and products by pharmaceutical and biotechnology companies and genomics research organizations, and upon availability to address quickly any performance problems that our customers encounter. We anticipate that our competitors will introduce new, enhanced products in this market in the near future. Our future success will depend on our ability to offer new products and technologies that researchers believe are an attractive alternative to current products and technologies, that address the evolving needs of our customers and that are technologically superior to new products that may be offered by our competitors. We may experience difficulties or delays in our development efforts for new products, and we may not ultimately be successful in developing them. Any significant delay in releasing new products in this market could adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

If we do not successfully introduce newer, lower cost versions of our drug discovery systems, and expand the range of applications for these systems, we may experience a decline in revenue or slow revenue growth and may not achieve or maintain profitability.

     We intend to continue developing new, lower cost versions of our microfluidic-based drug discovery systems with enhanced features that address existing or emerging customer needs, such as novel assay functionalities. If we are unable to do so, our drug discovery systems may not become more widely used and we may experience a decline in revenue or slow revenue growth and may not achieve or maintain profitability. We currently have several assays in development including assays that measure many important activities of cells and proteins. We are developing line extensions that are particularly well suited for the evaluation of kinases, one of the largest focus areas of drug discovery efforts today. We are creating new tools to make it easier for our customers to develop their own custom assays in a microfluidic format. We are also developing kinase profiling and selectivity screening kits. If we are not able to complete the development of any of these applications and tools, or if we experience difficulties or delays, we may lose our current customers and may not be able to obtain new customers.

We are subject to the capital spending patterns of the pharmaceutical industry, which over the past several years have been adversely impacted by general economic conditions, industry consolidation and increased competition.

     Many of our instrument products represent relatively large capital expenditures by our customers. During the past several years, many of our customers and potential customers, particularly in the pharmaceutical industry, have reduced their capital spending budgets because of generally adverse prevailing economic conditions, consolidation in the industry and increased pressure on the profitability of pharmaceutical companies, due in part to more competition from generic drugs. If our customers and potential customers do not increase their capital spending budgets, because of continuing adverse economic conditions or further consolidation in the industry, we could face weak demand for our products, in particular our products used for high-throughput screening. If the demand for our instrument products is weak because of constrained capital spending by our pharmaceutical industry customers and potential customers, we may not achieve our targets for revenue and cash flow from operations.

Our acquisition of Zymark and other potential acquisitions may have unexpected consequences or impose additional costs on us.

     Our business is highly competitive and our growth is dependent upon market growth and our ability to enhance our existing products and introduce new products on a timely basis. One of the ways we may address the need to develop new products is through acquisitions of complementary businesses and technologies, such as our acquisition of Zymark. From time to time, we consider and evaluate potential business combinations both involving our acquisition of another company and transactions involving the sale of Caliper through, among other things, a possible merger or consolidation of our business into that of another entity. Acquisitions involve numerous risks, including the following:

•		difficulties in integration of the operations, technologies, and products of the acquired companies;
•		the risk of diverting management’s attention from normal daily operations of the business;
•		potential cost and disruptions caused by the integration of financial reporting systems and development of uniform standards, controls, procedures and policies;
•		accounting consequences, including amortization of acquired intangible assets or other required purchase accounting adjustments, resulting in variability or reductions of our reported earnings;
•		potential difficulties in completing projects associated with purchased in-process research and development;

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•		risks of entering markets in which we have no or limited direct prior experience and where competitors in these markets have stronger market positions;
•		the potential loss of key employees of Caliper or the acquired company due to the employment uncertainties inherent in the acquisition process;
•		the assumption of known and potentially unknown liabilities of the acquired company;
•		we may find that the acquired company or assets do not further our business strategy or that we paid more than what the company or assets are worth;
•		our relationship with current and new employees and customers could be impaired;
•		the acquisition may result in litigation from terminated employees or third parties who believe a claim against us would be valuable to pursue;
•		our due diligence process may fail to identify significant issues with product quality, product architecture and legal contingencies, among other matters; and
•		insufficient revenues to offset increased expenses associated with acquisitions.

     Acquisitions may also cause us to:

•		issue common stock that would dilute our current stockholders’ percentage ownership;
•		record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;
•		incur amortization expenses related to certain intangible assets;
•		incur reductions in deferred revenue of the acquired company, resulting in lower future revenues; or
•		incur other large and immediate write-offs.

     We cannot assure you that our acquisition of Zymark and any future acquisitions will be successful and will not adversely affect our business. We must also maintain our ability to manage any growth effectively. Failure to manage growth effectively and successfully integrate acquisitions we make could harm our business.

We expect to incur future operating losses and may not achieve profitability.

