##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the quarterly period ended March 31, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to .
 Commission File No. 000-30109
 LUMINEX CORPORATION
  DELAWARE
    
    74-2747608(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
    
    78727(Address of principal executive offices)
    
    (Zip Code)
 (512) 219-8020
 þ o
  o þ o
 o þ




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    1Condensed Consolidated Statements of Operations for the three months ended
March 31, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 6. Exhibits
    
    
    21SIGNATURES and EXHIBITS
    
    
    S-1Ex-10.1Ex-10.1 Amendment to Restricted Stock AgreementEx-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LUMINEX CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash
equivalents
    
    $
    16,195
    
    
    $
    27,414Short-term
investments
    
    
    3,493
    
    
    
    10,956Accounts
receivable, net
    
    
    10,789
    
    
    
    8,237Inventory, net
    
    
    6,145
    
    
    
    4,571Other
    
    
    1,639
    
    
    
    1,917Total current assets
    
    
    38,261
    
    
    
    53,095Property and equipment, net
    
    
    8,981
    
    
    
    4,985Intangible assets, net
    
    
    2,041
    
    
    
    Long-term investments
    
    
    7,315
    
    
    
    7,346Goodwill
    
    
    64,618
    
    
    
    Other
    
    
    1,286
    
    
    
    1,270Total assets
    
    $
    122,502
    
    
    $
    66,696LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts
payable
    
    $
    5,555
    
    
    $
    3,255Accrued liabilities
    
    
    6,784
    
    
    
    2,905Deferred
revenue
    
    
    3,247
    
    
    
    2,756Other
    
    
    170
    
    
    
    Total current
liabilities
    
    
    15,756
    
    
    
    8,916Long-term debt
    
    
    3,369
    
    
    
    Deferred revenue and other
    
    
    3,820
    
    
    
    3,621Total liabilities
    
    
    22,945
    
    
    
    12,537Stockholders equity:Common stock
    
    
    35
    
    
    
    32Additional paid-in
capital
    
    
    184,456
    
    
    
    139,116Accumulated other
comprehensive gain
    
    
    (16
    )
    
    
    65Accumulated deficit
    
    
    (84,918
    )
    
    
    (85,054
    )Total stockholders
equity
    
    
    99,557
    
    
    
    54,159Total liabilities and stockholders equity
    
    $
    122,502
    
    
    $
    66,696




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LUMINEX CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three Months EndedMarch 31,2007
    
    
    2006(unaudited)Revenue
    
    $
    16,607
    
    
    $
    12,997Cost of revenue
    
    
    6,178
    
    
    
    4,737Gross profit
    
    
    10,429
    
    
    
    8,260Operating expenses:Research and
development
    
    
    2,705
    
    
    
    2,197Selling, general and
administrative
    
    
    8,096
    
    
    
    5,950Total operating
expenses
    
    
    10,801
    
    
    
    8,147Income (loss) from operations
    
    
    (372
    )
    
    
    113Interest expense from
long-term
debt
    
    
    (84
    )
    
    
    Other income, net
    
    
    606
    
    
    
    416Income
taxes
    
    
    (14
    )
    
    
    (3
    )Net income
    
    $
    136
    
    
    $
    526Net income per share, basic
    
    $
    0.00
    
    
    $
    0.02Shares used in computing net income
per share, basic
    
    
    31,970
    
    
    
    31,201Net income per share, diluted
    
    $
    0.00
    
    
    $
    0.02Shares used in computing net income
per share, diluted
    
    
    33,077
    
    
    
    32,379
 
 2




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LUMINEX CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006(unaudited)Operating activities:Net income
    
    $
    136
    
    
    $
    526Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and
amortization
    
    
    540
    
    
    
    363Stock-based
compensation and
other
    
    
    1,507
    
    
    
    1,165Loss on disposal of
assets
    
    
    54
    
    
    
    27Other
    
    
    1
    
    
    
