Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGT0N, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2007 |
or
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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)
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DELAWARE
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74-2747608 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
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78727 |
(Address of principal executive offices)
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(Zip Code) |
(512) 219-8020
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
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Title of each class
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Name of exchange on which registered |
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Common Stock, $0.001 par value
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The NASDAQ Global Market |
Rights to Purchase Series A Junior Participating Preferred Stock, $0.001 par value
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The NASDAQ Global Market |
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Based on the closing sale price of common stock on The Nasdaq Stock Market on June 30, 2007,
the aggregate market value of the voting stock held by non-affiliates of the Registrant was
$404,768,348 as of such date, which assumes, for purposes of this calculation only, that all shares
of common stock beneficially held by officers and directors are shares owned by affiliates.
There were 36,739,022 shares of the Companys Common Stock, par value $0.001 per share,
outstanding on March 11, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2008 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
TABLE OF CONTENTS
Safe Harbor Cautionary Statement
This annual report on Form 10-K contains statements that are forward-looking statements as
defined within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. Forward-looking statements give our current
expectations of forecasts of future events. All statements other than statements of current or
historical fact contained in this annual report, including statements regarding our future
financial position, business strategy, budgets, projected costs, and plans and objectives of
management for future operations, are forward-looking statements. The words anticipate,
believe, continue, estimate, expect, intend, may, plan, projects, will, and
similar expressions, as they relate to us, are intended to identify forward-looking statements.
These statements are based on our current plans and actual future activities, and our results of
operations may be materially different from those set forth in the forward-looking statements as a
result of known or unknown risks and uncertainties, including, among other things:
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risks and uncertainties relating to market demand and acceptance of our products and
technology, |
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dependence on strategic partners for development, commercialization and distribution of
products, |
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concentration of the Companys revenue in a limited number of strategic partners, |
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fluctuations in quarterly results due to a lengthy and unpredictable sales cycle and
bulk purchases of consumables, |
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our ability to scale manufacturing operations and manage operating expenses, gross
margins and inventory levels, |
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potential shortages of components, |
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competition, |
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the timing of regulatory approvals, |
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the implementation, including any modification, of the Companys strategic operating
plans, and |
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risks and uncertainties associated with implementing our acquisition strategy and the
ability to integrate acquired companies, including Tm Bioscience, or selected assets into
our consolidated business operations, including the ability to recognize the benefits of
our acquisitions. |
Any or all of our forward-looking statements in this annual report may turn out to be
inaccurate. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. They can be affected by
inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions,
including the risks, uncertainties and assumptions outlined above and described in Item 1A. Risk
Factors below.
In light of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this annual report may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements. When you consider
these forward-looking statements, you should keep in mind these risk factors and other cautionary
statements in this annual report, including in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations and in Item 1A. Risk Factors.
Our forward-looking statements speak only as of the date made. We undertake no obligation to
publicly update or revise forward-looking statements, whether as a result of new information,
future events or otherwise. All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained in this annual report.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to
Luminex, the Company, we, us and our refer to Luminex Corporation and its subsidiaries.
Luminex® and xMAP® are trademarks of Luminex Corporation. This report also refers to
trademarks, service marks and trade names of other organizations.
PART I
ITEM 1. BUSINESS
Overview
Luminex Corporation develops, manufactures and sells proprietary biological testing
technologies and products with applications throughout the life sciences industry. The life
sciences industry depends on a broad range of tests, called bioassays, to perform diagnostic tests,
discover and develop new drugs and identify genes. Our xMAP® technology, an open architecture,
multiplexing technology, allows simultaneous analysis of up to 100 bioassays from a small sample
volume, typically a single drop of fluid, by reading biological tests on the surface of microscopic
polystyrene beads called microspheres. xMAP technology combines this miniaturized liquid array
bioassay capability with small lasers, digital signal processors and proprietary software to create
a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is
currently being used within various segments of the life sciences industry which includes the
fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense,
protein analysis and biomedical research. Our products are described below under Products.
Luminex has established a position in the life sciences industry by developing and delivering
products that meet customer and partner needs in specific market segments. These needs are
addressed by our proprietary technology, xMAP Technology, which allows the end-user in a laboratory
to perform biological testing in a multiplexed format. Multiplexing allows for many different
laboratory results to be generated from one sample at one time. This is important because our
end-user customers and partners, which include laboratory professionals performing research,
clinical laboratories performing tests on patients as ordered by a physician and other
laboratories, have a fundamental need to perform high quality testing as efficiently as possible.
Until the availability of multiplexing technology such as xMAP, the laboratory professional had to
perform one test on one sample in a sequential manner, and if additional testing was required on
that sample, a second procedure would be performed to generate the second result, and so on until
all the necessary tests were performed. By using xMAP technology, these end-users have the
opportunity to become more efficient by generating multiple simultaneous results per sample. Using
the products Luminex has available today, up to 100 simultaneous analyte results can be generated
from a single sample. With products we are currently developing, the capacity of potential
simultaneous analytes may increase significantly, and provide the Company with the ability to
address unmet customer and partner needs in existing and new market segments.
Luminex has adopted a business model built around strategic partnerships. Information about
our strategy is described under Business Strategy. The Company has licensed our xMAP technology
to other companies, who then develop products that incorporate the xMAP technology into products
that they sell to the end-user. Luminex develops and manufactures the proprietary xMAP laboratory
instrumentation and the proprietary xMAP microspheres and sells these products to our partners. Our
partners sell xMAP instrumentation, xMAP-based reagent consumable products or xMAP-based testing
services, which run on the xMAP instrumentation, to the end-user customer, typically a testing
laboratory. When our partners sell an xMAP-based consumable product or xMAP based testing service
to their customer, Luminex obtains a royalty on the sales from the partner. The Company was founded
on this model, and our success to date has been due to this model. As of the December 31, 2007,
Luminex had approximately 58 strategic partners, 30 of which have released commercialized
reagent-based products utilizing our technology, and these partners have sold and placed 4,979
xMAP-based instruments in laboratories worldwide.
A fundamental component of the Companys strategy over the past two years has been to augment
the partnership model with a distribution model, designed to take advantage of our increasing
installed base of xMAP-based instrumentation. The Company established the Luminex Bioscience Group,
which we refer to as LBG, in 2005, with the charter of developing products that would be
complementary to our partners products, that we would take responsibility for manufacturing on
their behalf and that our partners would then sell to the end-user, thereby leveraging both our
existing distribution channels and our existing installed base of instrumentation. LBG introduced
their first two products in late 2006, on schedule, and launched several assay products in 2007.
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On March 1, 2007, we completed our acquisition of Tm Bioscience, now a wholly-owned subsidiary
of the Company and known as Luminex Molecular Diagnostics, of Toronto, Canada. Tm Bioscience was a
molecular diagnostics company. Tm Bioscience had focused its resources on building a
commercialization engine for the
design, development, manufacture, marketing and selling of genetic tests, also referred to as
DNA-based tests, nucleic acid tests or molecular diagnostics. Since 2006, Tm Bioscience had
focused on leveraging this engine in order to become a market leader in at least one of the three
segments of the genetic testing market for which it was developing products: human genetics,
personalized medicine and infectious disease. Tm Bioscience was an innovator in the molecular
diagnostics market. Tm Bioscience had established a solid position in the marketplace with their
product development and FDA-compliant manufacturing capabilities. We completed the full integration
of Tm Bioscience during 2007, and we believe the combined Company is in a position to take
advantage of the complementary strengths of both companies in molecular diagnostics.
Luminex was incorporated under the laws of the State of Texas in May 1995 and began commercial
production of our Luminex 100 System in 1999. We were reincorporated in the State of Delaware in
July 2000. Our shares of common stock are traded on the Nasdaq Global Market under the symbol
LMNX. Our principal executive offices are located at 12212 Technology Blvd., Austin, Texas
78727, and our telephone number is (512) 219-8020. Our website address is www.luminexcorp.com.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, are available free of charge through our website as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the Securities and
Exchange Commission, or the SEC. Information contained on our website is not incorporated by
reference into this report and such information should not be considered to be part of this report
except as expressly incorporated herein. The public may read and copy these materials at the SECs
public reference room at 100 F Street, N.E., Washington, D.C. 20949 or on the SECs website at
http://www.sec.gov. Questions regarding the public reference room may be directed to the SEC at
1-800-732-0330.
Industry Background
The life sciences industry uses bioassays to detect the presence and characteristics of
certain biochemicals, proteins or nucleic acids in a sample. Drug discovery, genetic analysis,
pharmacogenomics, clinical diagnostics and general biomedical research all use bioassays. For
example, bioassays can be used to:
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measure the attraction, or affinity, between a chemical compound and a disease target for drug discovery and development; |
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assist physicians in prescribing the appropriate tailored drug therapy based on the patients unique genetic makeup, a
process known as pharmacogenetics; |
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detect genetic variations, such as single nucleotide polymorphisms; and |
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measure the presence and quantity of biochemicals in a patients blood, other body fluid or tissue to assist physicians in
diagnosing, treating or monitoring disease conditions. |
The life sciences customer can purchase bioassays in the form of complete off-the-shelf kits,
develop them internally or utilize a customized service to meet their specific needs. Although it
is important to note that our xMAP technology is relevant to only a subset of the total life
sciences market, industry reports estimated the total global market for tools and consumables used
in drug discovery and development, clinical diagnostics and biomedical research to have been
approximately $47 billion in 2006 and is expected to grow at an annual rate of approximately 6%.
Based on estimates contained in strategic studies performed in 2003 and updated in 2005, the
key segments on which we are currently focused represent a potential market of approximately $3.6
billion in end-user sales with an anticipated annual growth rate of approximately 15%.
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The table below briefly describes the key bioassay technologies in the life sciences industry:
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KEY TECHNOLOGIES |
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DESCRIPTION |
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MARKETS SERVED |
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BioChips/Microarrays
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High-density arrays of DNA fragments or
proteins attached to a flat glass or silicon
surface
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Biomedical research and
select clinical
diagnostics |
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Automated Immunoassays
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Automated test tube-based instruments used
for detecting antibodies, proteins and other
analytes
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Clinical diagnostics |
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Gels and blots
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Physical separation of molecules or analytes
for
visualization
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Clinical diagnostics
and biomedical research |
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Real-time PCR
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Quantitative tests which monitor the progress
of polymerase chain reaction (PCR) during
the amplification reaction instead of
post-reaction
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Nucleic acid testing in
clinical diagnostics
and biomedical research |
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Microfluidics chips
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Miniaturized liquid handling system on
a chip
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Biomedical research |
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Microtiter-plate based assays
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Plastic trays with discrete wells in which
different types of assays are fixed
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Drug discovery,
clinical diagnostics
and biomedical research |
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Genotyping technologies
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DNA primers or probes designed to identify
small differences between DNA targets using
methods such as ligation assays, cleavage
assays hybridization assays
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Drug discovery,
clinical diagnostics
and biomedical research |
Our xMAP Technology
Our xMAP technology combines existing biological testing techniques with advanced digital
signal processing and proprietary software. With our technology, discrete bioassays are performed
on the surface of color-coded microspheres. These microspheres are read in a compact analyzer that
utilizes lasers and high-speed digital signal processing to simultaneously identify the bioassay
and measure the individual assay results. The key features of xMAP technology include the
following:
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Multi-analyte/multi-format |
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xMAP technology has been designed to simultaneously perform up to 100
distinct bioassays in a single tube or well of a microtiter plate
using only a small amount of sample. Moreover, unlike most existing
technologies that are dedicated to only one type of bioassay, xMAP can
perform multiple types of assays including enzymatic, genetic and
immunologic tests on the same instrumentation platform. |
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Flexibility/scalability |
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xMAP technology allows flexibility in customizing test panels. Panels can be modified to include
new bioassays in the same tube by adding additional microsphere sets. It is also scalable,
meaning that there is no change in the manufacturing process and only minimal changes to the
required labor to produce a small or large number of microsphere-based tests. |
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Throughput |
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Our technology is currently able to perform up to 100 tests in a single tube permitting up to
9,600 unattended tests to be detected in less than an hour with only a small amount of sample.
Rapid sample analysis permits efficient use for high-throughput applications. |
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Ease of use |
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Most xMAP bioassays are simple to perform. A test sample is added to a solution containing
microspheres that have been coated with reagents. The solution is then processed through our
xMAP technology system which incorporates proprietary software to automate data acquisition and
analysis in real-time. |
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Cost effective |
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By performing multiple assays at one time, xMAP technology is designed to be cost effective for
customers compared to competitive techniques such as enzyme-linked immunosorbent assay (ELISA)
or Real-time PCR. By analyzing only those assays in which a customer is interested, xMAP is also
more cost effective than most competing microarray technologies. In addition, microsphere-based
bioassays are inexpensive compared to other technologies such as biochips. |
Polystyrene microspheres, approximately 5.6 microns in diameter, are a fundamental component
of the xMAP technology. We purchase and manufacture microspheres and, in a proprietary process, dye
them with varying intensities of a red and a near infrared dye to achieve up to 100 distinct
colors. The specific dye proportions permit each color-coded microsphere to be readily identified
based on its distinctive fluorescent signature. Our customers create bioassays by attaching
different biochemical reactants to each distinctly colored microsphere set. The microsphere sets
can then be combined in test panels as required by the user, with a current maximum of 100 tests
per panel. Customers can order either standard microspheres or magnetic microspheres.
To perform a bioassay using xMAP technology, a researcher attaches biochemicals, or reagents,
to one or more sets of color-coded microspheres, which are then mixed with a test sample. This
mixture is injected into the xMAP analyzer, where the microspheres pass single-file in a fluid
stream through two laser beams. The first laser excites the internal dyes that are used to identify
the color of the microsphere and the test being performed on the surface of the microsphere. The
second laser excites a fluorescent dye captured on the surface of the microspheres that is used to
quantify the result of the bioassay taking place. Our proprietary optics, digital signal processors
and software record the fluorescent signature of each microsphere and compare the results to the
known identity of that color-coded microsphere set. The results are analyzed and displayed in
real-time with data stored on the computer database for reference, evaluation and analysis.
xTAG technology developed by Luminex Molecular Diagnostics (LMD) consists of several
components including multiplexed PCR or target identification primers, DNA Tags, xMAP microspheres,
and data analysis software. xTAG technology permits the development of molecular diagnostic assays
for clinical use by hospital and reference laboratories. xTAG technology has been applied, in
particular, to human genetic assays, pharmacogenetic assays, and infectious disease assays.
