<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 2000
or
[_] 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
(Exact name of registrant as specified in its charter)
Delaware 74-2747608
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
12212 Technology Blvd., Austin, Texas 78727
(Address of principal executive offices) (Zip Code)
(512) 219-8020
(Registrant's telephone number, including area code)
_________________
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 [_] No [X]
There were 27,122,072 shares of the Company's Common Stock, par value $.001
per share, outstanding on May 3, 2000.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) Page
----
<S> <C>
Condensed Balance Sheets as of March 31, 2000 and December 31, 1999............................ 3
Condensed Statements of Operations for the three months ended
March 31, 2000 and March 31, 1999........................................................... 4
Condensed Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999........................................................... 5
Notes to Condensed Financial Statements........................................................ 6
Independent Accountants' Review Report......................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 9
Factors That May Affect Future Results......................................................... 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk...................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 21
Item 2. Changes in Securities and Use of Proceeds...................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders............................................ 22
Item 6. Exhibits and Reports on Form 8-K............................................................... 23
SIGNATURES ................................................................................................ 24
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
LUMINEX CORPORATION
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 6,352 $ 4,083
Short-term investments...................................................... 985 4,929
Due from underwriters....................................................... 71,145 --
Accounts receivable, net.................................................... 1,472 1,341
Raw materials inventory..................................................... 1,161 663
Other....................................................................... 244 181
------------ ------------
Total current assets...................................................... 81,359 11,197
Property and equipment, net................................................. 1,659 1,369
Other assets................................................................ 39 --
------------ ------------
Total assets.............................................................. $ 83,057 $ 12,566
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 661 $ 373
Accrued liabilities......................................................... 1,177 278
Deferred revenue............................................................ 280 120
------------ ------------
Total current liabilities................................................. 2,118 771
Deferred revenue............................................................ 1,000 600
------------ ------------
Total liabilities......................................................... 3,118 1,371
------------ ------------
Stockholders' equity:
Preferred stock............................................................. -- 28,946
Common stock................................................................ 27 13
Warrants to purchase common stock........................................... 180 180
Additional paid-in capital.................................................. 106,981 5,511
Deferred stock compensation................................................. (1,650) (467)
Accumulated deficit......................................................... (25,599) (22,988)
------------ ------------
Total stockholders' equity................................................ 79,939 11,195
------------ ------------
Total liabilities and stockholders' equity.............................. $ 83,057 $ 12,566
============ ============
</TABLE>
See Independent Accountants' Review Report.
3
<PAGE>
LUMINEX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Revenue:
Product.................................................................. $ 1,390 $ 274
Grant.................................................................... -- 265
------------- -------------
Total revenue......................................................... 1,390 539
Cost of product revenue.................................................. 723 79
------------- -------------
Gross margin.......................................................... 667 460
Operating expenses:
Research and development................................................. 1,333 1,429
Selling, general and administrative...................................... 2,057 793
------------- -------------
Total operating expenses.............................................. 3,390 2,222
------------- -------------
Loss from operations.................................................. (2,723) (1,762)
Interest income.......................................................... 112 82
------------- -------------
Net loss.............................................................. $ (2,611) $ (1,680)
============= =============
Net loss per share, basic and diluted................................. $ (0.19) $ (0.13)
============= =============
Shares used in computing net loss per share, basic and diluted......... 13,405 13,134
</TABLE>
See Independent Accountants' Review Report.
4
<PAGE>
LUMINEX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Operating activities:
Net loss ......................................................................... $ (2,611) $ (1,680)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation and amortization ............................................... 166 73
Stock compensation .......................................................... 785 6
Changes in operating assets and liabilities:
Accounts receivable .................................................... (131) (362)
Raw materials inventory ................................................ (498) (297)
Other .................................................................. (28) (5)
Accounts payable ....................................................... 288 180
Accrued liabilities .................................................... (9) (109)
Deferred revenue ....................................................... 560 25
-------- --------
Net cash used in operating activities ............................... (1,478) (2,169)
-------- --------
Investing activities:
Net maturities of short-term investments ......................................... 3,944 --
Purchase of property and equipment ............................................... (456) (505)
Other ............................................................................ (74) --
-------- --------
Net cash provided by (used in) investing activities ................. 3,414 (505)
-------- --------
Financing activities:
Proceeds from issuance of common stock ........................................... 626 --
Stock issuance cost .............................................................. (293) --
-------- --------
Net cash provided by financing activities ........................... 333 --
-------- --------
Increase (decrease) in cash and cash equivalents ................................... 2,269 (2,674)
Cash and cash equivalents, beginning of period ..................................... 4,083 8,537
-------- --------
Cash and cash equivalents, end of period ........................................... $ 6,352 $ 5,863
======== ========
Supplemental disclosure of noncash financing activities:
Proceeds from initial public offering not yet funded ........................... $ 71,145 $ --
Conversion of preferred stock .................................................. $ 28,946 $ --
Accrued stock issuance cost .................................................... $ (908) $ --
</TABLE>
See Independent Accountants' Review Report.
5
<PAGE>
LUMINEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by Luminex Corporation (the "Company") in accordance with generally
accepted accounting principles for interim financial information and the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include certain of the information and footnotes required by generally
accepted accounting principles 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, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Registration Statement on Form S-1
(File No. 333-96317) and related Prospectus dated March 30, 2000.
NOTE 2--INITIAL PUBLIC OFFERING
On March 30, 2000, trading of the Company's common stock on the Nasdaq
National Market commenced in conjunction with the Company's initial public
offering of 4,500,000 shares of common stock at $17 per share. Cash proceeds
from the offering, net of the underwriting discounts and commissions, totaled
approximately $71.1 million and were received by the Company upon closing of the
offering on April 4, 2000. Accordingly, the net proceeds have been presented as
a receivable from underwriters in the accompanying condensed balance sheet as of
March 31, 2000. Concurrent with the initial public offering, 841,359 shares of
convertible preferred stock, representing all of the Company's issued and
outstanding preferred stock, were converted into 8,768,582 shares of common
stock on March 30, 2000.
NOTE 3--NET LOSS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff
Accounting Bulletin ("SAB") No. 98, basic net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of common and common equivalent shares
outstanding during the period. Potentially dilutive securities composed of
incremental common shares issuable upon the exercise of stock options and
warrants, and common shares issuable on conversion of preferred stock, were
excluded from historical diluted loss per share because of their anti-dilutive
effect.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
The Company has excluded all convertible preferred stock, outstanding stock
options, outstanding warrants to purchase stock and shares subject to repurchase
from the calculation of diluted loss per common share because all such
securities are anti-dilutive for all applicable periods presented. The total
number of shares excluded from the calculations of diluted net loss per share,
prior to application of the treasury stock method for options and warrants, was
12,528,676 and 9,812,318 for the three months ended March 31, 2000 and 1999,
respectively. Such securities, had they been dilutive, would have been included
in the computations of diluted net loss per share.
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that
automatically converted upon the closing of the initial public offering using
the as-if converted method from the original date of issuance.
See Independent Accountants' Review Report.