    (2
    )Changes in operating assets and liabilities:Accounts receivable,
net
    
    
    (1,077
    )
    
    
    1,659Inventory,
net
    
    
    (32
    )
    
    
    (322
    )Prepaids and
other
    
    
    340
    
    
    
    428Accounts
payable
    
    
    (1,554
    )
    
    
    (1,253
    )Accrued
liabilities
    
    
    (3,126
    )
    
    
    (1,169
    )Deferred
revenue
    
    
    360
    
    
    
    (229
    )Net cash (used in) provided by operating activities
    
    
    (2,851
    )
    
    
    1,193Investing activities:Net purchases of held-to-maturity investments
    
    
    7,525
    
    
    
    (2,000
    )Purchase of property and equipment
    
    
    (1,605
    )
    
    
    (884
    )Acquisition of business, net of cash
acquired
    
    
    (1,991
    )
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    5Net cash provided by (used in) investing activities
    
    
    3,929
    
    
    
    (2,879
    )Financing activities:Payments on debt
    
    
    (12,227
    )
    
    
    Proceeds from issuance of common
stock
    
    
    14
    
    
    
    1,076Net cash (used in) provided by financing activities
    
    
    (12,213
    )
    
    
    1,076Effect of foreign currency exchange rate on cash
    
    
    (84
    )
    
    
    6Change in cash and cash equivalents
    
    
    (11,219
    )
    
    
    (604
    )Cash and cash equivalents, beginning of period
    
    
    27,414
    
    
    
    25,206Cash and cash equivalents, end of period
    
    $
    16,195
    
    
    $
    24,602Supplemental disclosure of
cash flow information:Interest and
penalties paid
    
    $
    1,081
    
    
    $
    Supplemental disclosure of
non-cash effect of acquisitions:Purchase
price
    
    $
    (47,001
    )
    
    $
    Comon stock issued
    
    
    41,755
    
    
    
    Conversion of Tm options and warrants
    
    
    2,315Cash acquired
    
    
    940
    
    
    
    Acquisition, net of cash acquired
    
    $
    (1,991
    )
    
    $
    
 
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LUMINEX CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  ACQUISITIONS
     4




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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   AmountCash
    
    
    940Other current assets
    
    
    3,102Other assets
    
    
    56Property and equipment
    
    
    2,884Identifiable
intangible assets
    
    
    2,063Goodwill
    
    
    64,618Total assets
    
    
    73,663Current portion of debt assumed
    
    
    12,447Accrued
severance assumed
    
    
    2,120Other current liabilities assumed
    
    
    8,510Long-term debt assumed
    
    
    3,351Other long-term liabilities assumed
    
    
    234Total liabilities
    
    
    26,662Purchase
price
    
    $
    47,001
 Pro Forma Information
    Three
Months EndedMarch 31, 2007Revenues
    
    $
    16,926Net loss
    
    $
    (6,241
    )Net loss
per share, basic and diluted
    
    $
    (0.18
    )
 5




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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 NOTE 3  INVESTMENTS
   Accrued
    
    
    AmortizedCost
    
    
    Interest
    
    
    CostDue in one year or less
    
    $
    3,493
    
    
    $
    73
    
    
    $
    3,566Due after one year through two years
    
    
    7,315
    
    
    
    121
    
    
    $
    7,436$
    10,808
    
    
    $
    194
    
    
    $
    11,002
 NOTE 4  INVENTORY, NET
  March 31,
    
    
    December 31,2007
    
    
    2006Parts and supplies
    
    $
    3,419
    
    
    $
    3,504Work-in-progress
    
    
    1,682
    
    
    
    555Finished goods
    
    
    1,801
    
    
    
    9326,902
    
    
    
    4,991Less: Allowance for excess and obsolete inventory
    
    
    (757
    )
    
    
    (420
    )$
    6,145
    
    
    $
    4,571
 NOTE 5  EARNINGS PER SHARE
  6




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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Three Months EndedMarch 31,2007
    