Business Strategy
Our primary goal continues to be the establishment of Luminex as an industry leader and xMAP
technology as the industry standard for performing bioassays by transforming Luminex from a
technology-based company to a more market-driven, customer-focused company. To achieve this goal,
we have implemented and are pursuing the following strategies:
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Focus on key market segments |
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The key market segments identified as a result of our strategic studies have been (i) profile
oriented screening and secondary screening, (ii) RNA profiling and transcriptional screening,
(iii) genetic disease and molecular infectious disease testing, and (iv) immunodiagnostics. In
addition to the segments listed above, we have identified two potential market opportunities in
the fields of bio-defense, or bio-threat testing, and food safety and animal health testing. We
have dedicated our primary efforts towards these markets and will continue to employ a
partnership driven business model focused on these key segments and selectively pursue
potentially profitable opportunities in other segments. |
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We will continue to focus our commercialization efforts through strategic partners on large
sectors of the life sciences industry where Luminex believes it has distinct competitive
advantages over existing and emerging technologies and approaches. We define strategic partners
as companies in the life sciences industry that either
develop and distribute assays and tests on xMAP technology or may only distribute our xMAP
technology based systems and consumables. With our partners support, we have targeted major
pharmaceutical companies, large clinical laboratories, research institutions and major medical
institutions for our principal marketing efforts. We believe these customers provide the greatest
opportunity for maximizing the use of xMAP based products and continued adoption by these
industry leaders will promote wider market acceptance of our xMAP technology. |
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Continue to develop strategic partnerships focused on our key market segments |
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Currently, 30 of our approximately 58 strategic partners have released commercialized
reagent-based products utilizing the Luminex platform and are submitting royalties. We also have
strategic partners who distribute Luminex products. The 30 strategic partners who have
commercialized reagent-based products accounted for approximately 64% of our total revenue in
2007 and all of our strategic partners represented approximately 81% of our total revenue. We
intend to broaden and accelerate market acceptance of xMAP technology through development,
marketing and distribution partnerships with leaders in the life sciences industry that we
believe can either convert core product lines to our technology or develop new applications on
the Luminex platform within their key market segments. By leveraging our strategic partners
market positions and utilizing their distribution channels and marketing infrastructure, we
believe we can continue to expand our installed instrument base. We also intend to penetrate
other key segments by developing and delivering assay kits. |
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Develop next generation products |
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Our research and development group is pursuing projects such as the development of consumables,
automation, software and the expansion and enhancement of our multiplexing capabilities to
advance our xMAP technology and its market acceptance. We are also collaborating with industry
participants, biomedical research institutions and government entities to develop additional xMAP
products. We intend to launch our new instrument, FlexMAP 3D, in the second half of 2008, to
complement our current instrument offerings. |
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Develop and deliver market-leading assay products |
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We are focused on maximizing the value we provide our shareholders, partners and end-user
customers by developing internally and co-developing with partners content applications based on
customers needs in key market segments. We believe that by enhancing our partner driven model
with the delivery of value-added assay content, Luminex should be able to gain greater control
over product development, market penetration and commercialization. Luminex Molecular Diagnostics
will focus on achieving these goals in the DNA testing diagnostics market. The LBG will develop
assays in specialty markets in which our partners are not active. This approach resulted in the
commercial launch of several assay products in 2007. |
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Opportunistically pursue acquisitions that could accelerate these strategies |
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We have developed analysis tools and an evaluation template to assess potential acquisition
targets to accelerate our business strategies. This approach led to the acquisition of Tm
Bioscience in 2007. We are actively evaluating other opportunities to enhance our capabilities
or our access to markets or technologies, or provide us other advantages in executing our
business strategies in our key markets. |
Products
Technology Segment
Instruments
Luminex® 100 and Luminex® 200. The Luminex 100 and 200 are compact analyzers that integrate
fluidics, optics and digital signal processing to perform up to 100 bioassays simultaneously in a
single tube or well of a microtiter plate using only a small amount of sample. By combining small
diode lasers with digital signal processors and microcontrollers, these systems perform rapid,
multi-analyte profiles under the control of a Windows®-based personal computer and our proprietary
software. The Luminex 200 is Luminexs newest instrument and offers enhanced ease-of-use and
serviceability.
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We also offer two peripheral components for the Luminex systems the Luminex® XYP (XY
Platform) and the Luminex® SD (Luminex Sheath Delivery System). The XY Platform complements the
Luminex systems by automating the sequential positioning of each well of a microtiter plate,
permitting up to 9,600 unattended tests per plate to be performed in less than an hour. The
Luminex SD is a pressurized, external pump delivery system that enhances the delivery of sheath
fluid to the Luminex systems by pumping sheath fluid from an external bulk reservoir, enabling the
Luminex systems to operate for up to 24 hours without switching to a new reservoir of sheath fluid.
Luminex HTSTM (High-Throughput System). The customized, high-throughput version of
our xMAP analyzer, the Luminex HTS, is interfaced with an automated liquid handler which allows for
walk-away capability. The Luminex HTS utilizes a high pressure flow system, which produces a flow
rate approximately ten times greater than the flow rate of the Luminex 100 or 200. The Luminex HTS
can also be connected to robotic systems that deliver both 96 and 384 well plates allowing
integration into automated test centers. The Luminex HTS was market released in the second half of
2003. Because of the customized nature of the Luminex HTS, it is built to order.
Total instrument revenue for 2007, 2006, and 2005 was $24.4 million, $20.6 million and $18.8
million, respectively; or 33%, 39% and 44% of total revenue, respectively.
Consumables
Microspheres. Our xMAP Systems use polystyrene microspheres that are approximately 5.6 microns
in diameter. We dye the microspheres in sets with varying intensities of a red and a near infrared
dye to achieve up to 100 distinct color sets. Each microsphere can carry the reagents of an
enzymatic, genetic or immunologic bioassay. In addition to microspheres, consumables from Luminex
also include sheath fluid. Additional consumables, for which Luminex receives a royalty, in the
form of reagent kits are developed and distributed by our partners.
MagPlex Microspheres. These microspheres feature super-paramagnetic properties that make
them ideal for running automated xMAP-based assays. These microspheres can be moved or held in
place by a magnetic field. Many automated sample preparation systems utilize magnetic properties to
automate the sample preparation steps in an assay. Automating sample testing using MagPlex
microspheres on a robotic sample preparation system minimizes hands-on technician time, improves
precision, and streamlines workflow.
xTAG Microspheres. These microspheres are linked to a set of 100 proprietary nucleic acid
capture sequences providing a universal array for DNA and RNA work. They are designed for
conducting genotyping and other nucleic acid-based experiments in the life sciences markets. When
used in conjunction with our Luminex systems, the xTAG microspheres are designed to simplify the
genotyping assay development process and increase assay flexibility. The xTAG microspheres may be
used in customized end-user identified single nucleotide polymorphisms (SNPs) or in pre-defined
kits developed by our strategic partners.
SeroMAP Microspheres. Microspheres designed for specific protein based serological
applications. Certain Luminex partners use this product for enriched sensitivity in serum-based
assays.
Calibration and Control Microspheres. Calibration microspheres are microspheres of known
fluorescent light intensities used to calibrate the settings for the classification and reporter
channel for the Luminex systems. Control microspheres are microspheres that are used to verify the
calibration and optical integrity for both the classification and reporter channels for the Luminex
100 and 200 systems.
Total consumable revenue for the years ended December 31, 2007, 2006, and 2005 was $19.2
million, $15.7 million and $13.1 million, respectively; or 26%, 30% and 31% of total revenue,
respectively. The decrease in consumables as a percentage of total revenue is primarily
attributable to the addition of $11.3 million of assay revenue to total revenues through the
acquisition of LMD. Additionally, our partners reported approximately $182 million, $132 million
and $86 million of royalty bearing consumable sales during 2007, 2006 and 2005, respectively;
resulting in $10.2 million, $8.2 million and $5.3 million of royalty revenue for the years ended
December 31, 2007, 2006 and 2005, respectively.
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Software
LXR. For partners interested in developing custom software applications based on xMAP
technology, we offer the LXR Software Developers Kit (SDK). This SDK provides a software
interface for reading xMAP based assays on Luminex hardware, and allows a software developer to
easily build a custom application to control Luminex hardware by providing an applications
programming interface to the Luminex system as well as a standard set of user interface components
and applications. Sales of this product during 2007 did not represent a material component of our
revenue.
xPONENT®. This software enhances both ease-of-use and automation capabilities expanding xMAP
functionality in the Companys core market segments. Customer-centric development and extensive
field testing with customers has resulted in a user experience which is a significant step forward
in the market place. The software suite incorporates over 300 new features all designed to simplify
laboratory workflow and increase productivity. New features include enhanced security (21 CFR Part
11 compliance and electronic signatures), integration capabilities that allow users to transmit and
receive data from Laboratory Information Systems (LIS/LIMS), integration with the most popular
automated sample preparation systems, the ability to run magnetic bead applications and
touch-screen capability. xPONENT® will be sold on new Luminex systems and will be available as an
upgrade to the existing Luminex 100 and 200 systems in the marketplace. Sales of this product
during 2007 did not represent a material component of our revenue.
Assay Segment
Kits
A kit is a combination of chemical and biological reagents and our proprietary bead technology
used to perform diagnostic and research assays on samples. Currently the following kits are
available:
FlexmiR MicroRNA Labeling Kit. This Research Use Only (RUO) kit provides reagents necessary
for biotin-labeling up to 50 total RNA samples for use with the FlexmiR microRNA (miRNA) panels and
the FlexmiR Select assay.
FlexmiR MicroRNA Human Panel. This RUO kit measures the expression of the miRBase Sequence
database Version 8.0 human miRNA sequences for 20 biotin-labeled total RNA samples.
FlexmiR MicroRNA Mouse/Rat Extension Panel. This RUO kit is used in combination with the
FlexmiR MicroRNA Human Panel to measure the expression of the miRBase Sequence database Version 8.0
mouse and rat miRNA sequences for 20 biotin-labeled total RNA samples.
FlexmiR Select. This RUO assay allows a customer to custom configure multiplex miRNA panels
based on the miRNA targets the customer chooses to test. Available targets include all targets
available in the FlexmiR MicroRNA Human Panel. The customer may choose up to 50 unique miRNA
targets to include in the custom assay and is provided with enough reagents to test 50 samples.
FlexmiR Reagent Pak. This RUO kit compliments the FlexmiR Select product and provides all
necessary buffers and reagents to complete the FlexmiR Select assay.
FlexmiR MicroRNA Control Set. This RUO kit may be used in conjunction with the FlexmiR
microRNA Labeling Kit, FlexmiR microRNA Human Panel, FlexmiR Mouse/Rat Extension Panel and FlexmiR
Select to verify the integrity of the assay.
Pneumococcal Assay. This FDA-cleared and CE marked IVD kit has been designed to multiplex
the fourteen commonly requested serotypes in a single reaction vessel.
xTAG Respiratory Viral Panel. This FDA-cleared and CE marked IVD kit simultaneously detects
and identifies 12 different respiratory viruses and subtypes and 20 different respiratory viruses
and subtypes, in the U.S.
and Europe, respectively in a single test. The product assists the physician in identifying
the causative agent for respiratory infections, a major cause of illness and mortality globally.
7
xTAG Ashkenazi Jewish Panel. This Investigational Use Only (IUO) kit simultaneously screens
for 31 mutations/polymorphisms in 8 genes responsible for conditions that are predominantly found
in persons of Ashkenazi ancestry. Increased risk for Tay-Sachs disease is also found in the
Pennsylvania Dutch, Southern Louisiana Cajuns, Irish Americans and French Canadians from eastern
Quebec. The American College of Obstetricians and Gynecologists (ACOG) recommends screening for, at
a minimum, Tay-Sachs disease, Canavan disease, and familial dysautonomia in patients of
European-Jewish ancestry.
xTAG Cystic Fibrosis Kit. This kit is the first FDA cleared IVD for cystic fibrosis
genotyping. Current recommendations by the American College of Medical Genetics (ACMG) and the
ACOG, include screening for 23 mutations in the cystic fibrosis transmembrane conductance regulator
(CFTR) gene. The kit screens for these mutations in addition to 16 mutations commonly found in the
ethnically diverse North American population.
xTAG CFTR 70+6 Mutation Detection Kit. This IUO kit simultaneously screens for 70 mutations
and 6 variants (polymorphisms) in the CFTR gene. Included in the panel are the gene mutations
recommended by the ACMG and the ACOG in 2004.
xTAG Mutation Detection Products for Coagulation. This IUO kit is for detecting mutations
potentially associated with increased risk of Venous Thromboembolism.
xTAG Mutation Detection Kit for P450-2C19. This IUO kit provides simultaneous detection of
seven small nucleotide variants found in the P450-2C19 gene, which can affect the metabolism of a
number of currently marketed drugs.
xTAG Mutation Detection Kit for P450-2C9. This IUO kit provides simultaneous detection of
five small nucleotide variants found in the P450-2C9 gene, which can affect the metabolism of a
number of currently marketed drugs.
xTAG Mutation Detection Kit for P450-2D6. This IUO kit provides simultaneous detection of 12
small nucleotide variants and two gene rearrangements found in the P450-2D6 gene, which can affect
the metabolism of a number of currently marketed drugs.
xTAG Mutation Detection Kit for P450-2C9 and VKORCI. This IUO kit is designed to detect a
number of polymorphisms or mutations which can affect the rate at which the anticoagulant warfarin
is metabolized.
Total assay revenue for the years ended December 31, 2007, 2006, and 2005 was $11.3 million,
$19,000 and $0, respectively; or 15%, 0% and 0% of total revenue, respectively. The increase in
assay revenue as a percentage of total revenue is primarily attributable to the acquisition of LMD.
Sales and Marketing
Our sales and marketing strategy is to expand the installed base and utilization of xMAP
technology. We are focused on generating recurring revenues from royalties on bioassay kits and
testing services developed or performed by others that use our technology, as well as the sale of
Luminex-developed assays, microspheres and other consumables. We have two key elements of our sales
and marketing strategy. The first is our allegiance to Luminexs historic strategic partner
program with life sciences companies that develop applications or perform testing using our
technology platforms and distribute our systems to their customers. The second is our dedication
to marketing the assays developed by Luminex Molecular Diagnostics and the Luminex Biosciences
Group through our strategic partners or directly to end users in segments where our partners do not
participate.
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We continue to use strategic partners as our primary distribution channel, and we will
continue to pursue new partnerships focusing on partners with market presence in our key segments
described above. Some of our strategic partners develop application-specific bioassay kits for use
on our xMAP platform that they, in turn, sell to their customers thereby generating royalties for
us. Certain strategic partners also perform testing services for third parties using our technology
also resulting in royalties for us. Other strategic partners also buy our products, including
xMAP Luminex systems and consumables, or xTAG test kits, and then resell those products to
their customers. As of December 31, 2007, we had approximately 58 strategic partners, compared to
approximately 50 strategic partners as of December 31, 2006. During 2007, 30 of these strategic
partners had released commercialized products utilizing the Luminex platform and were submitting
royalties. Of these 30 strategic partners with commercialized products, 13 companies principally
serve the clinical diagnostics market and 17 companies principally serve the life science research
market. These commercialized, royalty-submitting, strategic partners constituted 64% of the
Companys revenues for 2007. We also believe our strategic partners provide us with complementary
capabilities in product development, regulatory expertise and sales and marketing. By leveraging
our strategic partners bioassay testing competencies, customer relationships and distribution
channels, we believe that we can continue to achieve market penetration and technology adoption
without a direct sales force.
We also serve as the original equipment manufacturer (OEM) for certain strategic partners that
choose to sell our xMAP technology as an embedded system under their own branding and marketing
efforts.
Customers
In 2007, two customers each accounted for more than 10% of our total revenues. Bio-Rad
Laboratories, Inc. accounted for 20%, 19% and 23% of our total revenues in 2007, 2006 and 2005,
respectively. One Lambda, Inc. accounted for 15%, 15% and 16% of our total revenues in 2007, 2006
and 2005, respectively. No other customer accounted for more than 10% of our total revenues in
2007, 2006 or 2005. The loss of either one of these customers could have a material adverse effect
on our business, financial condition and results of operation. Additionally, for the annual
periods ended December 31, 2007, 2006, and 2005, foreign sales to customers totaled $11.4 million,
$12.2 million and $9.5 million, respectively, representing 15%, 23% and 22%, respectively, of our
total revenues for such periods. See Note 17 to our Consolidated Financial Statements.
Technical Operations
Our Technical Operations Group provides technical support to our customers, our strategic
partners and their customers. Most of the Companys technical operations personnel have experience
as biologists, biochemists, or electrical engineers and have extensive experience in academic,
industrial and commercial settings. Cross training is a major focus, empowering group members to
solve problems outside their primary assignment.
Remote Support
Our technical support and assay support departments assist users primarily through a toll-free
hotline, internet interface and e-mail communications. We deliver 24/7 remote technical support
with our staff based at our Austin location, our Toronto location, and in our European subsidiary
to better serve our customer base. Personnel assist our strategic partners and customers with
product orders, software, hardware, system implementation and development of their bioassays. A
comprehensive software and database system is utilized to track customer interactions, follow
trends and measure utilization. The information is categorized and presented to management for
regular review.