     We have experienced significant operating losses each year since our inception and expect to incur substantial additional operating losses for the years 2004 and 2005, primarily as a result of a current sluggish economic climate, dampened life sciences research spending by many of our customers and expected continuing expenses for manufacturing capabilities, research and product development costs and general and administrative costs. We may never achieve profitability. As of March 31, 2004, we had an accumulated deficit of approximately $145.1 million. Our losses have resulted principally from costs incurred in research and development, product marketing and from general and administrative costs associated with our operations. These costs have exceeded our interest income and revenue which, to date, have been generated principally from product sales, collaborative research and development agreements, technology access fees, cash and investment balances.

Our operating results fluctuate significantly and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price.

     Our quarterly operating results have fluctuated significantly in the past, and we expect they will continue to fluctuate in the future, even with our combination with Zymark, as a result of many factors, some of which are outside of our control. For example, many of our products represent relatively large capital expenditures for our customers, which leads to variations in the amount of time it takes for us to sell our products because customers may take several months or longer to evaluate and obtain the necessary internal approvals for the purchase of our products. In addition, a significant portion of our revenues is derived from sales of relatively high-priced products, and these sales are generally made by purchase orders and not long-term contracts. Delays in receipt of anticipated orders for higher-priced products could lead to substantial variability of revenue from quarter to quarter. Furthermore, Zymark historically received purchase orders and shipped a significant portion of each quarter’s product orders near the end of the quarter. If

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that pattern continues, even short delays in the receipt of orders or shipment of products at the end of a quarter could result in shipment during the next quarter, which could have a material adverse effect on results of operations for the quarter in which the shipment did not occur. In addition, Zymark’s business was historically affected by capital spending patterns of its customers with a greater percentage of purchases, and therefore higher revenues, occurring in the second half of the year. There can be no assurance that this trend will continue. For all of these and other reasons, it is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors. In this event, the market price of our common stock may fall abruptly and significantly. Because our revenue and operating results are difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance.

     If revenue declines in a quarter, whether due to a delay in recognizing expected revenue or otherwise, our earnings will decline because many of our expenses are relatively fixed. In particular, research and development and general and administrative expenses and amortization of deferred stock compensation and intangible assets are not affected directly by variations in revenue.

We have limited experience in manufacturing our products and may encounter manufacturing problems or delays, which could result in lost revenue.

     Although Agilent manufactures the Agilent 2100 Bioanalyzer, we manufacture the chips used in this instrument and also currently manufacture instruments and sipper chips for our drug discovery systems. We currently have limited manufacturing capacity for our LabChip products and automated drug discovery system products and experience variability in manufacturing yields for chips and automated drug discovery products. If we fail to deliver chips and automated drug discovery products in a timely manner, our relationships with our customers could be seriously harmed, and revenue would decline. We currently have one manufacturing location for LabChip products in Mountain View, California, and one manufacturing location for instruments and other products located in Hopkinton, Massachusetts. The actual number of chips we are able to sell or use depends in part upon the manufacturing yields for these chips. We have only recently begun to manufacture significant numbers of sipper chips and are continuing to develop our manufacturing procedures for these chips. In order to offer sipper chips with more than four capillaries for drug discovery applications, we will need to continue to achieve consistently high yields in this process. We have experienced difficulties in manufacturing both our chips and instruments. We cannot assure you that manufacturing or quality problems will not continue or arise as we attempt to scale-up our production of chips or that we can scale-up manufacturing in a timely manner or at commercially reasonable costs. If we are unable to consistently manufacture sipper chips or chips for the Agilent 2100 Bioanalyzer on a timely basis because of these or other factors, our product sales will decline. We are currently manufacturing drug discovery instruments in-house and in limited volumes. If demand for our drug discovery instruments increases significantly, we will either need to expand our in-house manufacturing capabilities or outsource to other manufacturers, which could result in a decrease in yields, and therefore an increase in manufacturing costs and a decrease in net income from sales.

     Our ability to scale-up chip manufacturing may be compromised by uncertainty regarding the volume of chips for the Agilent 2100 Bioanalyzer that we will need to supply to Agilent in the future. As our exclusive collaboration with Agilent terminated in May 2003 pursuant to the notice we delivered to Agilent, Agilent now has the option to manufacture chips itself rather than continue to receive its supply of chips from Caliper. Accordingly, we face uncertainty regarding future demand for these chips from our manufacturing operations.

Because a small number of customers and Agilent have accounted for, and may continue to account for, a substantial portion of our revenue, our revenue could decline due to the loss of one of these customers or the termination of our agreement with Agilent.