    
    2006Numerator:Net income
    
    $
    136
    
    
    $
    526Denominator:Denominator for basic net income per share -
weighted average common stock outstanding
    
    
    31,970
    
    
    
    31,201Dilutive common stock equivalents - common stock
options and awards
    
    
    1,107
    
    
    
    1,178Denominator for diluted net income per share -
weighted average common stock outstanding and
dilutive common stock equivalents
    
    
    33,077
    
    
    
    32,379Basic net income per share
    
    $
    0.00
    
    
    $
    0.02Diluted net income per share
    
    $
    0.00
    
    
    $
    0.02
  NOTE 6  STOCK-BASED COMPENSATION
    7




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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
   WeightedAverageShares
    
    
    ExerciseStock Options
    
    (in thousands)
    
    
    PriceOutstanding at December 31, 2006
    
    
    3,163
    
    
    $
    9.76Granted
    
    
    790
    (1)
    
    
    21.26Exercised
    
    
    (2
    )
    
    
    5.61Cancelled or expired
    
    
    (63
    )
    
    
    25.38Outstanding at March 31, 2007
    
    
    3,888
    
    
    $
    11.84
 
 (1)
    
    Includes shares reserved with respect to the Tm options assumed in the acquisition.   Weighted-AverageShares
    
    
    Grant-DateRestricted Stock Awards/Units
    
    (in thousands)
    
    
    Fair ValueNon-vested at December 31, 2006
    
    
    798
    
    
    $
    12.46Granted
    
    
    312
    
    
    
    14.11Vested
    
    
    (74
    )
    
    
    12.60Cancelled or expired
    
    
    (2
    )
    
    
    11.34Non-vested at March 31, 2007
    
    
    1,034
    
    
    $
    12.95
   Three Months EndedMarch 31,2007
    
    
    2006Cost of revenue
    
    $
    70
    
    
    $
    79Research and development
    
    
    178
    
    
    
    102Selling, general and administrative
    
    
    1,254
    
    
    
    984Total stock-based compensation costs
    
    $
    1,502
    
    
    $
    1,165
 8




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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 NOTE 7  SEGMENT INFORMATION
  Technology
    
    Assay
    
    IntersegmentGroup
    
    Group
    
    Eliminations
    
    ConsolidatedRevenues from external customers
    
    $
    15,415
    
    
    $
    1,192
    
    
    $
    
    
    
    $
    16,607Intersegment revenue
    
    
    323
    
    
    
    8
    
    
    
    (331
    )
    
    
    (331
    )Depreciation and amortization
    
    
    415
    
    
    
    137
    
    
    
    (20
    )
    
    
    532Segment profit (loss)
    
    
    1,660
    
    
    
    (1,460
    )
    
    
    (64
    )
    
    
    136Segment assets
    
    
    111,463
    
    
    
    12,749
    
    
    
    (1,710
    )
    
    
    122,502
 NOTE 8
 INCOME TAXES
    NOTE 9  RECENT ACCOUNTING PRONOUNCEMENTS
   9




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  SAFE HARBOR CAUTIONARY STATEMENT
  
    
    risks and uncertainties relating to market demand and acceptance of our products and technology,
    
    dependence on strategic partners for development, commercialization and distribution of products,
    
    concentration of the Companys revenue in a limited number of strategic partners,
    
    fluctuations in quarterly results due to a lengthy and unpredictable sales cycle and
bulk purchases of consumables,
    
    our ability to scale manufacturing operations and manage operating expenses, gross
margins and inventory levels,
    
    potential shortages of components,
    
    competition,
    
    the timing of regulatory approvals,
    
    the implementation, including any modification, of the Companys strategic operating plans, and
    
    risks and uncertainties associated with implementing our acquisition strategy and the
ability to integrate acquired companies, including LMD, or selected assets into our
consolidated business operations, including the ability to recognize the benefits of our
acquisitions.
   10




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OVERVIEW
    
    
    System revenue is generated from the sale of our xMap systems and peripherals.
Currently system revenue is derived from the sale of the Luminex 100 and 200 analyzers,
often coupled with an optional XY Platform and/or Sheath Delivery System. We currently
expect the average system price to be between $25,000 and $30,000 in a given reporting
period. This metric includes all configurations of our xMAP systems including refurbished
systems, demonstration systems and modular components.
    