Training
Through our training group, we offer comprehensive programs in basic system training, advanced
assay development, instrument field service and technical support functions. A significant part of
our training material is now web-based and available online. For larger customers who have many
users, such as our strategic partners, training may be performed on-site at their locations.
Field Support
We currently have field service and field application personnel based across North America and
in Europe in areas of our more significant system concentration. We intend to place additional
field service personnel and pursue third-party service provider agreements through our certified
service professional program, as required, in order to ensure responsive and cost-effective support
of our customers worldwide. In addition, several of our strategic partners provide their own field
service and field application support. As we continue to expand our installed base, we believe a
strong, reliable, efficient field support organization is crucial to building a high level of
customer satisfaction.
9
Research and Development
Our research and development groups seek to advance the capabilities of xMAP technology to
further penetrate the life sciences and diagnostics industry to increase utilization of our
systems. In addition, we collaborate with other companies, academic institutions and our customers
to increase the breadth of xMAP applications. Our current research and development projects
include:
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Consumable development |
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We continue to develop and enhance our existing consumable product line and support introduction
of new product lines. These new products include calibrators, controls and microspheres with
additional performance characteristics. |
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Automation |
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We collaborate with our strategic partners and others to provide automation solutions that will
integrate our various xMAP instruments with sample handling equipment and laboratory information
systems to increase bioassay throughput and operational efficiencies and allow for walk-away
capability. |
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Software |
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We are maintaining and extending our system platform through our SDK as well as providing new
end-user applications. Our SDK provides a straightforward platform for our strategic partners
and their customers to rapidly develop their own user interface software packages. In addition,
our end-user applications will allow us to provide turn key solutions to partners. |
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Technical Applications |
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In order to allow customers to expedite the production of bioassays for use on our systems, we
have a technical applications group, based in Austin, Texas, that includes highly experienced
biological scientists. This group works closely with our customers in their development of
bioassays with the ultimate goal of faster technology adoption and commercialization. |
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Expanding our multiple testing capabilities |
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Our current bead utilizes three common chemistries for the immobilization of assays on its
surface. While these chemistries are well accepted in the industry, it is desirable to expand our
bead chemistry capability to enhance market penetration and adoption. We continue to work on
other surface chemistries to provide optimal performance in broader application areas. |
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Enhancing bioassay performance and operational efficiencies |
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Our scientists and engineers dedicate efforts to further enhance xMAP in the areas of assay
performance, such as sensitivity, precision, reliability and operational efficiencies. We are
actively collecting market and customer requirements that will allow us to provide optimal
features and benefits in current and future products. |
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New product development |
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Our research and development teams, including LBG and LMD, and marketing team are working closely
with both internal and external groups to design and develop products that will expand
capabilities of the xMAP-based technologies. We believe that these efforts will continue to
result in unique products. These unique products may include instrumentation, services, software
and consumables including assays. |
10
Manufacturing
The Company has approximately 29,000 square feet of manufacturing space located at the
Companys principal executive offices in Austin, Texas. In 2002, we completed the registration of
our Quality Management System (QMS) to the ISO 9001:2000 standard, which is an internationally
recognized standard for quality management systems. Subsequent audits by the registrar have been
and will continue to be carried out at regular intervals to ensure we are maintaining our system in
compliance with ISO standards. Recertification is required every three years and we were
successfully recertified as of April 1, 2005.
In July 2005, we completed the registration of our QMS to the ISO 13485:2003 Quality
Management Standard and the Canadian Medical Devices Conformity System (CMDCAS) for Medical
Devices. This standard includes a special set of requirements specifically related to the supply
of medical devices and related services. Additionally, we manufacture to current Good Manufacturing
Practice (cGMP) requirements and our QMS is implemented in accordance with FDA Quality System
Regulations. In August 2006, a Level II Quality System Inspection Technique (QSIT) contract
inspection was conducted. The inspection is closed under 21 C.F.R. 20.64 (d) (3) and the
Establishment Inspection Report No. 3002524000 provided in accordance with the Freedom of
Information Act (FOIA) and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was issued.
Effective with our acquisition of Tm Bioscience, we have approximately 3,800 square feet of
manufacturing space located in Toronto, Canada. This facility and the LMD QMS have been registered
to the ISO 13485:2003 Quality Management Standard and the Canadian Medical Devices Conformity
System (CMDCAS) for Medical Devices. Additionally, we manufacture to current cGMP requirements and
our QMS is implemented in accordance with FDA Quality System Regulations.
Instruments
Contract manufacturers assemble certain components of our xMAP technology systems. The
remaining assembly and manufacturing of our systems are performed at our facility in Austin, Texas.
The quality control and quality assurance protocols are all performed at our facility. Parts and
component assemblies that comprise our xMAP technology system are obtained from a number of
sources. We have identified alternate sources of supply for several of our strategic parts and
component assemblies. Additionally, we have entered into supply agreements with most of our
suppliers of strategic parts and component subassemblies to help ensure component availability, and
flexible purchasing terms with respect to the purchase of such components. As of December 31,
2007, 4,979 Luminex systems have been sold since inception.
Microspheres
We manufacture as well as procure undyed, standard and magnetic carboxylated polystyrene
microspheres. We synthesize our dyes and manufacture our dyed polystyrene microspheres using a
proprietary method in our Austin, Texas manufacturing facility in large lots. We dye the
microspheres with varying intensities of a red and a near infrared dye to produce our distinctly
colored microsphere sets. We currently purchase polystyrene microspheres from one supplier, in
accordance with a supply agreement. We believe this agreement will help ensure microsphere
availability and flexible purchasing terms with respect to the purchase of such microspheres. While
we believe the microspheres will continue to be available from our supplier in quantities
sufficient to meet our production needs, we believe our in-house manufacturing capabilities along
with other potential suppliers would provide sufficient microspheres for us if given adequate
lead-time to manufacture the microspheres to our specifications.
Kits
Contract manufacturers produce certain components of our xMAP-based developed reagents. The
remaining assembly and manufacturing of our developed kits are performed at either our facility in
Austin, Texas or Toronto, Canada. The quality control and quality assurance protocols are all
performed at our facilities. Reagents and component assemblies that comprise our xMAP technology
kits are obtained from a number of sources. While we currently believe that we will be able to
satisfy our forecasted demand for our kits, the failure to find alternative suppliers in the event
of a supply failure at any of our current vendors at reasonably comparable prices could have a
material adverse effect on our business, financial condition and results of operations.
Additionally, we have entered into supply agreements with most of our suppliers of strategic
reagents and component subassemblies to help ensure component availability, and flexible purchasing
terms with respect to the purchase of such components.
11
Competition
We design our xMAP technology for use by customers across the various segments of the life
sciences industry. Our competition includes companies marketing conventional testing products based
on established technologies such as ELISA, real-time PCR, mass spectrometry, sequencing, gels,
biochips and flow-based technologies as well as companies developing their own advanced testing
technologies.
The pharmaceutical industry is a large market for the genomic, protein and high-throughput
screening applications of the xMAP technology. In each application area, Luminex faces a different
set of competitors. Genomic and protein testing can be performed by products available from
Affymetrix Inc., Applied Biosystems, a division of Applera Corporation, Becton Dickinson Company,
Illumina Inc., Meso Scale Discovery, a division of Meso Scale Diagnostics LLC, and Sequenom, Inc.,
among others.
Our diagnostic market competitors include Abbott Laboratories, Beckman Coulter, Inc., Celera
Group, Cepheid, Johnson & Johnson, Roche Diagnostics, Siemens Medical, and Thirdwave Technologies,
Inc., among others. Some of these companies have technologies that can perform a variety of
established assays. Some of these companies also offer integrated systems and laboratory automation
that are designed to meet the need for improved work efficiencies in the clinical laboratory.
Competition within the academic biomedical research market is highly fragmented. There are
hundreds of suppliers to this market including Amersham Pharmacia Biotech, a part of GE Healthcare,
Applied Biosystems, a division of Applera Corporation, and Becton Dickinson Company. Any company in
this field is a potential competitor.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination
of patent, copyright, trademark and trade secrets laws and confidentiality agreements. We have
filed for registration or obtained registration for trademarks used with our products and key
technology.
We have implemented a strategy designed to optimize our intellectual property rights. For core
intellectual property, we are pursuing patent coverage in the United States and those foreign
countries that correspond to the majority of our anticipated customer base. We currently own 63
issued patents in the United States and foreign jurisdictions, including three in each of France,
Germany, and the United Kingdom, two in each of Italy, Japan, and Singapore, and one in each of
Canada, Hong Kong, Korea, Israel and Australia, all directed to various aspects and applications of
our products and technology. In addition, our patent portfolio includes 177 other pending patent
applications in the United States and their corresponding international and foreign counterparts in
major industrial markets. Our patents and pending claims provide, or will provide, protection for
systems and technologies that allow real time multiplexed analytical techniques for the detection
and quantification of many analytes from a single sample. We also hold a patent covering the
precision-dyeing process that we use to dye our microspheres. We have been granted a patent on our
Zero Dead Time sampling architecture, which uses digital over-sampling to measure the area of a
fluorescence pulse instead of peak detection, giving increased sensitivity with no lost events.
Other issued patents and pending patent applications cover specific aspects and applications of our
xMAP technology and on-going molecular research. However, as a result of a procedural omission, we
are unable to pursue a patent application in Japan corresponding to our U.S. patent for real-time
multiplexing techniques. We also have patents covering key aspects of xTAG technology utilized in
LMDs assay products.
The source code for our proprietary software is protected as a trade secret and/or as a
copyrighted work. Aspects of this software also are covered by an issued patent.
12
We also rely on trade secret protection of our intellectual property. We attempt to protect
our trade secrets by entering into confidentiality agreements with strategic partners, third
parties, employees and consultants. Our
employees and third-party consultants also sign agreements requiring that they assign to us
their interests in inventions and original works of expression and any corresponding patents and
copyrights arising from their work for us.
Government Regulation
Food and Drug Administration
The Food and Drug Administration regulates medical devices pursuant to various statutes,
namely the Federal Food, Drug and Cosmetic Act as amended and supplemented by the Medical Device
Amendments of 1976, the Safe Medical Devices Act of 1990, the Medical Device Amendments of 1992,
the FDA Export Reform and Enhancement Act of 1996, the FDA Modernization Act of 1997, the Public
Health, Security and Bioterrorism Preparedness and Response Act of 2002, the Medical Device User
Fee and Modernization Act of 2002, and the Project BioShield Act of 2004. Medical devices, as
defined by statute, include instruments, machines, in vitro reagents or other similar or related
articles, including any components, parts, or accessories of such articles that are intended for
use in the diagnosis of disease or other condition or in the cure, mitigation, treatment or
prevention of disease; or are intended to affect the structure or function of the body and do not
achieve their intended purpose through chemical action or metabolization. The FDA classifies
medical devices intended for human use into three classes. For Class I devices, general controls
(for example, labeling and good manufacturing practices) provide reasonable assurance of safety and
effectiveness. Class II devices are products for which general controls do not provide reasonable
assurance of safety and effectiveness and for which there is sufficient information to establish
special controls (for example, guidelines and patient registries). Class III devices are products
for which neither general nor special controls provide reasonable assurance of safety and
effectiveness. Generally, Class III includes devices that support or sustain human life, are for
uses that are substantially important in preventing impairment of human health, are used as a stand
alone assay for patient screening or diagnosis of disease, or present a potential, unreasonable
risk of illness or injury.
We manufacture a version of the Luminex 100 and Luminex 200 the Luminex 100 Integrated
System (IS) and the Luminex 200 Integrated System (IS), respectively for use with diagnostic
assay kits that are available through our strategic partners. For FDA purposes, the Luminex 100 IS
and Luminex 200 IS are considered a component of our partners kit products. Depending on the
particular kits regulatory classification into Class I, II, or III and its intended use, kits
manufactured by our strategic partners that are used in conjunction with our technology may be
subject to FDA clearance or approval before they can be marketed and sold. After incorporating the
Luminex 100 IS or Luminex 200 IS into their products, our strategic partners are required to make
various premarket submissions such as premarket approval applications, premarket notifications
and/or investigational device exemption applications to the FDA for their products and are required
to comply with numerous requirements and restrictions prior to clearance or approval of the
applications. There can be no assurance that the FDA will file, clear or approve our strategic
partners submissions.
We manufacture kit products that are intended for Research Use Only applications as well as
kits that are of the regulatory classification of Class II exempt in our Austin, Texas facility.
Additionally, LMD manufactures kit products that are IVD cleared as well as intended for Research
Use Only and Investigational Use Only applications.
In 2000, we submitted a device master file (DMF) with information about the Luminex 100 IS to
the FDA. The DMF was updated in 2005 to include the Luminex 200 IS. Our strategic partners can
reference the DMF in their premarket submissions. In 2001, the FDA reviewed our DMF while reviewing
one of our strategic partners submissions, and asked questions of the Company about the content of
the DMF. It is possible that the FDA may ask questions about our DMF each time one of our strategic
partners submits an application to the FDA referencing our DMF. Although we intend to respond to
the FDAs questions in a timely fashion, there can be no assurance that our responses will be
acceptable to the FDA. Updates to the DMF are provided to the FDA as required.
In December, 2007 we submitted to the FDA our request for 510(k) clearance on our LX200 IS. On
December 13, 2007 the FDA received our 510(k) # k073506 submission for the Luminex 200 IS System.
Once the instrument receives 510(k) clearance, all future diagnostic assay kits subject to FDA
clearance will reference the k # for the instrument in their respective applications eliminating
the need for the FDA to review the device master file with each submission.
13
Our instruments use lasers to identify the bioassays and measure their results. Therefore, we
are required to ensure that our products comply with FDA regulations pertaining to the performance
of laser products. These regulations are intended to ensure the safety of laser products by
establishing standards to prevent exposure to excess levels of laser radiation. There can be no
assurance that the FDA will agree with our interpretation and implementation of these regulations.
We, and our strategic partners, may be subject to periodic inspection by the FDA for, among
other things, compliance with the FDAs current good manufacturing practice regulations. These
regulations, also known as the Quality System Regulations, govern the methods used in, and the
facilities and controls used for, the design, manufacture, packaging and servicing of all finished
medical devices intended for human use. Additionally, our strategic partners may be subject to
other premarket and post market controls such as labeling, complaint handling, medical device
reporting, corrections and removals reporting, and record keeping requirements. If the FDA has
evidence demonstrating that a company is not in compliance with applicable regulations, it can
detain or seize products, request or, in certain circumstances, require a recall, impose operating
restrictions, enjoin future violations, recommend criminal prosecution to the Department of
Justice, and assess civil and criminal penalties against the Company, its officers, or its
employees. Other regulatory agencies may have similar powers.
Medical device laws and regulations are also in effect in many countries outside of the United
States. These range from comprehensive preapproval requirements for medical products to simpler
requests for product data or certification. The number and scope of these requirements are
increasing. There can be no assurance that we, and our strategic partners, will be able to obtain
any approvals that may be required to market xMAP technology products outside the United States.
LBG and LMD produce CE marked products which are subject to the EU Directive. CE marking is
self declaration, not issued by a third party. CE Marking is based on mandatory European
Directives adopted and enforced in all member countries of the European Union (EU). A product that
is not CE marked is automatically considered to be non-compliant. The law is enforced through
market surveillance by appointed national enforcement agencies. Imported products are checked for
compliance at customs offices.
The State Food and Drug Administration, P.R. China (SFDA) is the Government regulation
authority in charge of safety management of drug, food, health food and cosmetics for the Peoples
Republic of China. In December 2007 we submitted the application for a certificate to combine both
Luminex 100 and 200 into one product called Luminex System. This certificate is a required
registration and approval to import our products into China.