     Historically, we have had very few customers and one commercial partner, Agilent, from which we have derived the majority of our revenue, although our acquisition of Zymark in July 2003 greatly expanded our customer base. During the period ended March 31, 2004, Agilent accounted for 10% of total revenues. If we were to lose any one or more of our significant customers, our revenue could decrease significantly.

Our revenue could decline due to the termination of our agreement with Agilent because of a number of different factors, including a reduction in our gross margin share of Agilent 2100 Bioanalyzer and LabChip products sold by Agilent or reduced sales of such products by Agilent due to competition from us or our other commercial partners.

     Our commercial relationship with Agilent is currently in a state of transition due to our termination of the collaboration agreement with Agilent, effective in May 2003. We are now operating under the surviving provisions of that agreement. We will continue to receive revenue from Agilent based on a formula for gross margin sharing on sales by Agilent of instruments and chips developed under our collaboration agreement.

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     Although we anticipate that future sales of the Agilent 2100 Bioanalyzer system will further expand our revenue base, under the surviving provisions of our agreement with Agilent, our gross margin share of collaboration products sold by Agilent will begin to decline at the end of 2004. If sales of these products do not increase fast enough to offset the decline in our gross margin share, the amount of revenue we receive from Agilent will decline.

     In addition, under the surviving terms of our agreement with Agilent, we granted to Agilent a non-exclusive, royalty-bearing license to certain of our LabChip technologies existing as of the termination date for Agilent to develop, make and sell products in the field of the collaboration. Consequently, there is the possibility that Agilent may manufacture its own supply of LabChip products, rather than purchasing them from us, or that we may experience competition from Agilent in the future, which would reduce our ability to sell products independently or through other commercial partners.

     Now that our agreement with Agilent is terminated, Agilent’s sales of collaboration products could be reduced due to competition from us or our other commercial partners. In such event, the revenue we would receive from Agilent could be reduced by more than the revenue we receive from other commercial partners. Further, Agilent may decide for reasons wholly independent of competition to reduce its sales efforts and/or pricing for these products. If Agilent does so, our revenue may decline.

     Finally, if we do not enter into a new research and development funding agreement with Agilent, we anticipate that research and development funding from Agilent for existing collaboration products will continue to decline in 2004, and we could cease to receive development funding from Agilent for new products.

We depend on our key personnel, the loss of whom would impair our ability to compete.

     We are highly dependent on the principal members of our management, especially our Chief Executive Officer, and certain of our scientific staff. The loss of services of any of these persons could seriously harm our product development and commercialization efforts. In addition, research, product development and commercialization will require additional skilled personnel in areas such as chemistry and biology, software engineering and electronic engineering. Our business is located in Silicon Valley, California, and, with the acquisition of Zymark, in the Boston metropolitan area, where demand for personnel with these skills remains high, and may increase further as the economic outlook in these areas improves. As a result, competition for and retention of personnel, particularly for employees with technical expertise, is intense and the turnover rate for these people is high. If we are unable to hire, train and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced. The inability to retain and hire qualified personnel could also hinder any planned expansion of our business.

Our products could infringe on the intellectual property rights of others, which may cause us to engage in costly litigation and, if we are not successful, could also cause us to pay substantial damages and prohibit us from selling our products.

     Third parties may assert infringement or other intellectual property claims against us. We may have to pay substantial damages, including treble damages, for past infringement if it is ultimately determined that our products infringe a third party’s proprietary rights. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Even if these claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. We are aware of third-party patents that may relate to our technology or potential products. We have also been notified that a third party has attempted to provoke an interference with one issued U.S. patent that we have exclusively licensed to determine the priority of inventions. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to decline. In 2001, we settled intellectual property litigation with Aclara concerning one family of Aclara patents. However, Aclara could assert other patent infringement claims against us in the future in alternative dispute resolution proceedings established under our settlement agreement.

We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some of our intellectual property rights, which would reduce our ability to compete in the market.

We rely on patents to protect a large part of our intellectual property and our competitive position, especially in our microfluidics business. In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such as the patent infringement suit against Molecular Devices we settled in November 2003. These lawsuits could be expensive, take significant time, and could divert management’s attention from other business concerns. They would put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. We may also provoke these third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. We cannot assure you that we will prevail in any of these suits or that the damages or

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other remedies awarded, if any, will be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive any of these results to be negative, it could cause our stock price to decline.

The rights we rely upon to protect our intellectual property underlying our products may not be adequate, which could enable third parties to use our technology and would reduce our ability to compete in the market.