6
<PAGE>
LUMINEX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(unaudited)
NOTE 3--NET LOSS PER SHARE (Continued)
The following is a reconciliation of the numerator and denominator of
basic and diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
---------- --------
<S> <C> <C>
Basic and diluted:
Net loss .................................................................. $ (2,611) $ (1,680)
========== ========
Weighted average shares of common stock outstanding ....................... 13,405 13,134
========== ========
Net loss per share, basic and diluted ..................................... $ (0.19) $ (0.13)
========== ========
Pro forma basic and diluted net loss per share:
Shares used above ...................................................... 13,405 13,134
Add: Pro forma adjustment to reflect weighted average effect of
assumed conversion of preferred stock ................................ 8,672 7,085
---------- --------
Shares used in computing pro forma basic and diluted net loss per
share ............................................................... 22,077 20,219
========== ========
Net loss per share, basic and diluted pro forma ........................ $ (0.12) $ (0.08)
========== ========
</TABLE>
NOTE 4--COMMON STOCK
As of March 31, 2000, there were 26,716,860 shares of common stock issued
and outstanding. This share number includes the conversion of all outstanding
shares of preferred stock into shares of common stock and the issuance of common
stock in the Company's initial public offering. The conversion of preferred
stock was effectuated on March 30, 2000 in connection with the Company's initial
public offering. In connection with the filing of the Company's Restated
Certificate of Incorporation on March 29, 2000, the Company is authorized to
issue 200,000,000 shares of common stock, par value $.001 per share, and
5,000,000 shares of preferred stock, par value $.001 per share.
In March 2000, the Company effected a 2.04 for 1 stock split of its
outstanding common stock. All common stock and per share amounts have been
adjusted to reflect the stock split as if such split had taken place at the
inception of the Company.
NOTE 5--SUBSEQUENT EVENT
On April 27, 2000, the underwriters partially exercised their
over-allotment option and purchased an additional 369,000 shares of the
Company's common stock, generating additional proceeds of approximately $5.8
million, net of underwriting discounts and commissions.
See Independent Accountants' Review Report.
7
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of
Luminex Corporation
We have reviewed the accompanying condensed balance sheet of Luminex Corporation
as of March 31, 2000, and the related condensed statements of operations and
cash flows for the three-months then ended. These financial statements are the
responsibility of the Company's management. We did not make a similar review of
the condensed statements of operations and cash flows for the three-months ended
March 31, 1999.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements at March 31, 2000, and for the
three-month period then ended for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of Luminex Corporation as of
December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended [not presented herein] and in our
report dated January 28, 2000, except for Notes 4 and 10, as to which the date
is March 9, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
Austin, Texas
May 8, 2000
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains a number of "forward-looking statements" within the
meaning of the federal securities laws which reflect our current views with
respect to future events and financial performance. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from historical results or those expressed
or forecast. In this report, the words "anticipates," "believes," "expects,"
"future," "intends" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect only our judgment as of the date hereof.
The following information should be read in conjunction with the condensed
financial statements and the notes thereto included in Item 1 of this report,
our Registration Statement on Form S-1 (File No. 333-96317) and related
prospectus dated March 30, 2000 and "Factors That May Affect Future Results" in
this report.
Overview
Since inception, we have incurred significant losses and, as of March 31,
2000, we had an accumulated deficit of $25.6 million. We anticipate incurring
additional losses, which may increase, for at least the next 12 months. Prior to
1999, we were considered a development stage company.
We commenced marketing our first generation system, the Luminex R/O system,
in 1997 and our second generation technology, the LabMAP system, in 1999.
Revenue on sales of our products is recognized when persuasive evidence of an
agreement exists, delivery has occurred, the fee is fixed and determinable and
collectibility is probable. We expect that each system will generate a recurring
revenue stream from the sale of consumable products. In accordance with the
terms of a federal grant which we have received, grant revenue is recorded as
research expenses relating to the grant are incurred, provided that the amounts
received are not refundable if the research is not successful. In addition, we
expect to generate royalty revenue from some of our strategic partners as they
sell products incorporating our technology or provide services to third parties
using our technology.
Our expenses have consisted primarily of costs incurred in research and
development, manufacturing scale-up and business development and from general
and administrative costs associated with our operations. We expect our research
and development expenses to increase in the future as we continue to develop new
products. Also, our selling and marketing expenses will increase as we
commercialize our products, and general and administrative expenses will
increase as we expand our facilities and assume the obligations of a public
reporting company.
We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market evaluation and acceptance of current or new products,
which may result in a lengthy sales cycle, patent conflicts, the introduction of
new products by our competitors, the timing and extent of our research and
development efforts, and the timing of significant orders. Our limited operating
history makes accurate predictions of future operations difficult or impossible.
Our ability to achieve sustained profitability will be dependent upon our
ability to continue to enter into strategic partnerships with companies that
will assist in the further development of our technologies. Strategic partners
will develop application-specific bioassay kits for use on our technology that
they will sell to their customers generating royalties for Luminex. Strategic
partners may also perform services for third parties using our technology that
will also result in royalties for Luminex. Some strategic partners will also buy
our products and then resell those products to their customers. To date, we have
entered into strategic partnerships with twelve companies. Although we are
actively seeking to enter into additional strategic partnerships, there can be
no assurance that we will be able to negotiate such additional relationships on
acceptable terms, if at all, or that such current or future strategic
partnerships will be successful and provide us with expected benefits.
Deferred stock compensation represents the difference between the deemed
fair value of our common stock and the exercise price of options at the date of
grant. We are amortizing these amounts ratably over the vesting periods. As a
result of stock options granted from January 1, 2000 through March 31, 2000, we
recorded
9
<PAGE>
$1.3 million in additional deferred stock compensation in the first quarter of
2000. Total unamortized deferred stock compensation as of March 31, 2000 was
$1.7 million. The deferred stock compensation expense incurred as a result of
stock option grants to consultants is an estimate based on the fair market value
of our common stock. Because the actual expense is calculated based on the fair
market value on the vesting date, we may incur additional deferred stock
compensation expense if the price of our common stock on the vesting date
exceeds the fair market value amount used in estimating the expense.
Results of Operations
Three Months Ended March 31, 2000 and 1999
Revenue. Product revenue increased to $1.4 million for the three months
ended March 31, 2000 from $274,000 for the three months ended March 31, 1999.
The increase was primarily attributable to higher sales of Luminex 100 systems,
which commenced in the first quarter of 1999, and Luminex XY Platforms, which
were introduced in the fourth quarter of 1999. In addition, revenue from the
sale of consumables increased $124,000 in conjunction with an increase in the
installed base of Luminex 100 systems and the continued development of
applications by our strategic partners.
Included in the three months ended March 31, 1999 was $265,000 of revenue
associated with a government grant that commenced on January 1, 1999. The grant
was suspended as of September 20, 1999 when our joint venture partner withdrew
due to a change in its business strategy. We are in the process of evaluating
the work plan and budget and may resume the project with a new partner. We had
no grant revenue for the three months ended March 31, 2000.