    Consumable revenue is generated from the sale of our dyed polystyrene microspheres and
sheath fluid. Our larger commercial and development partners often purchase these
consumables in bulk to minimize the number of incoming qualification events and to allow
for longer development and production runs.
    
    Royalty revenue is generated when a partner sells a kit incorporating our proprietary
microspheres to an end user or when a partner utilizes a kit to provide a testing result to
a user. End users can be facilities such as testing labs, development facilities and
research facilities who buy prepared kits and have specific testing needs or testing
service companies that provide assay results to pharmaceutical research companies or
physicians.
    
    Service revenue is generated when a partner or other owner of a system purchases a
service contract from us after the warranty has expired. Service contract revenue is
amortized over the life of the contract and the costs associated with those contracts are
recognized as incurred.
    
    Assay revenue is generated from the sale of our kits which is a combination of chemical
and biological reagents and our proprietary bead technology used to perform diagnostic and
research assays on samples. For the three months ended March 31,
2007, assay revenue also
includes revenue for the month of March 2007 from Luminex
Molecular Diagnostics, or LMD, formerly Tm Bioscience Corporation or
Tm Bioscience, as a result
of our acquisition of Tm Bioscience, which was effective March 1, 2007. Assay revenue generated from the Luminex Bioscience
Group, or LBG, is also classified here. Previously, assay revenue generated from the LBG was
recorded in other revenue as it did not constitute a material amount of total revenue.
    
    Other revenue consists of items such as training, shipping, parts sales, license
revenue, grant revenue and other items that individually amount to less than 5% of total
revenue.
 11




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First Quarter 2007 Highlights
 
    
    Consolidated revenue of over $16.6 million, a 28% increase over the 1st quarter of 2006
and a 17% increase over the 4th quarter of 2006
    
    Consolidated gross margins of 63%
    
    Aggregate shipments of xMAP systems exceeds 4,300
    
    Completion of the acquisition of Tm Bioscience
    
    Secured a line of credit of up to $15 million to support potential short term liquidity needs
    
    Annualized end user sales on xMAP technology reported to us by our partners of over $165 million
    
    New product introductions by both the Technology segment and the Luminex Bioscience
Group
 Recent Acquisition of TM Bioscience
  Segment Information
  Future Operations
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  12




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Revenue Recognition.
  Inventory Valuation.
 Warranties.
 Accounts Receivable and Allowance for Doubtful Accounts.
 Goodwill.
 13




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RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
 Consolidated
 Three Months EndedMarch 31,2007
    
    2006Revenue
    
    $
    16,607
    
    
    $
    12,997Gross profit
    
    $
    10,429
    
    
    $
    8,260Gross margin percentage
    
    
    63
    %
    
    
    64
    %Operating expenses
    
    $
    10,801
    
    
    $
    8,147Net operating income (loss)
    
    $
    (372
    )
    
    $
    113
   Technology Segment
  Three Months EndedMarch 31,2007
    
    2006Revenue
    
    $
    15,415
    
    
    $
    12,997Gross profit
    
    $
    9,702
    
    
    $
    8,267Gross margin percentage
    
    
    63
    %
    
    
    64
    %Operating expenses
    
    $
    8,869
    
    
    $
    7,712Net operating income
    
    $
    833
    
    
    $
    555
   14




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Three Months EndedMarch 31,2007
    
    
    2006System sales
    
    $
    5,692
    
    
    $
    3,992Consumable sales
    
    
    4,811
    
    
    