Failure by us, or our strategic partners, to comply with applicable federal, state and foreign
medical product laws and regulations would likely have a material adverse effect on our business.
In addition, federal, state and foreign regulations regarding the manufacture and sale of medical
devices and components of such devices are subject to future changes. We cannot predict what
impact, if any, such changes might have on our business, but any such change could have a material
impact.
WEEE
As part of the Council Directive 2002/26 of February 13, 2003, Waste Electrical and Electronic
Equipment (WEEE), we are in compliance with the requirements, beginning on August 13, 2005,
regarding the labeling and disposal of some of our products containing electronic devices in each
of the European Union (EU) member states where our regulated products are distributed. While we are
taking steps to comply with the requirements of WEEE, we cannot be certain that we will comply with
the implementation of WEEE in all EU member states.
European IVD Directive
The EUs regulation of in vitro medical devices is under the In Vitro Diagnostic Directive
(IVDD) 98/79/EC of 27 October 1998, as implemented in the EU member states.
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The principle behind the Directive is that no in vitro device or accessory may be placed on
the market or put into service unless it satisfies the essential requirements set forth in the
Directive. Devices considered to meet the
essential requirements must bear the CE marking of conformity when they are placed on the
market. The responsibility for placing the CE marking on the device lies with the manufacturer. A
manufacturer placing devices on the market in its name is required to notify its national competent
authorities.
Luminex Corporation has declared that the LX100 IS and the LX200 IS are classified as a
self-declaration device and is in conformity with Article 1, Article 9, Annex I (Essential
Requirements), and Annex III, and the additional provisions of IVDD 98/79/EC. However, there can
be no assurance that the EU member states will agree with our interpretation and implementation of
these regulations. As the European marketplace continues to be material to our operations, failure
by the Company or its strategic partners to comply with the Directive could have a material adverse
effect on our business.
Environmental
We are subject to federal, state and local laws and regulations relating to the protection of
human health and the environment. In the course of our business, we are involved in the handling,
storage and disposal of certain chemicals and biohazards. The laws and regulations applicable to
our operations include provisions that regulate the discharge of materials into the environment.
Some of these environmental laws and regulations impose strict liability, rendering a party
liable without regard to negligence or fault on the part of such party. Such environmental laws and
regulations may expose us to liability for environmental contamination, including remediation
costs, natural resource damages and other damages as a result of the conduct of, or conditions
caused by, us or others, or for acts that were in compliance with all applicable laws at the time
such acts were performed. In addition, where contamination may be present, it is not uncommon for
neighboring landowners and other third parties to file claims for personal injury, property damage
and recovery of response costs. Although it is our policy to use generally accepted operating and
disposal practices in accordance with applicable environmental laws and regulations, hazardous
substances or wastes may have been disposed or released on, under or from properties owned, leased
or operated by us or on, under or from other locations where such substances or wastes have been
taken for disposal. These properties may be subject to investigation, remediation and monitoring
requirements under federal, state and local environmental laws and regulations. We believe that our
operations are in substantial compliance with applicable environmental laws and regulations.
However, failure to comply with these environmental laws and regulations may result in the
imposition of administrative, civil and criminal penalties or other liabilities. We do not believe
that we have been required to expend material amounts in connection with our efforts to comply with
environmental requirements or that compliance with such requirements will have a material adverse
effect upon our capital expenditures, results of operations or competitive position. Because the
requirements imposed by such laws and regulations may frequently change and new environmental laws
and regulations may be adopted, we are unable to predict the cost of compliance with such
requirements in the future, or the effect of such laws on our capital expenditures, results of
operations or competitive position. Moreover, the modification or interpretation of existing
environmental laws or regulations, the more vigorous enforcement of existing environmental laws or
regulations, or the adoption of new environmental laws or regulations may also negatively impact
our strategic partners, which in turn could have a material adverse effect on us and other
similarly situated component companies.
Employees
As of March 11, 2008, we had a total of 344 employees and contract employees, as compared with
343 as of December 31, 2007. At December 31, 2006 we had 209 employees, including contract
employees. The increase from 2006 to 2007 is mainly due to the 83 employees acquired effective
March 1, 2007 upon the completion of the Tm Bioscience acquisition. None of our employees are
represented by a collective bargaining agreement, and we have not experienced any work stoppage. We
believe that relations with our employees are good.
Segments
Financial information relating to the Companys reportable segments for the years ended
December 31, 2007, 2006, and 2005 can be found in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary
Data.
15
ITEM 1A. RISK FACTORS
We have a limited history of profitability and an accumulated deficit of approximately $87.8
million as of December 31, 2007.
We have incurred significant net losses since our inception, including a loss of $2.7 million
for the year ended December 31, 2007. At December 31, 2007, we had an accumulated deficit of
approximately $87.8 million. Prior to the acquisition, Tm Bioscience had an accumulated deficit of
approximately $74.6 million. In order to become profitable, we need to generate and sustain
substantially higher revenue while achieving reasonable cost and expense levels. If we fail to
develop profitability in line with the expectations of securities analysts or investors, the market
price of our common stock will likely decline. Furthermore, as we continue to utilize cash to
support operations, acquisitions and research and development efforts, we may further decrease the
cash available to the Company. As of December 31, 2007, cash, cash equivalents and short-term and
long-term investments totaled $34.2 million, a decrease of $11.5 million from $45.7 million at
December 31, 2006, primarily attributable to the cash used in the acquisition of Tm Bioscience.
We expect our operating results to continue to fluctuate from quarter to quarter.
The sale of our instrumentation and assay products typically involves a significant technical
evaluation and commitment of capital by the Company, our partners and the end user. Accordingly,
the sales cycle associated with our products typically is lengthy and subject to a number of
significant risks, including partners budgetary constraints, inventory management practices,
regulatory approval and internal acceptance reviews, all of which are beyond our control. As a
result of this lengthy and unpredictable sales cycle, our operating results have historically
fluctuated significantly from quarter to quarter. We expect this trend to continue for the
foreseeable future.
The vast majority of our system sales are made to our strategic partners. Our partners
typically purchase instruments in three phases during their commercialization cycle: first,
instruments necessary to support internal assay development; second, instruments for sales force
demonstrations; and finally, instruments for resale to their customers. As a result, most of our
system placements are highly dependent on the commercialization timetables of our strategic
partners and can fluctuate from quarter to quarter as our strategic partners move from phase to
phase. We expect this trend to continue for the foreseeable future.
Our assay products are sometimes sold to large customers. The ordering and consumption
patterns of these customers can fluctuate, affecting the timing or shipments and revenue
recognition. In addition, certain products assist in the diagnosis of illnesses that are seasonal,
and customer orders can fluctuate for this reason.
Because of the effect of bulk purchases, we continue to experience fluctuations in the
percentage of our quarterly revenues derived from our highest margin items, consumables and
royalties. Our gross margin percentage is highly dependent upon the mix of revenue components each
quarter. These fluctuations contribute to the variability and lack of predictability of both gross
margin percentage and total gross profit from quarter to quarter. We expect this trend to continue
for the foreseeable future.
Due to the early stage of the market for molecular tests, projected growth scenarios for LMD
are highly volatile and are based on a number of underlying assumptions that may or may not prove
to be valid, including the performance of strategic partners that distribute LMD products.
Our success depends significantly on the establishment and maintenance of successful relationships
with our strategic partners. Currently, a limited number of strategic partners constitute a
majority of our revenue and the loss of any one of these partners could have a material adverse
effect on the Company.
16
The development and commercialization of our xMAP technology is highly dependent on our
ability to establish successful strategic relationships with a number of partners. As of December
31, 2007, we had 30 strategic partners who were paying royalties and had either commercialized
products using the Luminex platform or were reselling our products. Furthermore, for the year ended
December 31, 2007, two partners individually represented greater than 10% of the Companys revenue
and collectively represented 35% of total revenue (Bio-Rad Laboratories, Inc.
20%; One Lambda, Inc. 15%). We had two additional partners who individually represented 5%
or more of our total revenue and collectively represented 13% of the Companys revenue for the year
ended December 31, 2007. In total, for the year ended December 31, 2007, we had five partners who
represented 52% of our total revenue. For comparative purposes for the year ended December 31,
2006, two partners individually represented greater than 10% of the Companys revenue and
collectively represented 34% of our total revenue. We had four additional partners who
individually represented 5% or more of our total revenue and collectively represented 27% of the
Companys revenue for the year ended December 31, 2006. In total, for the year ended December 31,
2006, we had six partners who represented 61% of our total revenue. The loss of any of our
significant strategic partners, or any of our significant customers, could have a material adverse
effect on our growth and future results of operations. LMD is dependent on a few significant
customers with respect to sales of its genetic test kits. If any significant customer discontinues
its relationship with LMD for any reason, or reduces or postpones current or expected purchase
commitments for LMDs products, LMDs results from operations could be materially adversely
affected.
Delays in implementation, delays in obtaining regulatory approval, changes in strategy or the
financial difficulty of our strategic partners for any reason could have a material adverse effect
on our business, financial condition and results of operations.
Our ability to enter into agreements with additional strategic partners depends in part on
convincing them that our technology can help achieve and accelerate their goals or efforts. We will
expend substantial funds and management efforts, including through LBG and LMD, with no assurance
that any additional strategic relationships 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 strategic partners will not pursue or develop alternative technologies either on
their own or in collaboration with others. Some of the companies we are targeting as strategic
partners offer products competitive with our xMAP technology, which may hinder or prevent strategic
relationships. 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, lower
margins on our products and limit the creation of market demand and acceptance.
In addition, we have entered into non-exclusive relationships with most of our existing
strategic partners. The lack of exclusivity could deter existing strategic partners from
commercializing xMAP technology and may deter new strategic partners from entering into agreements
with Luminex.
A significant portion of our future revenues will come from sales of our systems and the
development and sale of bioassay kits utilizing our technology by our strategic partners and from
use of our technology by our strategic partners in performing services offered to third parties. We
believe that our strategic partners will have economic incentives to develop and market these
products, but we cannot predict future sales and royalty revenues because most of our existing
strategic partner agreements do not include minimum purchase requirements or royalty commitments.
In addition, we have no control with respect to our strategic partners sales personnel and how
they prioritize products based on xMAP technology nor can we control the timing of the release of
products by our strategic partners. 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 develop and market products incorporating our technology.
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 successfully develop and market products based on
our technology and obtain necessary government approvals, our revenues from product sales and
royalties will be significantly reduced.
If the FDA or other government agencies guidelines change in ways that we do not anticipate and we
fail to comply with those 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, testing, labeling, marketing and distribution of our products for some
purposes and products based on our technology are subject to governmental regulation by the United
States Food and Drug Administration (FDA) and by similar agencies in other countries. Some of our
products and products based on our technology for in vitro diagnostic purposes are subject to
clearance by the FDA prior to marketing for commercial use. To date, 8 strategic partners have
obtained such clearances. Others are anticipated. The process of obtaining necessary FDA
clearances can be time-consuming, expensive and uncertain. Further, clearance may place
substantial restrictions on the indications for which the product may be marketed or to whom it may
be marketed. In addition, because some of our products employ laser technology, we are also
required to comply with FDA requirements relating to radiation performance safety standards (21 CFR
1040.1 and 1040.11).
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Periodically FDA issues guidance documents that represent FDAs current thinking on a topic.
These issues are initially issued in draft form prior to final rule generally with enforcement
discretion for some grace period of time. Changes made through this process may impact the release
status of products offered and our ability to market those products affected by the change.
For example, the FDA released on September 14, 2007 the final document Guidance for Industry
and FDA Staff Commercially Distributed Analyte Specific Reagents (ASRs): Frequently Asked
Questions. This guidance may limit or delay distribution of assays on our platform, including
assays developed and distributed by LMD, to the extent additional regulatory clearance is required
prior to distribution. The final document was released with an enforcement discretion period of one
year from date of issue.
Cleared medical device products are subject to continuing FDA requirements relating to, among
others, manufacturing quality control and quality assurance, maintenance of records and
documentation, registration and listing, import/export, adverse event and other reporting,
distribution, labeling and promotion and advertising 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 regulatory enforcement
action, including warning letters, product seizures, recalls, withdrawal of clearances,
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 clearance requirements for some or all of our medical
device products to requests for product data or certifications. As part of the Council Directive
2002/96 of February 13, 2003 (WEEE), we are expected to comply with certain requirements regarding
the labeling of our products containing electronic devices beginning on August 13, 2005 in each of
the EU member states where our regulated products are distributed. While we are taking steps to
comply with the requirements of WEEE, we cannot be certain that we will comply with the national
stage implementation of WEEE in all member states. Our products are currently exempt from the
Council Directive 2002/95 of January 27, 2003, Restriction of Hazardous Substances (RoHS), which
requires the removal of certain specified hazardous substances for certain products beginning July
1, 2006 in each of the member states. However, the European Union has indicated that it may
include medical devices, including some of our products, under the jurisdiction of RoHS. 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.
Our strategic partners and customers expect our organization to operate on an established
quality management system compliant with FDA Quality System Regulations and industry standards, the
In Vitro Diagnostic Directive 98/79/EC of 27 October 1998 (Directive) as implemented nationally
in the EU member states and industry standards, such as ISO 9000. We became ISO 9001:2000
certified in March 2002 and self-declared our Luminex 100 and Luminex 200 devices are in conformity
with Article 1, Article 9, Annex I (Essential Requirements), and Annex III, and the additional
provisions of the Directive as of December 7, 2003. Subsequent audits are carried out annually to
ensure we maintain our system in substantial compliance with ISO and other applicable regulations
and industry standards. We became ISO 13485:2003 and Canadian Medical Device Conformity Assessment
System (CMDCAS) certified in July 2005. In August 2006 a Level II QSIT contract inspection was
conducted in accordance with CPGM 7382.845, Inspection of Medical Device Manufacturers, PAC 82845B,
Medical Device Level II Inspections pursuant to the FDA Dallas District Office FY 06 Workplan and
the DSHS Drugs & Medical Device Group FY 06 Workplan. The inspection is closed under 21 C.F.R.
20.64 (d) (3) and the Establishment Inspection Report No. 3002524000 provided in accordance with
the FOIA and 21 C.F.R. Part 20. No DSHS form E-14 or FDA form 483 was issued. Failure to maintain
compliance with FDA, CMDCAS and EU regulations and other medical device laws, or to obtain
applicable registrations where required, could reduce our competitive advantage in the markets in
which we compete and also decrease satisfaction and confidence levels with our partners.
18
Beginning on January 1, 2007, the State of California put into effect a measure under WEEE,
which imposes similar requirements to the EUs directive under RoHS. This measure requires the
California Department of Toxic Substances Control to adopt regulations to prohibit the sale of
electronic devices if they are prohibited from sale in the European Union because they contain
certain heavy metals.
If our technology and products do not become widely used in the life sciences industry, it is
unlikely that we can maintain or increase profitability.
Life sciences companies have historically conducted biological tests using a variety of
technologies, including bead-based analysis. In certain testing areas, our xMAP technology is
relatively new and unproven, and the use of our technology by life sciences companies is limited.
The commercial success of our technology will depend upon its widespread adoption as a method to
perform bioassays. In order to be successful, we must convince potential partners to utilize our
system instead of competing technologies. Market acceptance will depend on many factors, including
our ability to:
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convince prospective strategic partners and customers that our technology is an attractive alternative to other
technologies for pharmaceutical, research, clinical and biomedical testing and analysis; |
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encourage these partners to develop and market products using our technology; |
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manufacture products in sufficient quantities with acceptable quality and at an acceptable cost; |
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obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and |
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place and service sufficient quantities of our products, including the ability to provide the level of service required in
the mainstream clinical diagnostics market segment. |
Because of these and other factors, our products may not gain or sustain sufficient market
acceptance to again achieve, maintain or increase profitability.