A breakdown of revenue for the three months ended March 31, 2000 and 1999
is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Instrument sales ......................................... $ 1,178 $ 239
Consumable sales ......................................... 159 35
Grant revenue ............................................ -- 265
Other revenue ............................................ 53 --
------------ ------------
Total revenue........................................ $ 1,390 $ 539
============ ============
</TABLE>
Cost of Product Revenue. Cost of product revenue as a percentage of
product sales increased from 29% for the three months ended March 31, 1999 to
52% for the three months ended March 31, 2000. Primary causes of this increase
were the addition of a customer service department in April 1999 and the
addition of component changes in the Luminex 100 resulting in increased
instrument cost.
Research and Development Expenses. Research and development expenses
decreased to $1.3 million for the three months ended March 31, 2000 from $1.4
million for the three months ended March 31, 1999. The decrease was
attributable to several factors, including no grant related expenditures in the
first quarter of 2000 compared with $318,000 in the prior year's first quarter
and parts and supplies expenses that were $230,000 less in the first quarter of
2000 compared with the comparable prior year's quarter. Offsetting the
decreases were salary and related personnel costs that were $369,000 higher in
the current year's quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2.1 million for the three months ended
March 31, 2000 from $800,000 for the three months ended March 31, 1999. The
increase was attributable to several factors, including $785,000 related to the
issuance of stock options to directors, employees and consultants at prices
deemed to be less than fair market value, an increase in salary and related
costs of $245,000 due to higher staffing levels in the current year's quarter
and a $147,000 increase in consulting and professional expenses related to
increased business activity.
10
<PAGE>
Investment Income. Investment income for the three months ended March 31,
2000 increased 24% to $112,000 from $82,000 for the three months ended March 31,
1999. The increase was primarily attributable to an increase in the average
cash and short-term investment balances in the current year's quarter.
Inflation. To date, inflation has not had a material impact on our
financial results.
Liquidity and Capital Resources
At March 31, 2000, we held cash, cash equivalents and short-term
investments of $7.3 million and had working capital of $79.2 million. Included
in working capital at March 31, 2000 was a $71.1 million receivable for the net
proceeds from our initial public offering which priced on March 30, 2000 and
subsequently closed on April 4, 2000. We have funded our operations to date
primarily through the issuance of equity securities. Our cash reserves are held
directly or indirectly in a variety of short-term, interest-bearing instruments,
including obligations of the U.S. Government or agencies thereof and U.S.
corporate debt securities.
Cash used in operations was $1.5 million for the three months ended March
31, 2000 compared with $2.2 million for the three months ended March 31, 1999.
The net loss for the three months ended March 31, 2000 of $2.6 million was
partially offset by non-cash charges for deferred stock compensation and
depreciation and amortization of $951,000 and net increases in accounts payable,
accrued liabilities and deferred revenue of $839,000. In addition, raw materials
inventory increased by $498,000 during the first quarter of 2000.
Purchases of property and equipment for the three months ended March 31,
2000 were $456,000 compared to $505,000 for the three months ended March 31,
1999.
We expect to have negative cash flow through at least the next four
quarters. We also expect to incur increasing research and development expenses,
including expenses related to additions to personnel and production and
commercialization efforts. Our future capital requirements will depend on a
number of factors, including our success in developing markets for our products,
payments received or paid under possible future strategic arrangements, the
availability of government research grants, continued progress of our research
and development of potential products, the timing and outcome of regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights,
the need to acquire licenses to new technology and the status of competitive
products. We believe that our existing cash, cash equivalents and short term-
investments will be sufficient to fund our operating expenses and capital
equipment requirements through at least December 31, 2001.
We have no credit facility or other committed sources of capital. To the
extent capital resources are insufficient to meet future capital requirements,
we will have to raise additional funds to continue the development of our
technologies. There can be no assurance that funds will be available on
favorable terms, if at all. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the issuance of those
securities could result in dilution to our stockholders. Moreover, incurring
debt financing could result in a substantial portion of our operating cash flow
being dedicated to the payment of principal and interest on such indebtedness,
could render us more vulnerable to competitive pressures and economic downturns
and could impose restrictions on our operations. If adequate funds are not
available, we may be required to curtail operations significantly or to obtain
funds through entering into agreements on unattractive terms.
11
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
We may not be able to successfully implement our business plan or adapt it to
changes in the market.
We are at an early stage of development, and our business model is still
evolving. As a result, we are subject to all of the risks inherent in the
development of new commercial products, such as the need to develop a market for
our products and to successfully transition from a company with a research focus
to a company capable of supporting commercial activities. Since commencing
operations in May 1995, we have dedicated substantially all of our resources to
the research and development of our products. Because we have only recently
begun to market our products commercially, we have generated limited revenues
from product sales.
We cannot assure you that we will ever achieve or sustain profitability or that
our operating losses will not increase in the future.
We have incurred operating losses and negative cash flow from operations
since our inception. As of March 31, 2000, we had an accumulated deficit of
$25.6 million. For the year ended December 31, 1999 and the three months ended
March 31, 2000, we had net losses of $12.6 million and $2.6 million,
respectively. We expect to continue to incur operating and net losses and
negative cash flow from operations, which may increase, for the foreseeable
future due in part to anticipated increases in expenses for research and product
development and expansion of our facilities and sales and marketing
capabilities. We anticipate that our business will generate operating losses
until we successfully implement our commercial development strategy and generate
significant additional revenues to support our level of operating expenses.
If our technology and products do not become widely used in the life sciences
industry, it is unlikely that we will ever become profitable.
Life sciences companies have historically conducted screening and
identification tests using a variety of technologies, including bead-based
screening. However, compared to other technologies, our LabMAP technology is new
and unproven, and the use of our technology by life sciences companies is
limited. The commercial success of our technology will depend upon the adoption
of this technology as a method to perform bioassays. In order to be successful,
our products must meet the commercial requirements for bioassays within the life
sciences industry, and we must convince potential customers to utilize our
system instead of competing technologies. Market acceptance will depend on many
factors, including our ability to:
. convince prospective strategic partners and customers that our
technology is an attractive alternative to other technologies for
pharmaceutical, clinical and biomedical testing and analysis;
. manufacture products in sufficient quantities with acceptable quality
and at an acceptable cost; and
. place and service sufficient quantities of our products.
Because of these and other factors, our products may not gain market
acceptance.
Our business plan may not succeed unless we establish meaningful and successful
relationships with our strategic partners.
Our strategy for the development and commercialization of our LabMAP
technology depends in part upon our ability to establish strategic relationships
with a number of partners. Our business plan contemplates that a significant
portion of our future revenues will come from sales of our systems, the
development and sale of bioassay kits utilizing our technology by our strategic
partners and use of our technology by our strategic partners in performing
services offered to third parties. This strategy entails a number of risks as
more fully described below.
If we cannot establish and maintain sufficient effective strategic
partnerships, we will not be able to create sufficient market demand for our
products. Our ability to enter into agreements with additional partners depends
in part on convincing them that our technology can help achieve and accelerate
their goals or efforts. This may require substantial time and effort on our
part. We will expend substantial funds and management effort with no assurance
12
<PAGE>
that a strategic relationship will result. We cannot assure you that we will be
able to negotiate additional strategic agreements in the future on acceptable
terms, if at all, or that current or future partners will not pursue or develop
alternative technologies either on their own or in collaboration with others.
Termination of strategic relationships, or the failure to enter into a
sufficient number of additional agreements on favorable terms, could reduce
sales of our products or lower margins on our products.