     In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, nondisclosure agreements and other contractual provisions and technical measures to protect our intellectual property rights. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. If they do not protect our rights, third parties could use our technology, and our ability to compete in the market would be reduced. In addition, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries. For a variety of reasons, we may decide not to file for patent, copyright or trademark protection outside of the United States. We also realize that our trade secrets may become known through other means not currently foreseen by us. Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology and products without infringing on any of our intellectual property rights or design around our proprietary technologies.

We are dependent on a single-source supplier for the glass used in our LabChip products and if we are unable to buy this glass on a timely basis, we will not be able to deliver our LabChip products to customers.

     We currently purchase a key component for our chips from a single-source supplier located in Germany. Although we keep surplus inventory in our Mountain View manufacturing facility, if we are unable to replenish this component on a timely basis, we will not be able to deliver our chips to our customers, which would harm our business.

We obtain some of the components and subassemblies included in our systems from a single source or a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenue.

     We rely on outside vendors to manufacture many components and subassemblies for our products. Certain components, subassemblies and services necessary for the manufacture of our products are provided by a sole supplier or limited group of suppliers, some of which are our competitors. We currently purchase additional components, such as optical, electronic and pneumatic devices, in configurations specific to our requirements that, together with certain other components, such as computers, are integrated into our products. We maintain only a limited number of long-term supply agreements with our suppliers.

     Our reliance on a sole or a limited group of suppliers involves several risks, including the following:

•		we may be unable to obtain an adequate supply of required components;
•		we have reduced control over pricing and the timely delivery of components and subassemblies; and
•		our suppliers may be unable to develop technologically advanced products to support our growth and development of new systems.

     Because the manufacturing of certain of these components and subassemblies involves complex processes and requires long lead times, we may experience delays or shortages caused by suppliers. We believe that alternative sources could be obtained at the same prices and on substantially the same terms and conditions, if necessary, for most sole and limited source parts. However, if we were forced to seek alternative sources of supply or to manufacture such components or subassemblies internally, we might be forced to redesign our systems, which could prevent us from shipping our systems to customers on a timely basis. Some of our suppliers have relatively limited financial and other resources, and, therefore, their businesses could fail. Any inability to obtain sufficient quantities of components and subassemblies, or any other circumstance that would restrict our ability to ship our products, could damage relationships with current and prospective customers and could harm our business.

If a natural disaster strikes our manufacturing facility we would be unable to manufacture our products for a substantial amount of time and we would experience lost revenue.

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     We rely on a single manufacturing location to produce our chips and drug discovery systems, and a single location to produce Zymark’s laboratory automation and robotics systems, with no alternative facilities. These facilities and some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-time. Our manufacturing facilities may be affected by natural disasters such as earthquakes and floods. Earthquakes are of particular significance since the microfluidic manufacturing facility is located in Mountain View, California, an earthquake-prone area. In the event that our existing manufacturing facilities or equipment is affected by man-made or natural disasters, we would be unable to manufacture products for sale, meet customer demands or sales projections. If our manufacturing operations were curtailed or ceased, it would harm our business.

Failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce our ability to compete and result in lower revenue.

     We anticipate that our existing capital resources will enable us to maintain currently planned operations at least through the year 2004. However, we premise this expectation on our current operating plan, which may change as a result of many factors. Consequently, we may need additional funding sooner than anticipated. Our inability to raise needed capital would seriously harm our business and product development efforts. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in dilution to our stockholders.

     We currently have no credit facility or committed sources of capital. To the extent operating and capital resources are insufficient to meet future requirements, we will have to raise additional funds to continue the development and commercialization of our technologies. These funds may not be available on favorable terms, or at all. If adequate funds are not available on attractive terms, we may be required to curtail operations significantly or to obtain funds by entering into financing, supply or collaboration agreements on unattractive terms.

Our net operating loss and tax credit carryforwards may expire if we do not achieve or maintain profitability.

     As of December 31, 2003, we had federal and state net operating loss carryforwards of approximately $101.5 million and $26.7 million. We also had federal and state research and development tax credit carryforwards of approximately $3.1 million and $3.1 million, respectively. The federal net operating loss and credit carryforwards will expire at various dates beginning in the year 2009 through 2023 if not utilized. The state net operating losses will begin to expire in year 2004, if not utilized.

     Utilization of the federal and state net operating losses and credits may be subject to a substantial limitation due to the change in ownership provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

     Because of our lack of earnings history and the uncertainty of realizing these net operating losses, the deferred tax assets have been fully offset by a valuation allowance.

Risks Related to Owning Our Common Stock

Our stock price is extremely volatile, and you could lose a substantial portion of your investment.