    5,502Royalty revenue
    
    
    2,532
    
    
    
    1,790Service contracts
    
    
    1,003
    
    
    
    808Other revenue
    
    
    1,377
    
    
    
    905$
    15,415
    
    
    $
    12,997
      15




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Gross profit.
 Research and development expense.
  Other income, net.
 Assay Segment
  Three Months EndedMarch 31,2007
    
    2006Revenue
    
    $
    1,192
    
    
    $
    Gross profit
    
    $
    727
    
    
    $
    (7
    )Gross margin percentage
    
    
    61
    %
    
    
    Operating expenses
    
    $
    1,932
    
    
    $
    435Net operating (loss)
    
    $
    (1,205
    )
    
    $
    (442
    )
 Revenue.
 Expense.
 16




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LIQUIDITY AND CAPITAL RESOURCES
 March 31,
    
    
    December 31,2007
    
    
    2006Cash and cash equivalents
    
    $
    16,195
    
    
    $
    27,414Short-term investments
    
    
    3,493
    
    
    
    10,956Long-term investments
    
    
    7,315
    
    
    
    7,346$
    27,003
    
    
    $
    45,716
       17




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Contractual Obligations
  Payment Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsNon-cancelable rental obligations
    
    $
    5,962
    
    
    $
    2,318
    
    
    $
    3,544
    
    
    $
    100
    
    
    $
    Non-cancelable purchase
obligations (1)
    
    
    5,180
    
    
    
    4,580
    
    
    
    600
    
    
    
    
    
    
    
    Total
    
    $
    11,142
    
    
    $
    6,898
    
    
    $
    4,144
    
    
    $
    100
    
    
    $
    
 18




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##### Table of Contents



(1)
    
    Purchase obligations include contractual arrangements in the form of
purchase orders primarily a result of normal inventory purchases or minimum payments due resulting
when minimum purchase commitments are not met. Purchase obligations relating to purchase orders do
not extend beyond a year; however, we would expect future years to have these purchase commitments
that will arise in the ordinary course of business and will generally increase or decrease
according to fluctuations in overall sales volume. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk.
  Foreign Exchange Risk.
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   19




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Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Failure to effectively integrate LMD, achieve anticipated synergies and utilize the broader Luminex
distribution relationships may result in prolonged operating losses in the Assay Segment which
would adversely affect the Companys business, consolidated statements of operations and financial condition.
  20




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ITEM 2. UNREGISTRED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ISSUER PURCHASES OF EQUITY SECURITIESTotal Number of Shares
    
    Appromixate Dollar Value ofTotal Number of
    
    Average Price
    
    Purchased as Part of
    
    Shares that May Yet BeShares
    
    Paid per Share
    
    Publicly Announced
    
    Purchased Under the Plans orPeriod
    
    Purchased
    
    (1)($)
    
    Plans of Programs
    
    Programs01/1/07 - 01/31/07
    
    
    89
    
    
    
    12.75
    
    
    
    
    
    
    
    02/1/07 - 02/28/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    03/1/07 - 03/31/07
    
    
    17,406
    
    
    
    14.17
    
    
    
    
    
    
    
    Total First Quarter
    
    
    17,495
    
    
    $
    14.16
    
    
    
    
    
    
    
    
 
 (1)
    
    Shares purchased are attributable to the withholding of shares by Luminex to satisfy the
payment of tax obligations related to the vesting of restricted shares. 21




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ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description of Documents10.1
    
    Amendment to Restricted Stock Agreement, dated as of March 25, 2007, by and between Luminex
Corporation and Patrick J. Balthrop, Sr.31.1
    
    Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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LUMINEX CORPORATIONDate: May 10, 2007By:
    /s/ HARRISS T. CURRIEHarriss T. CurrieVice President, Finance and Chief Financial
Officer (Principal Financial Officer)By:
    /s/ PATRICK J. BALTHROPPatrick J. BalthropPresident and Chief Executive Officer (Principal
Executive Officer)