If our strategic partners do not effectively develop and market products
based on our technology, our ability to generate revenues will be diminished.
In return for the right to produce bioassay kits incorporating our technology,
our strategic partners will purchase our systems from us for resale to end-users
and will pay royalties to us based on revenues they generate from sales of the
kits. We expect that we will also generate revenue from royalties on sales of
diagnostic testing services by strategic partners utilizing our technology. This
strategy entails a number of risks. We believe that our strategic partners will
have economic incentives to market these products, but we cannot predict future
sales and royalty revenues because our existing strategic partner agreements do
not include minimum purchase requirements. The amount of these revenues will
depend on a variety of factors that are outside our control, including the
amount and timing of resources that current and future strategic partners devote
to market products incorporating our technology. Some of the companies we are
targeting as strategic partners offer products competitive with our LabMAP
technology. As a result, competition with these companies may hinder or prevent
strategic relationships. Further, the development and marketing of certain
bioassay kits will require our strategic partners to obtain governmental
approvals, which could delay or prevent their commercialization efforts. If our
current or future strategic partners do not effectively develop and market
products based on our technology and obtain any necessary government approvals,
our revenues from product sales and royalties will be significantly reduced.
We have only produced our products in limited quantities, and we may experience
manufacturing problems or delays that could limit the growth of our revenue.
We currently produce products incorporating our LabMAP technology in
limited quantities. If we successfully develop and introduce these products to
the marketplace, we may not be able to produce sufficient quantities at an
acceptable cost. In addition, we may encounter difficulties in production due
to, among other things, quality control and assurance and component supply.
These difficulties could result in reduced sales of our products, increased
repair or re-engineering costs due to product returns and defects as well as
increased expenses due to switching to alternative suppliers, all of which could
damage our industry reputation and hurt our profitability.
Because we have limited sources of production and components, our ability to
produce and supply our products could be impaired.
We have limited experience producing products for commercial purposes. We
presently outsource most of the assembly of our products to a contract
assembler. In addition, certain key components of our product line are currently
purchased from a limited number of outside sources and may only be available
through a few sources. We do not have agreements with any of our suppliers. Our
reliance on our suppliers and contract assembler exposes us to risks including:
. the possibility that one or more of our suppliers or our assembler
could terminate their services at any time without penalty;
. the potential inability of our suppliers to obtain required
components;
. the potential delays and expenses of seeking alternative sources of
supply or manufacturing services; and
. reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternative suppliers or assemblers.
Consequently, in the event that supplies of components or work performed by our
assembler are delayed or interrupted for any reason, our ability to produce and
supply our products could be impaired.
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<PAGE>
The life sciences industry is highly competitive and subject to rapid
technological change, and we may not have the resources necessary to
successfully compete.
We compete with companies in the United States and abroad that are engaged
in the development and production of similar products. We anticipate competition
primarily from companies marketing conventional testing products based on
established technologies and companies developing their own advanced testing
technologies.
Many of our competitors have access to greater financial, technical,
research, marketing, sales, distribution, service and other resources than we
do. We face, and will continue to face, intense competition from organizations
serving the life sciences industry that are pursuing competing technologies.
These organizations may develop technologies that are superior alternatives to
our technologies. Further, our competitors may be more effective at implementing
their technologies to develop commercial products.
The life sciences industry is characterized by rapid and continuous
technological innovation. We may need to develop new applications for our
products to remain competitive. Our present or future products could be rendered
obsolete or uneconomical by technological advances by one or more of our current
or future competitors. In addition, the introduction or announcement of new
products by us or by others could result in a delay of or decrease in sales of
existing products, as customers evaluate these new products. Our future success
will depend on our ability to compete effectively against current technology as
well as to respond effectively to technological advances.
We have limited experience in selling and marketing our products and may not be
able to develop and maintain a direct sales and marketing force that can meet
our customers' needs.
We intend to sell a portion of our products through our own sales force. We
have limited experience in direct marketing, sales and distribution. Our future
profitability will depend in part on our ability to further develop and maintain
a direct sales and marketing force to sell our products to our customers. Our
products are technical in nature. As a result, we believe it is necessary to
develop and maintain a direct sales force that includes people with scientific
backgrounds and expertise. Competition for such employees is intense. We may not
be able to attract and retain qualified salespeople or be able to build an
efficient and effective sales and marketing force. Failure to attract or retain
qualified salespeople or to build and maintain an efficient and effective sales
and marketing force could negatively impact sales of our products, thus reducing
our revenues and profitability.
If we cannot provide quality customer service, we could lose customers and our
operating results could suffer.
Our inability to attract, train or retain the number of highly qualified
customer support and technical services personnel that our business needs may
cause our business and prospects to suffer. We are currently expanding these
areas and will need to increase our staff further to support expected new
customers as well as the expanding needs of existing customers. The introduction
of our products to new customers, the integration of our technology into our
customers' existing systems and the ongoing customer support can be complex.
Accordingly, we need highly trained customer support and technical personnel.
Hiring customer support and technical personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of our systems and services.
Our business plan contemplates a period of rapid and substantial growth that
will place a strain on our administrative and operational infrastructure.
We increased the number of our employees from 47 at December 31, 1998 to 96
at April 30, 2000. Our ability to manage effectively our operations and growth
requires us to continue to improve our operational, financial and management
controls, reporting systems and procedures. We may not successfully implement
improvements to our management information and control systems in an efficient
or timely manner and may discover deficiencies in existing systems and controls.
14
<PAGE>
Our research and development efforts may not produce commercially viable
products.
We intend to devote significant personnel and financial resources to
research and development activities designed to advance the capabilities of our
LabMAP technology. Some of these research and development activities will be
conducted by others. We may never realize any benefits from such research and
development activities.
Our success will depend on our ability to retain principal members of our
management and scientific staff.
We depend on the principal members of our management and scientific staff.
The loss of services of any of these persons could delay or reduce our product
development and commercialization efforts. In addition, recruiting and retaining
qualified scientific personnel to perform future research and development work
will be critical to our success. There is a shortage in our industry of
qualified management and scientific personnel, and competition for these
individuals is intense. There can be no assurance that we will be able to
attract additional and retain existing personnel.
The intellectual property rights we rely upon to protect the technology
underlying our products may not be adequate, which could enable third parties to
use our technology or very similar technology and could reduce our ability to
compete in the market.
Our success will depend on our ability to obtain, protect and enforce
patents on our technology and to protect our trade secrets. Any patents we own
may not afford meaningful protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. In addition, our current and future
patent applications may not result in the issuance of patents in the United
States or foreign countries. Competitors may develop products similar to ours
which are not covered by our patents. Further, there is a substantial backlog of
patent applications at the U.S. Patent and Trademark Office, and the approval or
rejection of patent applications may take several years.
We have obtained a patent in the United States and have pending
applications in certain foreign jurisdictions, except Japan, for our method of
"real time" detection and quantification of multiple analytes from a single
sample. As a result of a procedural omission, we are unable to obtain comparable
patent protection in Japan. Although we intend to pursue patent protection in
Japan for other aspects of our technology, we may not be able to prevent
competitors from developing and marketing technologies similar to our LabMAP
technology in Japan.