Our reliance on strategic partners to market our products makes forecasting difficult.
Primarily as a result of our reliance on partner performance, it is difficult to accurately
forecast future operating results. Our operating expenses are largely based on anticipated revenue
trends, and a high percentage of our expenses are, and will continue to be, fixed in the
short-term. The level of our revenues will depend upon the rate and timing of the adoption of our
technology as a method to perform bioassays. In addition, we currently anticipate that the vast
majority of future sales of our products and products incorporating our technology will be made by
our strategic partners. For the following reasons, estimating the timing and amount of sales of
these products that may be made by our strategic partners is particularly difficult:
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We have no control over the timing or extent of product development,
marketing or sale of our products by our strategic partners. |
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Most of our strategic partners are not committed to minimum purchase
commitments, and we do not control the incentives provided by our
strategic partners to their sales personnel. |
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A significant number of our strategic partners intend to produce
clinical diagnostic applications that may need to be approved by the
FDA, or other regulatory bodies in jurisdictions outside of the United
States. |
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Certain strategic partners may have unique requirements for their
applications and systems. Assisting the various strategic partners
may strain our research and development and manufacturing resources.
To the extent that we are not able to timely assist our strategic
partners, the commercialization of their products will likely be
delayed. |
19
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Certain strategic partners may fail to deliver products that satisfy
market requirements, or such products may fail to perform properly. |
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We have limited access to partner confidential corporate information.
A sudden unexpected change in ownership, strategy or other material
event could adversely impact partner purchases of our products. |
The life sciences industry is highly competitive and subject to rapid technological change, and we
may not have the resources necessary to compete successfully.
We compete with companies in the United States and abroad that are engaged in the development
and production of similar products. We will continue to face intense competition from existing
competitors and other companies seeking to develop new technologies. Many of our competitors have
access to greater financial, technical, scientific, research, marketing, sales, distribution,
service and other resources than we do. These companies may develop technologies that are superior
alternatives to our technologies or may be more effective at commercializing their technologies in
products.
The life sciences industry is characterized by rapid and continuous technological innovation.
We may need to develop new technologies for our products to remain competitive. One or more of our
current or future competitors could render our present or future products obsolete or uneconomical
by technological advances. In addition, the introduction or announcement of new products by us or
others could result in a delay of or decrease in sales of existing products, as we await regulatory
approvals and as customers evaluate these new products. We may also encounter other problems in the
process of delivering new products to the marketplace, including products from LBG and LMD, such as
problems related to design, development or manufacturing of such products, and as a result we may
be unsuccessful in selling such products. Our future success will depend on our ability to compete
effectively against current technologies, as well as to respond effectively to technological
advances by developing and marketing products that are competitive in the continually changing
technological landscape.
Our success depends on our ability to service and support our products directly or in collaboration
with our strategic partners.
To the extent that the Company or its strategic partners fail to maintain a high quality level
of service and support for xMAP technology products, there is a risk that the perceived quality of
our xMAP technology products will be diminished in the marketplace. Likewise, the Company may fail
to provide the level, quantity or quality of service expected by the marketplace. This could
result in slower adoption rates and lower than anticipated utilization of xMAP products causing a
material adverse affect on our business.
The property rights we rely upon to protect the technology underlying our products may not be
adequate to maintain market exclusivity. Inadequate intellectual property protection could enable
third parties to exploit our technology or use very similar technology and could reduce our ability
to distinguish our products in the market.
Our success will depend, in part, on our ability to obtain, protect and enforce patents on our
technology and products and to protect our trade secrets, including the intellectual property of
entities we may acquire. Any patents we own may not afford full protection for our technology and
products. Others may challenge our patents and, as a result, our patents could be narrowed or
invalidated. 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 that are not
covered by our patents. Further, there is a substantial backlog of patent applications at the U.S.
Patent and Trademark Office and certain patent offices in foreign jurisdictions, and the approval
or rejection of patent applications may take several years.
We have obtained 63 patents in the United States and foreign jurisdictions directed to various
aspects and applications of our products and technology. We have 177 pending applications in the
United States and foreign jurisdictions. In Japan, due to a procedural omission, we are unable to
obtain patent protection for our method of real time detection and quantification of multiple
analytes from a single sample on our platform technology similar to the protection we have obtained
in the United States. Although we are pursuing patent protection in Japan for other aspects of our
technology and products, we may not be able to prevent competitors from developing and
marketing technologies and products similar to our xMAP technology in Japan. We also have
patents covering key aspects of xTAG technology utilized in LMDs assay products.
20
We require our employees, consultants, strategic partners and other third parties to execute
confidentiality agreements. Our employees and third-party consultants also sign agreements
requiring that they assign to us their interests in inventions and original expressions and any
corresponding patents and copyrights arising from their work for us. In addition, the Company has
implemented a patent process to file patent applications on its key technology. However, we cannot
guarantee that these agreements or this patent process will provide us with adequate protection
against improper use of our intellectual property 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
technology, techniques and products 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/or divert managements attention from
other business concerns. These proceedings may cause us to lose the benefit of some of our
intellectual property rights, the loss of which may inhibit or preclude our ability to exclude
certain competitors from the market. We also may 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 ours.
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 the intellectual property rights of others, including claims
with respect to intellectual property of entities we may acquire. In addition, we may find it
necessary, if threatened, to initiate a lawsuit seeking a declaration from a court that we do not
infringe on the proprietary rights of others or that their rights are invalid or unenforceable.
Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation
could affect our profitability. Furthermore, litigation is time consuming and could divert
managements attention and resources away from our business. If we do not prevail in any
litigation, we may have to pay damages and could be required to stop the infringing activity or
obtain a license. Any required license may not be available to us on acceptable terms, if at all.
Moreover, 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 require collaboration with other organizations in obtaining relevant biomarkers, access to
oligonucleotides, enzymes that are patents or controlled by others. If we cannot continue to
obtain access to these areas or identify freedom to operate opportunities this could affect our
future sales and profits.
We have only produced our products in limited quantities, and we may experience problems in scaling
our manufacturing operations or delays or component shortages that could limit the growth of our
revenue.
To date, we have produced our products in limited quantities compared to the quantities
necessary to achieve desired revenue growth. We may not be able to produce sufficient quantities or
maintain consistency between differing lots of consumables. If we encounter difficulties in scaling
our manufacturing operations as a result of, among other things, quality control and quality
assurance and availability of component and raw material supplies, we will likely experience
reduced sales of our products, increased repair or re-engineering costs due to product returns and
defects and increased expenses due to switching to alternate suppliers, any of which would reduce
our revenues and gross margins.
21
We presently outsource certain aspects of the assembly of our systems to contract
manufacturers. Because of a long lead-time to delivery, we are required to place orders for a
variety of items well in advance of scheduled production runs. We recently increased our
flexibility to purchase strategic components within shorter lead times by entering into supply
agreements with the suppliers of these components. Although we attempt to match our parts
inventory and production capabilities to estimates of marketplace demand, to the extent system
orders materially vary from our estimates, we may experience continued constraints in our systems
production and delivery capacity, which could adversely impact revenue in a given fiscal period.
Should the Companys need for raw materials and components used in production continue to
fluctuate, we could incur additional costs associated with either expediting or postponing delivery
of those materials. In an effort to control costs, in the last quarter of 2005 manufacturing
implemented a lean production system. Managing the change from discrete to continuous flow
production requires time and management commitment. Implementation of lean initiatives and our
supply chain capabilities may result in part shortages that delay shipments and cause fluctuations
in revenue in a given period.
Certain key components of our product line are currently purchased from a limited number of
outside sources and may only be available through a limited number of providers. We do not have
agreements with all of our suppliers. Our reliance on our suppliers and contract manufacturers
exposes us to risks including:
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the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with the Company
could terminate their services at any time without penalty; |
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the potential obsolescence and/or inability of our suppliers to obtain required components; |
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the potential delays and expenses of seeking alternate sources of supply or manufacturing services; |
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the inability to qualify alternate sources without impacting performance claims of our products; |
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reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or
assemblers; and |
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increases in prices of raw materials and key components. |
Consequently, in the event that supplies of components or work performed by any of our
assemblers are delayed or interrupted for any reason, our ability to produce and supply our
products could be impaired.
The capital spending policies of our customers has a significant effect on the demand for our
products.
Our customers include clinical diagnostic, pharmaceutical, biotechnological, 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 governmental regulation or price controls, the resources available for purchasing
research equipment, the spending priorities among various types of analytical 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. As a result, we are
subject to significant volatility in revenue. Therefore, our operating results can be materially
affected (negatively and positively) by the spending policies and priorities of our customers.
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 biotechnological, human (including genetic) diagnostic
and therapeutic products. Although we believe that we are reasonably insured against these risks
and we generally have limited indemnity protections in our supplier agreements, 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 claim that is outside or exceeds our indemnity protections in our
supplier agreements or a recall of one of our products would have to be paid out of our cash
reserves.
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If third-party payors increasingly restrict payments for healthcare expenses or fail to adequately
pay for multi-analyte testing, we may experience reduced sales which would hurt our business and
our business prospects.
Third-party payors, such as government entities and healthcare programs, health maintenance
organizations and private insurers, are continually seeking to reduce healthcare expenses. The
federal government has also recently reduced the funding for certain government sponsored
healthcare programs which has caused these third party payors to seek further reduction in medical
expenses. These reductions 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 healthcare products. In addition,
cost containment initiatives by governmental or educational entities or programs may reduce funding
for genetic research and development activities and retard the growth of the genetic testing
marketing. 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.
We may in the future incur substantial debt that could restrict our operations.
We may incur indebtedness in the future for, among other purposes, funding operating expenses
and/or costs related to future expansions and acquisitions. This indebtedness could have adverse
consequences on us, including:
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limiting our ability to compete and our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate; |
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limiting our ability to borrow additional funds for working capital, capital and
research and development expenditures, acquisitions and general corporate or other
purposes; and |
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exposing us to interest rate risk. |
To the extent incurred, our debt service obligations will require us to use a portion of our
operating cash flow to pay interest and principal on indebtedness instead of for other corporate
purposes, including funding future expansion of our business and ongoing capital expenditures. Our
ability to repay or refinance our debt will depend on our successful financial and operating
performance. Our financial and operating performance depends upon a number of factors, many of
which are beyond our control, as further described in these Risk Factors.
We may be unsuccessful in implementing our acquisition strategy. We may face difficulties
integrating acquired entities with our existing businesses.
Acquisitions of assets or entities designed to accelerate the implementation of our strategic
plan are an element of our long-term strategy. We may be unable to identify and complete
appropriate acquisitions in a timely manner and no assurance can be provided that the market price
of potential business acquisitions will be acceptable. In addition, many of our competitors have
greater financial resources than we have and may be willing to pay more for these businesses or
selected assets. Should we identify suitable acquisition targets, we may be unable to complete
acquisitions or obtain the financing, if necessary, for these acquisitions on terms favorable to
us.
Potential acquisitions pose a number of risks, including, among others, that:
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we may not be able to accurately estimate the financial effect of acquisitions on our
business; |
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future acquisitions may require us to assume liabilities, incur large and immediate
write-offs, issue capital stock potentially dilutive to our stockholders or spend
significant cash or may result in a decrease in our future operating income or operating
margins; |
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we may be unable to realize the anticipated benefits and synergies from acquisitions as
a result of inherent risks and uncertainties, including difficulties integrating acquired
businesses or retaining their key personnel, partners, customers or other key
relationships, entering market segments in which we have no or limited experience, and
risks that acquired entities may not operate profitably or that acquisitions may not result
in improved operating performance; and |
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acquisitions and subsequent integration of these companies may disrupt our business and
distract our management from other responsibilities. |
Other risks of integration include:
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disparate information technology, internal control, financial reporting and record-keeping systems; |
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differences in accounting policies, including those requiring judgment or complex estimation processes; |
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new partners or customers who may operate on terms and programs different than ours; |
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additional employees not familiar with our operations; |
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facilities or operations in remote locations or potentially foreign jurisdictions and
the inherent risks of operating in unfamiliar legal and regulatory environments; and |
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new products, including the risk that any underlying intellectual property associated
with such products may not have been adequately protected or that such products may
infringe on the proprietary rights of others. |
We rely on the innovation and resources of larger industry participants and public programs to
advance genomic research and educate physicians/clinicians on genetic diagnostics.
The linkages between genetic anomalies that the Companys products detect and the underlying
disease states are not always fully medically correlated. Additionally, the availability of
correlated genetic markers is dependent on significant investment in genomic research, often funded
through public programs for which there are no assurances of on-going support. Should any
government limit patent rights to specific genetic materials, private investment in this area could
also be significantly curtailed. In addition, the adoption of genetic diagnostics is dependent to a
great extent on the education and training of physicians and clinicians. The Company does not have
the resources to undertake such training, and is relying on larger industry participants and
professional medical colleges to establish, communicate and educate physicians and clinicians on
best practices related to genetic diagnostics.
We are subject to evolving legislative, judicial and ethical standards on use of technology and
biotechnology.
The adoption of genetic testing is occurring within the broader context of a myriad of
decisions related to genetic patenting and genotyping. Issues associated with health insurance,
data access, intellectual property protection, national and international legislative initiatives
and other variables may have a significant impact on the wide spread adoption of genetic testing or
on specific segments or tests within the genetic testing market.
Our operating results may be affected by current economic and political conditions.
The ongoing uncertainty in the Global Finance Markets and events in the Middle East and
concern for future terrorist attacks leave many economic and political uncertainties. Furthermore,
foreign stock markets have been volatile and equally sensitive to global geopolitical concerns and
terrorist threats. These uncertainties could adversely affect our business and revenues in the
short or long term in ways that cannot presently be predicted.
International business operations create additional operational and legal risk.
Our operations outside the United States are subject to additional risks, including:
|
|
|
changes in or interpretations of foreign law that may adversely affect our ability
to sell our products, perform services or repatriate profits to the United States; |
|
|
|
|
the imposition of tariffs; |
|
|
|
|
hyperinflation or economic or political instability in foreign countries; |
|
|
|
|
imposition of limitations on or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries; |
|
|
|
|
conducting business in places where business practices and customs are unfamiliar
and unknown; |
24
|
|
|
the imposition of restrictive trade policies, including export restrictions; |
|
|
|
|
worldwide political conditions; |
|
|
|
|
the imposition of inconsistent laws or regulations; |
|
|
|
|
the imposition or increase of investment requirements and other restrictions by
foreign governments; |
|
|
|
|
longer collection cycles for account receivables; |
|
|
|
|
uncertainties relating to foreign laws, including labor laws, and legal
proceedings; |
|
|
|
|
currency exchange rate risks; |
|
|
|
|
having to comply with a variety of U.S. laws, including the Foreign Corrupt
Practices Act; and |
|
|
|
|
having to comply with U.S. export control regulations and policies that restrict our
ability to communicate with non-U.S. employees and supply foreign affiliates, partners
and customers. |
Our success will depend on our ability to attract and retain our management and staff.