     Our stock has been trading on the Nasdaq National Market only since mid-December 1999. We initially offered our common stock to the public at $16.00 per share. Since then our stock price has been extremely volatile and has ranged, through May 7, 2004, from a high of approximately $202.00 per share on March 2, 2000 to a low of $2.71 per share both on January 28, 2003 and February 6, 2003. Our stock price may drop substantially following an investment in our common stock. We expect that our stock price will remain volatile as a result of a number of factors, including:

•		announcements by analysts regarding their assessment of Caliper and its prospects;
•		announcements by our competitors of complementary or competing products and technologies;
•		announcements of our financial results, particularly if they differ from investors’ expectations;
•		our ability to successfully integrate Zymark’s and Caliper’s operations; and

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•

general market volatility for technology stocks.

     These factors and fluctuations, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock.

We have been sued, and are at risk of future securities class action litigation.

     In the Spring and Summer of 2001, class action lawsuits were filed against certain leading investment banks and over 300 companies that did public offerings during the prior several years, including lawsuits against Caliper and certain of its officers and directors. This and other securities litigation could result in potential liability, cause us to incur litigation costs and divert management’s attention and resources, any of which could harm our business. In addition, announcements of future lawsuits of this or some other nature, and announcements of events occurring during the course of the current and any future lawsuits, could cause our stock price to drop.

Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the price investors might be willing to pay in the future for our common stock.

     Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing an acquisition, merger in which we are not the surviving company or changes in our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of the outstanding voting stock, from consummating a merger or combination including us. These provisions could limit the price that investors might be willing to pay in the future for our common stock.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

     The potential change in fair value for interest rate sensitive instruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities. We estimate that such hypothetical adverse 100 basis point movement would not have materially impacted net income or materially affected the fair value of interest rate sensitive instruments as of December 31, 2003 and March 31, 2004.

     Our equipment sale-leaseback financings, amounting to $1.4 million as of March 31, 2004, are all at fixed rates and, therefore, have minimal exposure to changes in interest rates.

     Our primary investment objective is to preserve principal while at the same time maximizing yields without significantly increasing risk. Our portfolio includes money markets funds, commercial paper, medium-term notes, corporate notes, government securities, asset-backed securities, and corporate bonds. The diversity of our portfolio helps us to achieve our investment objective. As of March 31, 2004 and December 31, 2003, the average remaining maturity of our investment portfolio was approximately 14 months and 1 year, respectively. All of our instruments are held other than for trading purposes.

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     The following table presents by year of maturity the amounts of our cash equivalents and investments, and related weighted average interest rates, that may be subject to interest rate risk as of March 31, 2004 (dollars in thousands):

     This differs from our position as of December 31, 2003, which the following table presents (dollars in thousands):

Item 4. Controls and Procedures

     We evaluated our “disclosure controls and procedures” and our “internal controls and procedures for financial reporting” as of March 31, 2004. This evaluation was done under the supervision and with the participation of management, including our chief executive officer and our principal financial officer.

Evaluation of disclosure controls and procedures.

     Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

     Subject to the limitations set forth below, based on their evaluation, as of the end of this reporting period, the chief executive officer and the principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal controls.

     Internal controls over financial reporting are procedures which are designed with the objective of providing reasonable assurance that: (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. Among other matters, we evaluated our internal controls over financial reporting to determine whether there were any “significant deficiencies” or “material weaknesses,” and sought to determine whether Caliper has identified any acts of fraud involving personnel who have a significant role in Caliper’s internal controls. In the professional auditing literature, “significant deficiencies” may be interpreted as being comparable as “reportable conditions”; these are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements. A “material weakness” is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and would not be detected within a timely period by employees in the normal course of performing their assigned functions.

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     There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

     Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2003, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by Ernst & Young LLP, our independent auditor. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements.

Limitations on the Effectiveness of Controls.

     Our management, including our chief executive and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Caliper have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II – Other Information

Item 1. Legal Proceedings

     None.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

     None.

Item 3. Defaults Upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     Not Applicable.

Item 5. Other Information

     Caliper’s Audit Committee pre-approves all audit and permissible non-audit services provided by its independent auditors. For 2004, the Audit Committee has pre-approved $115,000 for tax compliance and consulting services.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

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(1)

Previously filed as Exhibit 3.3 to Caliper’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2003, filed August 14, 2003, and incorporated by reference herein.

*

The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

(b)

Reports on Form 8-K

On February 26, 2004, Caliper Life Sciences, Inc. filed a Current Report on Form 8-K furnishing under Item 12 its financial results for the quarter and year ended December 31, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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(1)

Previously filed as Exhibit 3.3 to Caliper’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2003, filed August 14, 2003, and incorporated by reference herein.

*

The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by Caliper for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.