We require our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection against improper use or disclosure of
confidential information. In addition, in some situations, these agreements may
conflict with, or be subject to, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
our trade secrets. Our failure to protect our proprietary information and
techniques may inhibit or limit our ability to exclude certain competitors from
the market.
In order to protect or enforce our patent rights, we may have to initiate
legal proceedings against third parties, such as infringement suits or
interference proceedings. These legal proceedings could be expensive, take
significant time and divert management's attention from other business concerns.
If we lose, we may lose the benefit of some of our intellectual property rights,
the loss of which may inhibit or remove our ability to exclude certain
competitors from the market. We may also provoke these third parties to assert
claims against us. The patent position of companies like ours generally is
highly uncertain, involves complex legal and factual questions, and has recently
been the subject of much litigation. No consistent policy has emerged from the
U.S. Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under patents like those we own.
Our success will depend partly on our ability to operate without infringing on
or misappropriating the proprietary rights of others.
We may be sued for infringing on the intellectual property rights of
others. In addition, we may find it necessary, if threatened, to initiate a
lawsuit seeking a declaration from a court that we do not infringe the
15
<PAGE>
proprietary rights of others or that these rights are invalid or unenforceable.
Intellectual property litigation is costly, and, even if we prevail, the cost of
such litigation could affect our profitability. In addition, litigation is time
consuming and could divert management attention and resources away from our
business. If we do not prevail in any litigation, in addition to any damages we
might have to pay, we could be required to stop the infringing activity or
obtain a license. Any required license may not be available to us on acceptable
terms, or at all. In addition, some licenses may be nonexclusive, and therefore,
our competitors may have access to the same technology licensed to us. If we
fail to obtain a required license or are unable to design around a patent, we
may be unable to sell some of our products, which could have a material adverse
affect on our business, financial condition and results of operations.
We are aware of a European patent granted to Dr. Ioannis Tripatzis, which
covers certain testing agents and certain methods of their use. Dr. Tripatzis
has publicly stated his belief that his patent covers aspects of our technology.
This patent expires in 2004. We cannot assure you that a dispute with Dr.
Tripatzis will not arise or that any dispute with him will be resolved in our
favor.
If we fail to comply with the extensive governmental regulations that affect our
business, we could be subject to enforcement actions, injunctions and civil and
criminal penalties that could delay or prevent marketing of our products.
The production, labeling, distribution and marketing of our products for
some purposes and products based on our technology expected to be produced by
our strategic partners are subject to governmental regulation by the United
States Food and Drug Administration in the United States and by similar agencies
in other countries. Depending on their intended applications, some of our
products and products based on our technology expected to be produced by our
strategic partners are subject to approval or clearance by the FDA prior to
marketing for commercial use. Products using our technology for clinical
diagnostic purposes will require such approval or clearance. No such approvals
or clearances have yet been obtained. The process of obtaining necessary FDA
clearances or approvals can be time-consuming, expensive and uncertain. Further,
clearance or approval may place substantial restrictions on the indications for
which the product may be marketed or to whom it may be marketed. In addition, we
are also required to comply with FDA requirements relating to laser safety.
Approved or cleared products are subject to continuing FDA requirements
relating to quality control and quality assurance, maintenance of records and
documentation and labeling and promotion of medical devices. Our inability, or
the inability of our strategic partners, to obtain required regulatory approval
or clearance on a timely or acceptable basis could harm our business. In
addition, failure to comply with applicable regulatory requirements could
subject us or our strategic partners to enforcement action, including product
seizures, recalls, withdrawal of clearances or approvals, restrictions on or
injunctions against marketing our products or products based on our technology,
and civil and criminal penalties.
Medical device laws and regulations are also in effect in many countries
outside the United States. These range from comprehensive device approval
requirements for some or all of our medical device products to requests for
product data or certifications. The number and scope of these requirements are
increasing. Failure to comply with applicable federal, state and foreign
medical device laws and regulations may harm our business, financial condition
and results of operations. We are also subject to a variety of other laws and
regulations relating to, among other things, environmental protection and work
place safety.
If we become subject to product liability claims, we may be required to pay
damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of human diagnostic and
therapeutic products. While we believe that we are reasonably insured against
these risks, there can be no assurance that we will be able to obtain insurance
in amounts or scope sufficient to provide us with adequate coverage against all
potential liabilities. A product liability claim in excess of our insurance
coverage or a recall of one of our products would have to be paid out of our
cash reserves.
16
<PAGE>
Some of our programs are partially supported by government grants, which may be
reduced, withdrawn or delayed.
We have received and may continue to receive funds under United States
government research and technology development programs. Funding by the
government may be significantly reduced in the future for a number of reasons.
For example, some programs are subject to a yearly appropriations process in
Congress. Additionally, we may not receive funds under existing or future grants
because of budgeting constraints of the agency administering the program. We
cannot assure you that we will receive significant funding under government
grants.
A portion of our sales have been to universities, government research
laboratories, private foundations and other institutions, where funding is
dependent on grants from government agencies such as the National Institutes of
Health. The funding associated with approved NIH grants for instrumentation
generally becomes available at particular times of the year, as determined by
the government. Although research funding has increased during the past several
years, grants have, in the past, been frozen for extended periods or have
otherwise become unavailable to various institutions, sometimes without advance
notice. Furthermore, increasing political pressures in the United States to
reduce or eliminate budgetary deficits may result in reduced allocations to the
NIH and the other government agencies that fund research and development
activities. If government funding, especially NIH grants, necessary to purchase
our products were to become unavailable to researchers for any extended period
of time or if overall research funding were to decrease, our sales could
decline.
Because we receive revenues principally from life science companies, the capital
spending policies of these entities have a significant effect on the demand for
our products.
Our customers include pharmaceutical, biotechnology, chemical and
industrial companies, and the capital spending policies of these companies can
have a significant effect on the demand for our products. These policies are
based on a wide variety of factors, including the resources available for
purchasing research equipment, the spending priorities among various types of
research equipment and the policies regarding capital expenditures during
recessionary periods. Any decrease in capital spending by life sciences
companies could cause our revenues to decline and impact our profitability.
If third-party payors increasingly restrict payments for health care expenses,
we may experience reduced sales which would hurt our business and our business
prospects.
Third-party payors, such as government entities, health maintenance
organizations and private insurers, are restricting payments for health care.
These restrictions may decrease demand for our products and the price we can
charge. Increasingly, Medicaid and other third-party payors are challenging the
prices charged for medical services, including clinical diagnostic tests. They
are also attempting to contain costs by limiting coverage and the reimbursement
level of tests and other health care products. Without adequate coverage and
reimbursement, consumer demand for tests will decrease. Decreased demand could
cause sales of our products, and sales and services by our strategic partners,
to fall. In addition, decreased demand could place pressure on us or our
strategic partners to lower prices on these products or services, resulting in
lower margins. Reduced sales or margins by us or our strategic partners would
hurt our business, profitability and business prospects.
Our products have lengthy sales cycles, which could cause our operating results
to fluctuate significantly from quarter to quarter.