We depend on the principal members of our management and scientific staff, including our chief
executive officer, Patrick Balthrop, and our operations, marketing, research and development,
technical support, technical service and sales staff. The loss of services of key members of
management could delay or reduce our product development, marketing and sales and technical support
efforts. In addition, recruiting and retaining qualified scientific and other personnel to perform
research and development, technical support, technical service and marketing and sales 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 necessary to achieve our business
objectives.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue to be highly volatile
and subject to wide fluctuations in price. This volatility is in response to various factors, many
of which are beyond our control, including:
|
|
actual or anticipated variations in quarterly operating results from historical results or estimates of results prepared by
securities analysts; |
|
|
|
announcements of technological innovations or new products or services by us or our competitors; |
|
|
|
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
|
|
|
conditions or trends in the life science, biotechnology and pharmaceutical industries; |
|
|
|
additions or departures of key personnel; |
|
|
|
changes in financial estimates by securities analysts; |
|
|
|
general economic conditions and interest rates; |
|
|
|
instability in the United States and other financial markets and the ongoing and possible escalation of unrest in the
Middle East, other armed hostilities or further acts or threats of terrorism in the United States or elsewhere; |
|
|
|
sales of our common stock; and |
|
|
|
the potential adverse impact of the secondary trading of our stock on foreign exchanges which are subject to less
regulatory oversight than the Nasdaq Global Market, without our permission, and the activity of the market makers of our
stock on such exchanges, including the risk that such market makers may engage in naked short
sales and/or other deceptive trading practices which may artificially depress or otherwise affect
the price of our common stock on the Nasdaq Global Market. |
25
In addition, the stock market in general, and the Nasdaq Global 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 companys 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 managements attention and resources.
Anti-takeover provisions in our certificate of incorporation, bylaws and stockholder rights plan
and Delaware law could make a third party acquisition of us difficult.
Our certificate of incorporation, bylaws and stockholder rights plan 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. We are also subject to certain provisions of Delaware law that could delay,
deter or prevent a change in control of us. These provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company has its principal research and development, manufacturing and administrative
facilities located in Austin, Texas, which consists of approximately 109,000 square feet of leased
space pursuant to a lease agreement which expires July 31, 2010. The Company maintains an
additional 10,172 square feet of leased space at its European subsidiary, Luminex, B.V. and
approximately 27,000 square feet of leased office and manufacturing space in Toronto, Canada. We
believe these facilities are adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 2005, the Company was served with a complaint, filed by Rules Based Medicine,
Inc. (RBM) in state district court in Travis County, Texas seeking a declaratory judgment that
the formation of HealthMAP Laboratories, Inc. (subsequently renamed the Biophysical Corporation)
did not constitute a usurpation of an RBM corporate opportunity and that RBM has the necessary
contractual license rights under its existing agreement with the Company to perform certain testing
services on behalf of BioPhysical Corporation. On May 19, 2005, we filed an answer to this
complaint denying all claims brought by RBM. On June 21, 2005, the parties entered into an
agreement, which was subsequently entered with the court on June 22, 2005. Pursuant to this
agreement, the parties agreed that RBM would not file any claims related to this matter against the
Company until August 1, 2005, and that the Company would not file any claims related to this matter
against RBM until August 16, 2005, in order to continue to pursue settlement negotiations. The
parties were unable to reach agreement on the terms of settlement. RBM re-filed its lawsuit
against us on August 12, 2005, seeking a declaratory judgment against us as set forth above. In
response, we re-filed its answer and counterclaims against RBM, as well as new claims against Mark
Chandler and Craig Benson, officers of RBM, on August 19, 2005.
The Company settled its pending litigation with RBM on October 15, 2007. As part of the
settlement, Luminex received a cash payment of $12.5 million. The cash payment was made by RBM in
exchange for resolution of the dispute between the companies regarding Biophysical Corporation as
well as the retirement of Luminexs stock ownership in RBM and the grant of certain additional
licensing rights from Luminex. All other terms of the agreement are confidential. The parties
formally dismissed the lawsuit on October 24, 2007, as required by the settlement agreement.
26
On January 16, 2008, Luminex Corporation and Luminex Molecular Diagnostics, Inc. were served
with a complaint, filed by The Research Foundation of the State University of New York (SUNY) in
Federal District Court for the Northern District of New York, alleging, among other claims, that
LMD breached its license agreement with SUNY by failing to pay royalties allegedly owed under the
agreement. The complaint seeks an undetermined amount of damages as well as injunctive relief. On
February 9, 2008, Luminex and LMD filed an answer to this complaint denying all claims brought by
SUNY. There can be no assurance that we will successfully defend this suit or that a judgment
against us would not materially adversely affect our operating results.
When and if, it appears probable in managements judgment that we will incur monetary damages
or other costs in connection with any claims or proceedings, and such costs can be reasonably
estimated, liabilities are recorded in the financial statements and charges are recorded against
earnings. Though there can be no assurances, our management believes that the resolution of
existing routine matters and other incidental claims, taking into account accruals and insurance,
will not have a material adverse effect on our financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
27
Executive Officers of the Registrant as of March 12, 2008
|
|
|
|
|
Name |
|
Age |
|
Position |
|
Patrick J. Balthrop |
|
51 |
|
President and Chief Executive Officer |
Douglas C. Bryant |
|
50 |
|
Executive Vice President and Chief Operating Officer |
Russell W. Bradley |
|
44 |
|
Vice President, Business Development and Strategic Planning |
Jeremy Bridge-Cook, Ph.D |
|
39 |
|
Vice President, Luminex Molecular Diagnostics |
John C. Carrano, Ph.D |
|
49 |
|
Vice President, Research and Development |
Harriss T. Currie |
|
46 |
|
Chief Financial Officer, Vice President, Finance and Treasurer |
Gregory J. Gosch |
|
45 |
|
Vice President, Luminex Bioscience Group |
David S. Reiter |
|
41 |
|
Vice President, General Counsel and Corporate Secretary |
Patrick J. Balthrop. Mr. Balthrop joined the Company in May 2004 as President and Chief
Executive Officer and has served as a member of the Board of Directors and a member of the
Executive Committee since September, 2004. He served as president of Fisher Healthcare, a Fisher
Scientific company, from 2002 to May 2004. Prior to Fisher Scientific International, Mr. Balthrop
served in a number of leadership positions for over 20 years with Abbott Laboratories, primarily in
Abbotts Diagnostics Division. Mr. Balthrops most recent positions at Abbott were as head of
worldwide commercial diagnostics operations and as head of Abbott Vascular. Mr. Balthrop holds an
M.B.A. from the Kellogg Graduate School of Management of Northwestern University, and a B.S. in
Biology from Spring Hill College.
Douglas C. Bryant. Mr. Bryant joined the Company in July 2007 as Executive Vice President and
Chief Operating Officer. Previously, Mr. Bryant served as Vice President, Abbott Vascular, Asia and
Japan, a division of Abbott Laboratories, a broad-based health care company. Mr. Bryant previously
served as Vice President, Global Commercial Operations for Abbott Diagnostics and Abbott Molecular
and also ran Abbotts Diagnostics Operations in Asia Pacific and Europe Africa and the Middle East.
Mr. Bryant has over 23 years of industry experience in sales and marketing, product development,
manufacturing and service and support in both the life sciences and diagnostics markets.
Mr. Bryant has a Bachelor of Arts in Economics from the University of California, Davis.
Russell W. Bradley. Mr. Bradley joined the Company in May 2005 as Vice President of Business
Development and Strategic Planning. Previously, Mr. Bradley spent 17 years at Beckman Coulter
Corp. where he served as the Director of the Beckman Coulter CARES initiative, involved in the
companys clinical HIV/AIDS monitoring business in developing regions around the globe. During his
tenure at Beckman Coulter, Mr. Bradley was involved in the evaluation, market assessment and
successful commercial launch of multiple life science technologies and applications. Mr. Bradley
holds a B.S. in Immunology and Biochemistry from Monash University, Melbourne, Australia.
Jeremy Bridge-Cook, Ph.D. Dr. Bridge-Cook joined the Company in March, 2007 as Vice President
of Luminex Molecular Diagnostics. Previously, Dr. Bridge-Cook served as Sr. Vice President,
Corporate Development of Tm Bioscience. Dr. Bridge-Cook joined Tm Bioscience in July 2000 as
Director of Business Development and served in various capacities thereafter, including Vice
President of Business Development, Vice President of Marketing & Business Development, and finally
Sr. Vice President, Corporate Development. Prior to joining Tm, Dr. Bridge-Cook worked for three
years as an Investment Analyst at MDS Capital Corp. and University Medical Discoveries Inc. Dr.
Bridge-Cook has a Ph.D. in immunology from the University of Toronto.
John C. Carrano, Ph.D. Dr. Carrano joined the Company in July 2005, and was appointed Vice
President, Research and Development in July 2006. Dr. Carrano formerly served as Executive
Director, Research and Development. Prior to joining Luminex, Dr. Carrano was a program manager at
DARPA where he led several major Defense Department programs related to biological and chemical
sensing. His other recent positions include Assistant Professor of Electrical Engineering,
Department of Electrical Engineering and Computer Science, United States Military Academy, and
Research Scientist, U.S. Army Research Laboratory, Adelphi MD. In June 2005, Dr. Carrano retired
from the military as a Lieutenant Colonel after 24 years of service. Dr. Carrano received his
B.S., from the United States Military Academy, West Point, in 1981, and received his M.S. and Ph.D.
in Electrical Engineering from the University of Texas at Austin. Dr. Carrano is also a graduate
of the U.S. Army Command and General Staff College. Dr. Carrano is a member of Phi Kappa Phi, Eta
Kappa Nu, OSA, SPIE, and IEEE.
28
Harriss T. Currie. Mr. Currie has served as Vice President, Finance, Treasurer and Chief
Financial Officer since October of 2003. Since joining the Company in November of 1998, Mr. Currie
previously served in the capacities of Controller, Treasurer and Acting Chief Financial Officer.
Prior to joining us, he was employed as the Chief Financial Officer, Secretary and Treasurer of
SpectraCell Laboratories from 1993 to 1998 where he also served as Vice President of Finance for
two subsidiary companies. Mr. Currie earned his B.B.A. from Southwestern University and his M.B.A.
in Finance and Marketing from The University of Texas at Austin. Prior to returning to graduate
school for his M.B.A., Mr. Currie was a certified public accountant with Deloitte & Touche LLP.
Gregory J. Gosch. Mr. Gosch joined the Company in October 2004, and currently serves as
Vice President, Luminex Bioscience Group. Since joining the Company, Mr. Gosch previously
served in the capacity of Vice President, Marketing and Sales. Previously, he served as Senior
Director of Sales and Marketing for Nanogen from 1999 to 2004 where he was responsible for
worldwide marketing and U.S. sales. From 1997 to 1999, he served as Market Development Manager for
Chiron Corporation. In addition, Mr. Gosch has held various sales and marketing positions at
Meridian Diagnostics and Bio-Rad Laboratories, Inc. Mr. Gosch holds an M.B.A. from the Carlson
School of Management, a Masters of Health Care Administration from the School of Public Health,
both of the University of Minnesota, and a B.A. in Molecular, Cellular and Developmental Biology
from the University of Colorado.
David S. Reiter. Mr. Reiter joined the Company as Vice President, General Counsel and
Corporate Secretary in October, 2003. Prior to becoming General Counsel, Mr. Reiter was in private
practice with the firm of Phillips & Reiter, PLLC, which provides outsourced general counsel
services for technology companies. Before co-founding the firm, Mr. Reiter was Vice President and
General Counsel for 724 Solutions Inc., a provider of mobile commerce software solutions and
applications (NASDAQ: SVNX). Earlier in his career, Mr. Reiter served as senior counsel for Compaq
Computer Corporation, supporting the Worldwide Sales & Services, Supply Chain Management and
Consumer Products Group. Mr. Reiter is a graduate of the University of Southern California (Juris
Doctorate/Master of International Relations), University of Sheffield, UK (M.B.A.) and the
University of Notre Dame (B.A.) in Government. Mr. Reiter is a member of the Texas Bar and is the
chair of the Subcommittee on Law Department Management for the American Bar Association.
29
PART II
|
|
|
ITEM 5. |
|
MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock is traded on the Nasdaq Global Market under the symbol LMNX.
The following table sets forth the range of high and low sale prices on The Nasdaq Stock
Market and/or Nasdaq Global Market, as applicable, for each quarter during 2007 and 2006. On March
11, 2008, the last reported sale price of our common stock was $16.46 per share.
|
|
|
|
|
|
|
|
|
2007 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
16.82 |
|
|
$ |
12.08 |
|
Second Quarter |
|
$ |
14.71 |
|
|
$ |
11.44 |
|
Third Quarter |
|
$ |
17.30 |
|
|
$ |
11.62 |
|
Fourth Quarter |
|
$ |
17.77 |
|
|
$ |
14.11 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
15.48 |
|
|
$ |
11.55 |
|
Second Quarter |
|
$ |
18.03 |
|
|
$ |
12.83 |
|
Third Quarter |
|
$ |
20.19 |
|
|
$ |
14.41 |
|
Fourth Quarter |
|
$ |
20.75 |
|
|
$ |
11.82 |
|
Holders
As of March 11, 2008, we had 599 holders of record of our common stock. Because many of our
shares are held by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of beneficial stockholders represented by these record holders.
Dividends
We have never declared or paid cash dividends on our common stock and, while this policy is
subject to periodic review by our board of directors, we currently intend to retain any earnings
for use in our business and do not anticipate paying cash dividends in the foreseeable future. Our
ability to declare dividends may also from time to time be limited by the terms of our credit
facility.
Recent Sales of Unregistered Securities
None.
30
Performance Graph
The following graph compares the change in Luminexs cumulative total shareholder return on
its common shares with the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Luminex Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
|
|
|
* |
|
$100 invested on 12/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
Luminex Corporation |
|
|
100.00 |
|
|
|
228.22 |
|
|
|
216.06 |
|
|
|
282.73 |
|
|
|
309.00 |
|
|
|
395.13 |
|
NASDAQ Composite |
|
|
100.00 |
|
|
|
149.75 |
|
|
|
164.64 |
|
|
|
168.60 |
|
|
|
187.83 |
|
|
|
205.22 |
|
NASDAQ Biotechnology |
|
|
100.00 |
|
|
|
146.95 |
|
|
|
164.05 |
|
|
|
185.29 |
|
|
|
183.09 |
|
|
|
186.22 |
|
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2007 was as follows:
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUER PURCHASES OF EQUITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Appromixate Dollar Value of |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Purchased as Part of |
|
|
Shares that May Yet Be |
|
|
|
Shares |
|
|
Paid per Share |
|
|
Publicly Announced |
|
|
Purchased Under the Plans or |
|
Period |
|
Purchased |
|
|
($)(1) |
|
|
Plans of Programs |
|
|
Programs ($) |
|
10/1/07 - 10/31/07 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
11/1/07 - 11/30/07 |
|
|
58 |
|
|
$ |
14.99 |
|
|
|
|
|
|
|
|
|
12/1/07 - 12/31/07 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Third Quarter |
|
|
58 |
|
|
$ |
14.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shares repurchased are attributable to the withholding of shares by Luminex to satisfy the
payment of tax obligations related to the vesting of restricted shares. |
32
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and with Managements Discussion and Analysis
of Financial Condition and Results of Operations and other financial data included elsewhere in
this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended
December 31, 2007, 2006 and 2005 and the consolidated balance sheet data at December 31, 2007 and
2006 are derived from the audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. The consolidated statement of operations data for the years ended
December 31, 2004 and 2003 and the consolidated balance sheet data at December 31, 2005, 2004 and
2003 are derived from audited consolidated financial statements not included in this Annual Report
on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Results of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
75,010 |
|
|
$ |
52,989 |
|
|
$ |
42,313 |
|
|
$ |
35,880 |
|
|
$ |
26,292 |
|
Gross profit |
|
|
46,094 |
|
|
|
32,252 |
|
|
|
22,321 |
|
|
|
14,722 |
|
|
|
9,830 |
|
Loss from operations |
|
|
(17,418 |
) |
|
|
(581 |
) [1] |
|
|
(3,496 |
) |
|
|
(4,164 |
) |
|
|
(6,475 |
) |
Net (loss) income |
|
|
(2,711 |
) |
|
|
1,507 |
[1] |
|
|
(2,666 |
) |
|
|
(3,605 |
) |
|
|
(4,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders |
|
$ |
(2,711 |
) |
|
$ |
1,507 |
|
|
$ |
(2,666 |
) |
|
$ |
(3,605 |
) |
|
$ |
(4,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share, basic |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
[1] |
|
$ |
(0.09 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net (loss) income per
share, basic |
|
|
34,361 |
|
|
|
31,434 |
|
|
|
30,990 |
|
|
|
30,698 |
|
|
|
29,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share, diluted |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
[1] |
|
$ |
(0.09 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net (loss) income per
share, diluted |
|
|
34,361 |
|
|
|
32,988 |
|
|
|
30,990 |
|
|
|
30,698 |
|
|
|
29,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,233 |
|
|
$ |
27,414 |
|
|
$ |
25,206 |
|
|
$ |
19,238 |
|
|
$ |
39,480 |
|
Short-term investments |
|
|
6,944 |
|
|
|
10,956 |
|
|
|
10,947 |
|
|
|
12,891 |
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
7,346 |
|
|
|
5,466 |
|
|
|
3,991 |
|
|
|
|
|
Working capital |
|
|
40,801 |
|
|
|
44,179 |
|
|
|
39,364 |
|
|
|
40,823 |
|
|
|
45,522 |
|
Total assets |
|
|
123,559 |
|
|
|
66,696 |
|
|
|
58,035 |
|
|
|
53,175 |
|
|
|
53,294 |
|
Total stockholders equity |
|
|
103,480 |
|
|
|
54,159 |
|
|
|
44,710 |
|
|
|
44,546 |
|
|
|
44,835 |
|
|
|
|
[1] |
|
As discussed in Note 14 to the consolidated financial statements, effective January 1, 2006,
we changed our method of accounting for stock-based compensation to conform to Statement of
Financial Accounting Standard No.123(R), Share-Based Payment. |
33
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following information should be read in conjunction with the Consolidated Financial
Statements and the accompanying Notes included below in Item 8 and Risk Factors included above in
Item 1A of this Annual Report on Form 10-K. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements.