The sale of bioassay testing devices typically involves a significant
technical evaluation and commitment of capital by customers. Accordingly, the
sales cycle associated with our products is expected to be lengthy and subject
to a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews that are beyond our control. Due to this lengthy and
unpredictable sales cycle, our operating results could fluctuate significantly
from quarter to quarter. We expect to continue to experience significant
fluctuations as a result of a variety of factors, many of which are outside of
our control. The following factors could affect our operating results:
. market acceptance of our products;
17
<PAGE>
. the timing and willingness of strategic partners to commercialize our
products which would result in royalties;
. expiration of contracts with strategic partners or government research
grants, which may not be renewed or replaced; and
. general and industry specific economic conditions, which may affect
our collaborative partners' research and development expenditures.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if revenues decline
or do not grow as anticipated, we might not be able to correspondingly reduce
our operating expenses. In addition, we plan to significantly increase operating
expenses in 2000. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.
Our stock price could be volatile.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations by us or our competitors;
. new products or services introduced or announced by us or our
competitors;
. changes in financial estimates by securities analysts;
. conditions or trends in the biotechnology and pharmaceutical
industries;
. announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
. additions or departures of key personnel; and
. sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, has experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further, there
has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs,
potential liabilities and the diversion of management's attention and resources.
Our directors and executive officers have substantial control over Luminex which
could delay or prevent a merger or other change in control transaction.
Our directors and executive officers beneficially owned approximately 46.0%
of our outstanding common stock as of May 3, 2000. These persons will be able to
exercise significant influence over all matters requiring
18
<PAGE>
stockholder approval, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay or prevent a change in control of the company even if beneficial to our
stockholders.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. There
were 27,122,072 shares of common stock outstanding as of May 3, 2000. The
4,869,000 shares of common stock sold in our initial public offering are freely
transferable without restriction or further registration under the Securities
Act of 1933, except for any shares purchased by our "affiliates." Substantially
all the remaining shares of common stock are subject to lock-up agreements that
prohibit the sale of such shares before September 26, 2000. After this date,
these shares may be sold without registration under the Securities Act of 1933
to the extent permitted by Rule 144 or other exemptions under the Securities Act
of 1933.
After September 26, 2000, we intend to register approximately 6.8 million
shares of our common stock which are reserved for issuance under our stock
option plans, including approximately 4.2 million shares issuable upon exercise
of options granted prior to May 3, 2000. Once we register these shares, they can
be sold in the public market upon issuance, subject to restrictions under the
securities laws applicable to resales by affiliates.
Anti-takeover provisions in our charter and bylaws and Delaware law could make a
third-party acquisition of us difficult.
Our certificate of incorporation and bylaws contain provisions that could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
We are also subject to certain provisions of Delaware law that could delay,
deter or prevent a change in control of us.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in short-
term instruments held to maturity. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
20
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
As a result of a procedural omission, we are unable to pursue a patent in
Japan which corresponds to our issued U.S. patent directed to our method of
"real time" detection and quantification of multiple analytes from a single
sample. We have filed a lawsuit alleging negligence on the part of our prior
patent counsel in this matter and seeking to recover the damages we believe will
result from any gaps in our patent protection in Japan as a result of this
omission. At this time, we cannot predict whether this lawsuit will be
successful and, if so, the amount of any damages we may recover.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 29, 2000, in connection with our initial public offering, our
Registration Statement on Form S-1 (No. 333-96317) was declared effective by the
Securities and Exchange Commission, pursuant to which 4,500,000 shares of our
common stock were offered on March 30, 2000 and sold for our account at a price
of $17 per share, generating gross offering proceeds of approximately $76.5
million. On April 27, 2000, the underwriters partially exercised their over-
allotment option and purchased an additional 369,000 shares of our common stock
generating additional gross proceeds of approximately $6.3 million. The managing
underwriters were UBS Warburg LLC, Lehman Brothers and Dain Rauscher Wessels.
After deducting approximately $5.8 million in underwriting discounts and
commissions, the net proceeds of the offering were approximately $77.0 million.
We have not yet used any of the funds from the initial public offering. We
expect to use the net proceeds of the offering to fund our operations, including
continued development and manufacturing of existing products as well as research
and development of additional products. In addition, we also intend to use a
portion of the net proceeds to hire additional personnel and expand our
facilities. Specific amounts for these purposes have not been determined. In
addition, we may use a portion of the net proceeds to acquire or invest in
products, technologies or companies. However, we have no current plans,
agreements or commitments with respect to any such acquisition or investment,
and we are not currently engaged in any negotiations with respect to any such
transaction. Pending these uses, we intend to invest the net proceeds in short-
term, interest-bearing, investment grade securities.
For the three months ended March 31, 2000, we issued 280,524 shares of
common stock pursuant to the exercise of stock options at exercise prices
ranging from $1.96 to $5.88 per share. All of these stock options were granted
under our 1996 Stock Option Plan prior to our initial public offering. Our
issuance of shares of our common stock upon the exercise of these options was
exempt from registration pursuant to rule 701 promulgated under the Securities
Act of 1933, as amended.
In connection with our initial public offering on March 30, 2000, all
outstanding shares of our Series A Preferred Stock (consisting of 457,250
shares), Series B Preferred Stock (consisting of 150,000 shares), Series C
Preferred Stock (consisting of 151,571 shares), Series D Preferred Stock
(consisting of 57,538 shares) and Series E Preferred Stock (consisting of 25,000
shares) were converted into shares of our common stock in accordance with the
terms of each such series of preferred stock.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on March 6, 2000. The
following number of shares were entitled to vote and represented at the meeting:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
Outstanding Represented
--------------- ---------------------
<S> <C> <C>
Common stock .............................. 6,472,662 5,419,847
Preferred stock:
Series A .............................. 457,250 382,500
Series B .............................. 150,000 121,458
Series C .............................. 151,571 117,771
Series D .............................. 57,538 40,853
Series E .............................. 25,000 25,000
--------------- ---------------
Total preferred stock ............. 841,359 689,582
--------------- ---------------
Total ..................................... 7,314,021 6,107,429
=============== ===============
</TABLE>
The following proposals were adopted at the meeting by the votes indicated:
1. Adoption of the Certificate of Amendment to the Certificate of
Incorporation of the Corporation.
<TABLE>
<CAPTION>
Number of Shares
-------------------------------
For Against
---------- -------------
<S> <C> <C>
Common stock...................... 5,419,847 --
Preferred stock (all series)...... 687,582 --
Series A preferred stock.......... 382,500 --
Series B preferred stock.......... 121,458 --
</TABLE>
2. Adoption of the Restated Certificate of Incorporation of the
Corporation.
<TABLE>
<CAPTION>
Number of Shares
-------------------------------
For Against
---------- -------------
<S> <C> <C>
Outstanding stock.......................... 6,107,429 --
Common stock............................... 5,419,847 --
Preferred stock............................ 687,582 --
</TABLE>
22
<PAGE>
3. Election of Directors.
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------
For Withheld
--------------- -------------
<S> <C> <C>
Class I (term expires 2001)
A. Sidney Alpert........................... 6,107,429 --
Robert J. Cresci........................... 6,107,429 --
William L. Roper........................... 6,107,429 --
Class II (term expires 2002)
Fred C. Goad............................... 6,107,429 --
Laurence E. Hirsch......................... 6,107,429 --
Jim D. Kever............................... 6,107,429 --
Class III (term expires 2003)
Mark B. Chandler........................... 6,107,429 --
John E. Koerner, III....................... 6,107,429 --
G. Walter Loewenbaum....................... 6,107,429 --
</TABLE>
4. Adoption of the 2000 Long-Term Incentive Plan.
<TABLE>
<CAPTION>
Number of Shares
------------------------------------
For Against
----------- ---------------
<S> <C> <C>
Common and preferred stock........... 6,106,929 500
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K.