Overview
We develop, manufacture and sell proprietary biological testing technologies with applications
throughout the life sciences industry. Our xMAP® technology, an open architecture, multiplexing
technology, allows simultaneous analysis of up to 100 bioassays from a small sample volume,
typically a single drop of fluid, by reading biological tests on the surface of microscopic
polystyrene beads called microspheres. xMAP technology combines this miniaturized liquid array
bioassay capability with small lasers, digital signal processors and proprietary software to create
a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is
currently being used within various segments of the life sciences industry which includes the
fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense,
protein analysis and biomedical research.
Our end-user customers and partners, which include laboratory professionals performing
research, clinical laboratories performing tests on patients as ordered by a physician and other
laboratories, have a fundamental need to perform high quality testing as efficiently as possible.
Luminex has adopted a business model built around strategic partnerships. We have licensed our
xMAP technology to companies, who then develop products that incorporate the xMAP technology into
products that they sell to the end-user. Luminex develops and manufactures the proprietary xMAP
laboratory instrumentation and the proprietary xMAP microspheres and sells these products to its
partners. Our partners then sell xMAP instrumentation and xMAP-based reagent consumable products,
which run on the instrumentation, to the end-user laboratory. Luminex was founded on this model,
and our success to date has been due to this model. As of the end of 2007, Luminex had 58 strategic
partners, 30 of which have released commercialized reagent-based products using our technology, and
these partners had sold and placed 4,979 xMAP-based instruments in laboratories worldwide.
Beginning in 2006, the Company began developing proprietary assays through LBG. This
development was supplemented in 2007 by our acquisition of Tm Bioscience. Our newly formed assay
segment is focusing on the molecular diagnostics market.
Luminex has several forms of revenue that result from this partner model:
|
|
|
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 that buy prepared kits and have specific testing needs or testing
service companies that provide assay results to pharmaceutical research companies or
physicians. |
|
|
|
|
Assay revenue is generated from the sale of our kits which are a combination of chemical
and biological reagents and our proprietary bead technology used to perform diagnostic and
research assays on samples. For the year ended December 31, 2007, assay revenue includes
revenue since March 1, 2007 from LMD as
a result of our acquisition which was effective March 1, 2007. Assay revenue generated from
LBG is also classified here. Previously, assay revenue generated from LBG was recorded in
other revenue as it did not constitute as material amount of total revenue. |
34
|
|
|
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. |
|
|
|
|
Other revenue consists of items such as training, shipping, parts sales, license
revenue, grant revenue, contract research and development fees and milestone revenue and
other items that individually amount to less than 5% of total revenue. |
2007 Highlights
|
|
|
Luminex grew total revenue by approximately 42% over 2006 revenue of $53.0 million |
|
|
|
|
Gross margin percentage of 61%, consistent with 2006 |
|
|
|
|
Record system shipments of 862 for the year ended December 31, 2007 |
|
|
|
|
U.S. Food and Drug Administration (FDA) clearance of xTAG TM Respiratory
Viral Panel (RVP), as of January 3, 2008 |
|
|
|
|
Completion of the Tm Bioscience acquisition |
|
|
|
|
Cumulative world wide system sales to date of 4,979 systems |
|
|
|
|
Settlement of Rules Based Medicine, Inc. (RBM) litigation for total proceeds to the
Company of $12.5 million |
Acquisition of Tm Bioscience
On March 1, 2007, we completed our acquisition of LMD, formerly Tm Bioscience Corporation, for
$49.4 million. Upon closing the acquisition, we exchanged 0.06 shares of Luminex common stock for
each outstanding Tm Share, which resulted in the issuance of approximately 3.2 million shares of
Luminex common stock valued at $41.8 million. We retired debt of $13.2 million and incurred
approximately $5.7 million of expense associated with advisors, consultants, and other transaction
related costs in connection with the acquisition.
Change in Cash Position
Our cash, cash equivalents and investments were reduced by approximately $11.5 million during
the twelve months ended December 31, 2007 due primarily to the $18.9 million of specifically
indentified costs associated with the acquisition, offset by receipt of the RBM settlement of $12.5
million, and our purchase property, plant and equipment of $6.7 million primarily for our
manufacturing expansion in preparation for new product offers, expansion of capacity and facility
expansion to accommodate our growth. To support our cash and investments position, the Company
secured a revolving credit facility for up to $15.0 million in conjunction with the Tm acquisition,
which, as of December 31, 2007 and subject to the borrowing base requirements, would allow for
borrowings of up to approximately $10.6 million.
Segment Information
Luminex has two reportable segments: The Technology Segment and the Assay Segment. The
Technology Segment, which is our base business, consists of system sales to partners, raw bead
sales, royalties, service and support of the technology, and other miscellaneous items. The Assay
Segment consists of LBG and LMD. This segment is primarily involved in the development and sale of
assays on xMAP technology for use on Luminexs installed base of systems.
Future Operations
We expect 2008 revenue growth to be driven by sustained adoption of our core technology
coupled with assay introduction and commercialization by the Assay Segment. The anticipated
continued shift in revenue concentration
towards higher margin items, such as assays, consumables and royalties, should provide
favorable gross margins. Additionally, we believe that a sustained investment into R&D is
necessary in order to meet the needs of our marketplace; however, we estimate that R&D expenditures
for 2008 will decline as a percent of revenue from 2007 towards our long term target of 15% of
revenue. Finally, we believe our partner model allows us to leverage our operating expenses which,
assuming the revenue increases and R&D expense described above, should allow us to generate
increased operating income for 2008 as a percentage of total revenue from our core business.
35
We expect our primary challenges to be increasing traction of partner products incorporating
Luminex technology, capitalizing on the realized synergies of the Tm acquisition, commercialization
and market adoption of output from the Assay Segment and expanding our footprint and reputation
within our identified target market segments.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with United
States generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other
sources. A summary of our significant accounting policies is described in Note 1 of our
Consolidated Financial Statements provided herein in Item 8. Estimates and assumptions are
reviewed periodically. Actual results may differ from these estimates under different assumptions
or conditions.
Revenue Recognition. 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 collectability
is probable. Generally, these criteria are met at the time our product is shipped. If the
criteria for revenue recognition are not met at the time of shipment, the revenue is deferred until
all criteria are met. Royalty revenue is generated when a partner sells products incorporating our
technology, provides testing services to third parties using our technology or resells our
consumables. Royalty revenue is recognized as it is reported to us by our partners; therefore, the
underlying end-user sales may be related to prior periods. We also sell extended service contracts
for maintenance and support of our products. Revenue for service contracts is recognized ratably
over the term of the agreement.
Upfront payments from our strategic partners are nonrefundable and will be recognized as
revenue as our strategic partners purchase products or applied against royalty payments.
Nonrefundable license fees are amortized into revenue over the estimated life of the license
agreements.
Grant revenue consists of amounts earned under research agreements with government grants,
which is recognized in the period during which the related costs are incurred.
Inventory Valuation. Inventories are valued at the lower of cost or market value and have
been reduced by an allowance for excess and obsolete inventories. The two major components of the
allowance for excess and obsolete inventory were (i) a specific reserve for inventory items that we
no longer use in the manufacture of our products or that no longer meet our specifications and (ii)
a reserve against slow moving items for potential obsolescence. The total estimated allowance is
reviewed on a regular basis and adjusted based on managements review of inventories on hand
compared to estimated future usage and sales. While management believes that adequate write-downs
for inventory obsolescence have been made in the consolidated financial statements, scientific and
technological advances will continue and the Company could experience additional inventory
write-downs in the future. However, the Company does not believe this estimate is subject to
significant variability.
Warranties. We provide for the estimated cost of product warranties at the time revenue is
recognized. While we engage in product quality programs and processes, our warranty obligation is
affected by product failure rates, material usage and service delivery costs incurred in correcting
a product failure. Should actual product failure rates, material usage or service delivery costs
differ from our estimates, revisions to the estimated warranty liability would be required.
However, the Company does not believe this estimate is subject to significant variability.
36
Accounts Receivable and Allowance for Doubtful Accounts. We continuously monitor collections
and payments from our customers and maintain allowances for doubtful accounts based upon our
historical experience and any specific customer collection issues that we have identified. While
such credit losses historically have been within our expectations, there can be no assurance that
we will continue to experience the same level of credit losses that we have in the past. A
significant change in the liquidity or financial position of any one of our significant customers,
or a deterioration in the economic environment, in general, could have a material adverse impact on
the collectability of our accounts receivable and our future operating results, including a
reduction in future revenues and additional allowances for doubtful accounts. However, the Company
does not believe this estimate is subject to significant variability.
Purchase Price Allocation, Intangibles and Goodwill. The purchase price allocation for
acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase
price to the identifiable tangible and intangible assets acquired, including in-process research
and development (IPR&D), and liabilities assumed based on their respective fair values.
Intangible assets with definite lives are amortized over the assets estimated useful lives using
the straight-line method. The Company periodically reviews the estimated useful lives of its
identifiable intangible assets, taking into consideration any events or circumstances that might
result in a diminished fair value or revised useful life.
On March 1, 2007, we acquired Tm for an aggregate purchase price of approximately $49.4
million. The purchase price for the acquisition was allocated to tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values at the acquisition date. We
completed the process of determining the estimated fair values of IPR&D, identifiable intangible
assets and certain tangible assets. Such a valuation required significant estimates and
assumptions, including but not limited to, determining the timing and estimated costs to complete
the in-process projects, projecting regulatory approvals, estimating future cash flows, and
developing appropriate discount rates. We believe the estimated fair values assigned to the assets
acquired and liabilities assumed were based on reasonable assumptions.
IPR&D represents the value, on closing of a business combination, of acquired research and
development projects which were not technologically feasible as of the acquisition date and had no
alternative future use. Projects with a value of $7.4 million that were in process at Tm prior to
the acquisition were deemed not technologically feasible and were charged to net loss during the
twelve months ended December 31, 2007 as IPR&D expense.
SFAS No. 142 Goodwill and Other Intangible Assets requires that goodwill and certain
intangible assets be assessed for impairment at a reporting unit level at least annually. We
evaluate the carrying value of goodwill and other intangible assets annually or more frequently if
there is evidence that certain events or changes in circumstances indicate that the carrying amount
of these assets may not be recoverable. If the carrying amount of a reporting unit exceeds its
fair value, then a goodwill impairment test is performed to measure the amount of the impairment
loss, if any. We would recognize an impairment charge for any amount by which the carrying amount
of goodwill exceeds its fair value. Determining the fair value of goodwill is judgmental in nature
and often involves the use of estimates and assumptions. Estimates of fair value are primarily
determined using discounted cash flows and market comparisons. As of December 31, 2007, we have
$39.6 million of goodwill, which has been allocated to the assay segment which includes LMD. We
have performed out annual test of goodwill, and have determined there has been no impairment of
goodwill as of December 31, 2007.
37
Consolidated Results of Operations
The following table sets forth the percentage of total revenue of certain items in the
Consolidated Statements of Operations. The financial information and the discussion below should be
read in conjunction with the Consolidated Financial Statements and Notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
39 |
% |
|
|
39 |
% |
|
|
47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
61 |
% |
|
|
61 |
% |
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
21 |
% |
|
|
16 |
% |
|
|
13 |
% |
Selling, general and administrative |
|
|
54 |
% |
|
|
46 |
% |
|
|
48 |
% |
In-process research and development expense |
|
|
10 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
85 |
% |
|
|
62 |
% |
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(23 |
)% |
|
|
(1 |
)% |
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense from long-term debt |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
2 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of litigation |
|
|
15 |
% |
|
|
|
|
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of liability |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(4 |
)% |
|
|
3 |
% |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Variance ($) |
|
|
Variance (%) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
75,010 |
|
|
$ |
52,989 |
|
|
$ |
22,021 |
|
|
|
42 |
% |
Gross profit |
|
$ |
46,094 |
|
|
$ |
32,252 |
|
|
$ |
13,842 |
|
|
|
43 |
% |
Gross margin percentage |
|
|
61 |
% |
|
|
61 |
% |
|
|
0 |
% |
|
|
N/A |
Operating expenses |
|
$ |
63,512 |
|
|
$ |
32,833 |
|
|
$ |
30,679 |
|
|
|
93 |
% |
Net (loss) income |
|
$ |
(2,711 |
) |
|
$ |
1,507 |
|
|
$ |
(4,218 |
) |
|
|
280 |
% |
Revenue. Total revenue increased to $75.0 million for the year ended December 31, 2007 from
$53.0 million in 2006. The increase in revenue was primarily attributable to the Assay Segment
(including the acquisition of LMD and increased activity by LBG) and, in addition, to a lesser
extent increases in consumable and royalty revenues and system sales in the Technology Segment.
38
A breakdown of revenue for the years ended December 31 is as follows (in thousands):
Consolidated
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
System sales |
|
$ |
24,428 |
|
|
$ |
20,644 |
|
Consumable sales |
|
|
19,199 |
|
|
|
15,676 |
|
Royalty revenue |
|
|
10,244 |
|
|
|
8,228 |
|
Assay revenue |
|
|
11,323 |
|
|
|
19 |
|
Service contracts |
|
|
4,431 |
|
|
|
3,450 |
|
Other revenue |
|
|
5,385 |
|
|
|
4,972 |
|
|
|
|
|
|
|
|
|
|
$ |
75,010 |
|
|
$ |
52,989 |
|
|
|
|
|
|
|
|
We continue to have revenue concentration in a limited number of strategic partners, as the
top five customers, by revenue, accounted for 52% of total revenue in 2007. In particular, two
customers accounted for 35% of 2007 total revenue (20% and 15%, respectively). No other customer
accounted for more than 10% of total revenue. See the segment discussions that follow on pages
41-44 for additional revenue discussion.