The Company did not file any report on Form 8-K during the three month
period ended March 31, 2000.
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<PAGE>
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, on May 9, 2000.
LUMINEX CORPORATION
By: /s/ Michael L. Bengtson
----------------------------------------
Michael L. Bengtson
Executive Vice President and
General Counsel
By: /s/ James L. Persky
----------------------------------------
James L. Persky
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Of Document
- ------ -----------------------
10.16 Sixth Amendment to Lease Agreement between Luminex
Corporation and Aetna Life Insurance Company for
manufacturing facilities located at 12201 Technology Blvd.,
Suite 130, Austin, Texas 78727.
27.1 Financial Data Schedule.
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<PAGE>
EXHIBIT 10.6
SIXTH AMENDMENT TO LEASE AGREEMENT BETWEEN
AETNA LIFE INSURANCE COMPANY, AS LANDLORD, AND
LUMINEX CORPORATION, AS TENANT
To be attached to and form a part of Lease made
the 1st day of August, 1989 (which together with
any amendments, modifications and extensions
thereof, is hereinafter called the Lease), between
Landlord and Tenant, covering a total of 32,859
square feet and located at 12212 Technology
Boulevard, Suites I, J and K and 12112 Technology
Boulevard, Suite 200, Austin, Texas, known as
McNeil #4 and McNeil #5, respectively.
WITNESSETH that the Lease is hereby amended as follows:
1. WHEREAS, Tenant needs additional space for its business purposes and
Landlord has available an area nearby effective on the Commencement Date, the
demised premises shall contain, in addition to the approximately 32,859 square
feet originally demised ("original space"), an additional area, hereinafter
called the "new space", containing approximately 18,330 square feet located at
12201 Technology Boulevard, Suite 130 (known as McNeil #3) (see Exhibit "A")
attached hereto, thus making the aggregate area of the premises approximately
51,189 square feet. The term for the new space (Suite 130 at McNeil #3) shall
end thirty-six (36) months after the Commencement Date (as defined below), and
the Term for the existing space shall end on March 31, 2002 as provided in the
Lease.
The Commencement Date for the new space is defined as thirty (30) days following
existing tenant's vacation of the "new space" and the completion of
responsibilities outlined in Paragraph 3 and Paragraph 13 of this document. The
Commencement Date is contemplated to be June 1, 2000.
2. The Monthly Rental shall be as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Monthly Base
Rental PSF Monthly Base Monthly Base Monthly Base
Term Existing Space Rental PSF New Space Rental New Total Monthly
(32,859 SF) Existing Space (18,330 SF) Space Base Rental
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commencement -3/31/02 $0.75 $24,644.25 $0.80 $14,664.00 $39,308.25
- ---------------------------------------------------------------------------------------------------------------
4/01/02 - 5/31/03 N/A N/A $0.80 $14,664.00 $14,664.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
These amounts shall be in addition to property taxes, common area maintenance,
management fees, and insurance as provided in the Lease.
3. Previous tenant or Landlord shall be responsible for servicing and
repairing, if necessary, the HVAC system by a mutually acceptable, licensed
contractor and cleaning the "new space" to broom clean condition, including but
not limited to, removal of trash and previous tenant's equipment.
4. Landlord shall be responsible for exterior ADA compliance at the new
space.
5. Landlord shall provide a tenant finish allowance of $54,990.00 to be
applied toward interior improvements. Tenant shall bear the entire cost of any
interior improvements to be installed by Landlord in the premises in excess of
the finish-out allowance of $54,990.00 and shall pay for such excess over the
allowance as hereinafter provided. In no event shall credit be given to Tenant
for any allowance not utilized. All improvements must comply with Trammell Crow
Company's standard specifications (see Standards and Specifications for
--------------------------------
Office/Warehouse Buildings) and all applicable governmental regulations. Prior
- --------------------------
to beginning construction of any such improvements, Tenant shall submit
architectural drawings of the proposed improvements to Landlord and shall obtain
Landlord's written consent to begin construction. Notwithstanding any provision
herein to the contrary, Tenant will utilize a general contractor, approved by
Landlord, to construct the interior improvements in the new space. Tenant will
have the right to access, occupy and conduct business in the new space up to,
but not exceeding, thirty (30) days prior to the
<PAGE>
Commencement Date without any rent obligation. Tenant will construct the
interior improvements in the new space with reasonable diligence, but need not
finish them prior to the Commencement Date; such improvements may be constructed
while Tenant is occupying and conducting business in the new space. Tenant may
draw the allowance from Landlord from time to time as construction bills come
due.
6. Tenant shall have the right and option to renew its Lease relative to
the "new space", 12201 Technology Boulevard, Suite 130 (McNeil 3) for one (1)
additional thirty-six (36) month term by delivering written notice thereof to
Landlord at least One Hundred Eighty (180) days prior to the expiration date of
the lease term, provided that at the time of such notice and at the end of the
lease term, Tenant is not in default hereunder. Upon the delivery of said
notice and subject to the conditions set forth in the preceding sentence, this
Lease shall be extended upon the same terms, covenants and conditions as
provided in this Lease, except that the rental payable during said extended term
shall be the prevailing market rental rate for space of comparable size, quality
and location at the commencement of such extended term (the "Market Rate"). This
right and option shall apply to the initial lease term only. In the event
Landlord and Tenant are unable to agree upon the Market Rate, Landlord and
Tenant shall each promptly appoint a real estate broker who is licensed by the
Texas Real Estate Commission (TREC) and active in the Austin industrial market,
to assist in the determination of the Market Rate, and the two brokers shall
appoint a third broker who is also licensed by the Texas Real Estate Commission
and active in the Austin industrial market. The determination of the Market
Rate by the agreement of any two of such three brokers shall be accepted by and
shall be binding upon Landlord and Tenant as the Market Rate, which rate shall
thereafter be payable until further adjusted. Landlord and Tenant agree to use
all reasonable diligence to cause their appointed brokers to perform in good
faith and in a timely manner in order to make the determination of the Market
Rate on or before the date on which the Market Rate is to become effective. In
the event the brokers do not make such determination in a timely manner, this
Lease shall nevertheless continue in full force and effect until such
determination is made, and the rental for such period shall be payable at the
rate otherwise payable hereunder. Upon the determination of the Market Rate,
the payment of the Market Rate shall commence on the first day of the month
following the date of such determination, and in addition to such monthly
installment of rental, Tenant shall pay to Landlord the increase in rental
payable hereunder, if any, applicable to the period from the date on which the
Market Rate was scheduled to become effective to the payment of the first
installment at the Market Rate. Landlord and Tenant shall each bear the cost
and fees of their respective brokers and shall share equally the cost of the
third broker, if needed.
7. Tenant, at its own cost and expense, shall enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
approved by Landlord for servicing all hot water, heating and air conditioning
systems and equipment within the Premises. The service contract must include
the replacement of filters on a regular basis and all services suggested by the
equipment manufacturer in its operations/maintenance manual and must become
effective within thirty (30) days of the date Tenant takes possession of the
Premises. Provided that Tenant maintains such service contract and is not in
default under the terms of this Lease, Landlord shall be responsible for any
repairs or replacements necessary to maintain the HVAC equipment in the new
space for a period of ninety (90) days following the Commencement Date.
8. Tenant shall have the nonexclusive right to utilize no more than
fifty-five (55) parking spaces at the new space.
9. Tenant's "proportionate share" of McNeil #3 is 26.8%.
10. Subject to Landlord's written approval of the installation process and
procedure, Tenant, at its expense, shall have the right to install
telecommunication lines connecting the new space and original space.
11. Tenant shall not use, and shall not permit any subtenant, licensee,
concessionaire, employee, agent or invitee (hereinafter collectively "Tenant's
Representatives") to use, any portion of the Premises or Building, for the
placement, storage, manufacture, disposal or handling of any hazardous materials
(hereinafter defined) unless Tenant complies with all applicable environmental
laws (federal,
<PAGE>
state or local), including, but not limited to those for obtaining proper
permits. In the event Tenant or Tenant's Representatives desire to use or place
hazardous materials on the Premises it shall notify Landlord in writing thirty
(30) days prior to such proposed use or placement, and provide the names of the
hazardous materials, procedures to insure compliance with the applicable
environmental law and such other information as Landlord may reasonably request.
In the event Tenant or Tenant's Representatives places, releases or
discovers any hazardous materials on the Premises or Building in violation of
applicable environmental laws, Tenant shall immediately notify Landlord of such
fact in writing within twenty-four (24) hours of the placement, release or
discovery. Tenant shall not attempt any removal, abatement or remediation of
those hazardous materials on the Premises in violation of applicable
environmental laws, without obtaining the additional written consent of
Landlord, which consent may be specifically conditioned on Landlord's right to
approve the scope, timing and techniques of any such work and the appointment of
all contractors, engineers, inspectors and consultants in connection with any
such work. Tenant shall be responsible for the cost of any removal, abatement
and remediation work of any hazardous materials placed, stored, manufactured,
disposed of or handled by Tenant or Tenant's Representatives on the Premises or
any other portion of the Building and for the cost of any removal, abatement or
remediation of any hazardous materials which might be disturbed or released as a
result of any remodeling or construction in the Premises by Tenant or Tenant's
Representatives. Such costs shall include, without limitation, the cost of any
supervision by Landlord, its employees or agents, in connection with such work.
Tenant shall comply with all environmental laws in connection with any such
removal.
Tenant shall indemnify Landlord, its shareholders, directors, officers,
employees and agents and hold them harmless, from and against any loss, damage
(including, without limitation, a loss in value of the Building or damages due
to restrictions on marketing contaminated space), cost, liability or expense
(including reasonable attorneys' fees and expenses and court costs) arising out
of the placement, storage, use, manufacture, disposal, handling, removal,
abatement or remediation of any hazardous materials by Tenant or Tenant's
Representatives on the Premises or Building, or any removal, abatement or
remediation of any hazardous materials required hereunder to be performed or
paid for by Tenant, with respect to any portion of the Premises or the Building,
or arising out of any breach by Tenant of its obligations under this paragraph.
The term "hazardous materials" as used herein shall mean (i) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Section 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (ii) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601, et seq.), as amended from time to time, and regulations
promulgated thereunder; (iii) asbestos or polychlorinated biphenyls; (iv) any
substance the presence of which on the Building or on the Premises is prohibited
or regulated by any federal, state or local law, regulation, code or rule; and
(v) any other substance which requires special handling or notification of any
federal, state or local governmental entity in its collection, storage,
treatment, or disposal.
12. This Lease shall be subordinate to any deed of trust, mortgage, or
other security instrument (a "Mortgage"), or any ground lease, master lease, or
primary lease (a "Primary Lease"), that now or hereafter covers all or any part
of the Premises (the mortgagee under any Mortgage or the lessor under any
Primary Lease is referred to herein as "Landlord's Mortgagee"), including any
modifications, renewals or extensions of such Mortgage or Primary Lease,
provided that it is a condition to the subordination of this Lease that the
Landlord's Mortgagee execute and deliver to Tenant a non-disturbance and
attornment agreement, in recordable form, whereby such Landlord's Mortgagee
agrees that neither this Lease nor Tenant's right to possession will be
terminated so long as Tenant is not in default under this Lease (provided
Landlord's Mortgagee, or successor thereto, maintains its rights to terminate
under other provisions of the Lease, e.g., for a casualty). Notwithstanding the
foregoing, Tenant agrees that any such Landlord's Mortgagee shall have the right
at any time to subordinate such Mortgage or Primary Lease to this Lease on such
terms and subject to such conditions as Landlord's Mortgagee may deem
appropriate in its discretion. Tenant agrees upon demand to execute such
further instruments subordinating this Lease or attorning to the Landlord's
Mortgagee as Landlord may request,
<PAGE>
provided such contains non-disturbance provisions as noted above and such other
provisions which do not affect the substantive provisions of this Lease. In the
event that Tenant should fail to execute any subordination or other agreement
required by this paragraph, within twenty (20) days of written request, it shall
constitute an Event of Default, without further notice required of Landlord.
13. Landlord, at Landlord's expense, will repair all roof penetrations and
service and repair all existing overhead doors.
Except as herein and hereby modified and amended the Agreement of Lease shall
remain in full force and effect and all the terms, provisions, covenants and
conditions thereof are hereby ratified and confirmed.
DATED AS OF THE 25th DAY OF APRIL, 2000.
WITNESS: AETNA LIFE INSURANCE COMPANY:
By: UBS Brinson Realty Investors LLC,
Its Investment Advisor and Agent
/s/ Belinda Hanson /s/ S. Mark Cypert
- ------------------------- ----------------------------------------
By: S. Mark Cypert
----------------------------------------
Title: Director
----------------------------------------
WITNESS: LUMINEX CORPORATION:
/s/ John M. Dapper /s/ James L. Persky
- ------------------------ ----------------------------------------
By: James L. Persky
----------------------------------------
Title: Vice President & Chief
Financial Officer
----------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,352
<SECURITIES> 985
<RECEIVABLES> 72,718
<ALLOWANCES> 101
<INVENTORY> 1,161
<CURRENT-ASSETS> 81,359
<PP&E> 2,828
<DEPRECIATION> 1,169
<TOTAL-ASSETS> 83,057
<CURRENT-LIABILITIES> 2,118
<BONDS> 0
0
0
<COMMON> 27
<OTHER-SE> 79,912
<TOTAL-LIABILITY-AND-EQUITY> 83,057
<SALES> 1,390
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<CGS> 723
<TOTAL-COSTS> 4,113
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (2,611)
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<NET-INCOME> (2,611)
<EPS-BASIC> (0.19)
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</TABLE>