Gross Profit. Gross profit increased to $46.1 million for the year ended December 31, 2007, as
compared to $32.3 million for the year ended December 31, 2006. The gross profit margin rate (gross
profit as a percentage of total revenue) was 61% for the year ended December 31, 2007, consistent
with the year ended December 31, 2006. The flat gross margin rate was primarily attributable to the
acquisition of a company with lower gross margins offset by an increase in high margin consumables
and royalty revenue. The increase in gross profit, in dollar amount was primarily attributable to
the overall increase in revenue. We anticipate continued fluctuation in gross profit margin and
related gross profit primarily as a result of variability in partner bulk purchases and the
absolute number of sales of quarterly system sales.
Research and Development Expense. Research and development expenses increased to $15.4 million
for the year ended December 31, 2007 from $8.7 million for the year ended December 31, 2006. The
increase was primarily attributable to increases in personnel costs associated with the addition of
employees in 2007 related to the LMD acquisition. Research and development headcount at December 31, 2007 was 111 as compared to
61 at December 31, 2006. The increase in the number of employees has allowed us to increase our
focus on development of our system, consumable and software products and the expansion of
applications for use on our platforms. As a percentage of revenue, research and development
expense increased to 21% in 2007 as compared with 16% in 2006. Our current expectation is for
research and development expenses to be between 15% and 20% of total revenue for 2008.
Selling, General and Administrative Expense. Selling, general and administrative expenses
increased to $40.7 million for the year ended December 31, 2007 from $24.2 million for the
comparable period in 2006. The increase was primarily attributable to the acquisition of the LMD
and to a lesser extent an increase in stock compensation expense and the impact of foreign exchange
transaction losses related to foreign currency denominated balances. As a percentage of revenue,
selling, general and administrative expenses were 54% in 2007 and 46% in 2006. We intend to manage
our 2008 quarterly expenses towards the same amount that we reported for the fourth quarter of
2007, excluding the impact of foreign exchange transaction losses related to foreign currency
denominated balances.
Other Income, net. Other income, consisting primarily of interest in our cash and investment
balances, decreased to $1.7 million for the year ended December 31, 2007 from $2.1 million for the
year ended December 31, 2006.
Settlement of litigation. The Company settled its pending litigation with RBM on October 15,
2007. As part of the settlement, Luminex received a cash payment of $12.5 million. $11.5 million
was recognized as part of net income, while $1.0 million was deferred for licensing rights granted
to RBM from Luminex.
Gain on settlement of liability. $2.3 million was recognized in the year ended December 31,
2007 related to the settlement of a liability related to the renegotiation of a contract acquired
as part of the acquisition of Tm.
39
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
Variance |
|
|
|
2006 |
|
|
2005 |
|
|
($) |
|
|
(%) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
52,989 |
|
|
$ |
42,313 |
|
|
$ |
10,676 |
|
|
|
25 |
% |
Gross profit |
|
$ |
32,252 |
|
|
$ |
22,321 |
|
|
$ |
9,931 |
|
|
|
44 |
% |
Gross margin percentage |
|
|
61 |
% |
|
|
53 |
% |
|
|
8 |
% |
|
|
N/A |
Operating expenses |
|
$ |
32,833 |
|
|
$ |
25,817 |
|
|
$ |
7,016 |
|
|
|
27 |
% |
Net income (loss) |
|
$ |
1,507 |
|
|
$ |
(2,666 |
) |
|
$ |
4,173 |
|
|
|
157 |
% |
Revenue. Total revenue increased to $53.0 million for the year ended December 31, 2006 from
$42.3 million in 2005. The increase in revenue was primarily attributable to our continued increase
in royalty revenue, an indicator of increased acceptance and utilization of our technology in the
marketplace.
A breakdown of revenue for the years ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
System sales |
|
$ |
20,644 |
|
|
$ |
18,812 |
|
Consumable sales |
|
|
15,676 |
|
|
|
13,084 |
|
Royalty revenue |
|
|
8,228 |
|
|
|
5,255 |
|
Assay revenue |
|
|
19 |
|
|
|
|
|
Service contracts |
|
|
3,450 |
|
|
|
2,444 |
|
Other revenue |
|
|
4,972 |
|
|
|
2,718 |
|
|
|
|
|
|
|
|
|
|
$ |
52,989 |
|
|
$ |
42,313 |
|
|
|
|
|
|
|
|
Gross Profit. Gross profit increased to $32.3 million for the year ended December 31, 2006, as
compared to $22.3 million for the year ended December 31, 2005. The gross margin percentage
increased to 61% for the year ended December 31, 2006 from 53% for the year ended December 31,
2005. The increase in gross margin was primarily attributable to the increase in royalties as a
percentage of total revenue, an increase in the average system sales price which is a result of
partner mix and system configuration fluctuations and to a lesser extent the $352,000 of grant
revenue and a $300,000 milestone payment from a partner.
Research and Development Expense. Research and development expenses increased to $8.7 million
for the year ended December 31, 2006 from $5.6 million for the year ended December 31, 2005. The
increase was primarily attributable to increases in personnel costs associated with the addition of
employees in 2006 and to a lesser extent increased costs related to direct materials and consumable
supplies utilized in the research and development process and increased stock compensation expense
resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 123(R)
Share-Based Payment (SFAS 123(R)). Research and development headcount at December 31, 2006 was
61 as compared to 42 at December 31, 2005. As a percentage of revenue, research and development
expense increased to 16% in 2006 as compared with 13% in 2005.
Selling, General and Administrative Expense. Selling, general and administrative expenses
increased to $24.2 million for the year ended December 31, 2006 from $20.2 million for the
comparable period in 2005. The increase was primarily attributable to increased stock compensation
expense resulting from the adoption of SFAS 123(R). Stock compensation increased to $4.6 million
for the year ended December 31, 2006 from $1.5 million for fiscal 2005. To a lesser extent, the
increase in selling, general and administrative expenses was a result of additional
personnel cost associated with the increase in employees to 73 at December 31, 2006 from 70 at
December 31, 2005. As a percentage of revenue, selling, general and administrative expenses were
46% in 2006 and 48% in 2005.
Other Income, net. Other income, consisting primarily of interest in our cash and investment
balances, increased to $2.1 million for the year ended December 31, 2006 from $1.2 million for the
year ended December 31, 2005.
40
Segment Results of Operations
Technology Segment
Selected financial data for the year ended December 31, 2007 and 2006 of our Technology Segment is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Variance ($) |
|
|
Variance (%) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
62,436 |
|
|
$ |
52,970 |
|
|
$ |
9,466 |
|
|
|
18 |
% |
Gross profit |
|
$ |
37,864 |
|
|
$ |
32,243 |
|
|
$ |
5,621 |
|
|
|
17 |
% |
Gross margin percentage |
|
|
61 |
% |
|
|
61 |
% |
|
|
0 |
% |
|
|
N/A |
Operating expenses |
|
$ |
38,391 |
|
|
$ |
30,793 |
|
|
$ |
7,598 |
|
|
|
25 |
% |
Net income |
|
$ |
12,330 |
|
|
$ |
3,538 |
|
|
$ |
8,792 |
|
|
|
249 |
% |
Revenue. Total revenue increased 18% to $62.4 million for the year ended December 31, 2007
from $53.0 million in 2006. The increase in revenue was primarily attributable to an increase in
system sales and consumable revenue as will as the continued acceptance and utilization of our
technology in the marketplace as evidenced by our continued increase in royalty revenue.
A breakdown of revenue in the Technology Segment for the years ended December 31 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
System sales |
|
$ |
23,320 |
|
|
$ |
20,644 |
|
Consumable sales |
|
|
19,197 |
|
|
|
15,676 |
|
Royalty revenue |
|
|
10,213 |
|
|
|
8,228 |
|
Service contracts |
|
|
4,431 |
|
|
|
3,450 |
|
Assay revenue |
|
|
|
|
|
|
|
|
Other revenue |
|
|
5,275 |
|
|
|
4,972 |
|
|
|
|
|
|
|
|
|
|
$ |
62,436 |
|
|
$ |
52,970 |
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 61% of total revenue in 2007. In
particular, two customers accounted for 42% of 2007 total technology segment revenue (24% and 18%,
respectively). No other customer accounted for more than 10% of total technology segment revenue.
System and peripheral component sales increased 13% to $23.3 million for the year ended
December 31, 2007 from $20.6 million for the year ended December 31, 2006. System sales increased
to 838 LX systems for 2007 as
compared to 718 (717 LX systems and 1 HTS) in the prior year, bringing total system sales to
4,979 as of December 31, 2007.
Consumable sales, comprised of microspheres and sheath fluid, increased 22% to $19.2 million
during 2007 from $15.7 million in 2006. We believe the increase is primarily the result of the
increased use and acceptance of our technology and the increased installed base of our systems.
Partners who reported royalty bearing sales accounted for $16.1 million, or 84%, of total
consumable sales for the year ended December 31, 2007. In addition, during 2007 we had 41 bulk
purchases of consumables totaling approximately $14.3 million as compared with 31 bulk purchases
totaling approximately $10.4 million in the prior year. A bulk purchase is defined as the purchase
of $100,000 or more of consumables in a quarter. As the number of applications available on our
platform expands, we anticipate that the overall level of consumable sales, and related bulk
purchases, will continue to rise.
41
Royalty revenue increased 24% to $10.2 million for the year ended December 31, 2007 from $8.2
million for the year ended December 31, 2006. We believe this increase is primarily the result of
the increased use and acceptance of our technology. For the year ended December 31, 2007, we had
30 commercial partners submit royalties as compared with 32 for the year ended December 31, 2006.
Additionally, the 30 partners from whom we recognized $8.2 million in royalties in 2006 represented
approximately $9.9 million of the total royalties in 2007, an increase of approximately 21% over
their prior year payments. Total royalty bearing sales reported to us by our partners were
approximately $167 million for the year ended December 31, 2007 as compared to $132.0 million for
the year ended December 31, 2006.
Service contracts, comprised of extended warranty contracts earned ratably over the term of a
contract, increased to $4.4 million during 2007 from $3.5 million in 2006. This increase is
attributable to increased sales of extended service contracts, which are primarily a result of the
increase in the commercial base of Luminex systems as compared to the prior year period. At
December 31, 2007, we had 799 Luminex systems covered under extended service agreements and $1.8
million in deferred revenue related to those contracts. At December 31, 2006, we had 651 Luminex
systems covered under extended service agreements and $1.8 million in deferred revenue related to
those contracts.
Other revenue, comprised of training revenue, shipping revenue, miscellaneous part sales,
amortized license fees, reagent sales and grant revenue, increased to $5.3 million for the year
ended December 31, 2007 from $5.0 million for the year ended December 31, 2006. The increase was
primarily attributable to an increase in grant revenue. Grant revenue increased to $932,000 for the
year ended December 31, 2007 from $352,000 for the year ended December 31, 2006. During 2007, we
were awarded an additional government grant from the Defense Advanced Research Projects Agency
(DARPA) in addition to successfully completing grants from DARPA and the Homeland Security
Advance Research Projects Agency that we were awarded in 2006. The additional grant from DARPA
awarded in 2007 is to develop a multiplex assay system platform which can be employed to quickly
determine clinically relevant biological exposure and accurately identify biological agents in the
environment. This platform could lead to a high-performance, low-cost and portable instrument with
applications in biological agent sensing and military diagnostics. This grant will allow us to
accelerate our product development of related commercial products (such as a point-of-care
diagnostic instrument) and is specifically designed to shrink both the cost and size of our current
instrument. We believe government grants are significant because they help support our R&D
efforts, establish our footprint in the Bio-Defense sector and open the door for future grants.
Gross Profit. The gross profit margin rate (gross profit as a percentage of total revenue) was
flat at 61% for the year ended December 31, 2007 and 2006. Gross profit, in dollar amount,
increased to $37.9 million for the year ended December 31, 2007, as compared to $32.2 million for
the year ended December 31, 2006. The flat gross margin rate was primarily attributable to a
similar product mix in the year ended December 31, 2007 as compared to the year ended December 31,
2006. The increase in gross profit, in dollar amount, was primarily attributable to the overall
increase in revenue. Consumables and royalties comprised $29.4 million, or 47%, of revenue for the
year ended December 31, 2007 and $23.9 million, or 45%, for the year ended December 31, 2006. We
anticipate continued fluctuation in gross profit margin and related gross profit primarily as a
result of variability in partner bulk purchases and absolute number of sales of quarterly system
sales.
Operating expenses. Research and development expenses increased to $8.9 million for the year
ended December 31, 2007 from $7.5 million for the year ended December 31, 2006. The increase was
primarily attributable to
increases in personnel costs associated with the addition of employees in 2007. Research and
development headcount at December 31, 2007 was 70 as compared to 57 at December 31, 2006. This
increase was partially offset by a decrease in costs related to direct materials and consumables
utilized in the research and development process. The increase in the number of employees has
allowed us to increase our focus on development of our system, consumable and software products and
the expansion of applications for use on our platforms. As a percentage of revenue, research and
development expense remained flat at 14% in 2007 as compared with 2006.
Selling, general and administrative expenses increased to $29.4 million for the year ended
December 31, 2007 from $23.5 million for the comparable period in 2006. The increase was primarily
attributable to additional personnel cost associated with the increase in employees to 81 at
December 31, 2007 from 70 at December 31, 2006 and to a lesser extent, an increase in stock
compensation expense. As a percentage of revenue, selling, general and administrative expenses
were 47% in 2007 and 44% in 2006.
42
Settlement of litigation. The Company settled its pending litigation with RBM on October 15,
2007. As part of the settlement, Luminex received a cash payment of $12.5 million. $11.5 million
was recognized as part of net income, while $1.0 million was deferred for licensing rights granted
to RBM from Luminex.
Assay Segment
Selected financial data for the year ended December 31, 2007 and 2006 of our Assay Segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
Variance ($) |
|
|
Variance (%) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
12,574 |
|
|
$ |
19 |
|
|
$ |
12,555 |
|
|
|
66079 |
% |
Gross profit |
|
$ |
8,230 |
|
|
$ |
9 |
|
|
$ |
8,221 |
|
|
|
91344 |
% |
Gross margin percentage |
|
|
65 |
% |
|
|
47 |
% |
|
|
18 |
% |
|
|
N/A |
Operating expenses |
|
$ |
25,121 |
|
|
$ |
2,040 |
|
|
$ |
23,081 |
|
|
|
1131 |
% |
Net loss |
|
$ |
(15,041 |
) |
|
$ |
(2,031 |
) |
|
$ |
(13,010 |
) |
|
|
641 |
% |
Revenue. Revenues were derived from LBG for the twelve months ended December 31, 2007 and
2006 and also from LMD from March 1, 2007 through December 31, 2007.
A breakdown of revenue in the Assay Segment for the years ended December 31 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
System sales |
|
$ |
1,108 |
|
|
$ |
|
|
Consumable sales |
|
|
2 |
|
|
|
|
|
Royalty revenue |
|
|
31 |
|
|
|
|
|
Service contracts |
|
|
|
|
|
|
|
|
Assay revenue |
|
|
11,323 |
|
|
|
19 |
|
Other revenue |
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,574 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
The top five customers, by revenue, accounted for 64% of total revenue in 2007. In
particular, two customers accounted for 46% of 2007 total revenue (33% and 13%, respectively). No
other customer accounted for more than 10% of total revenue. Assay revenue consists primarily of
kits of which the majority relates to our Cystic Fibrosis products. System sales during the twelve
months ended 2007 in the Assay Segment were 24 LX Systems. Other revenue includes contract
research and development fees and commercial milestone revenue.
Operating expenses. Research and development expenses increased to $6.4 million for the year
ended December 31, 2007 from $1.2 million for the year ended December 31, 2006. The increase in
research and development expenses can be primarily attributed to the addition of the acquisition of
LMD. LMD contributed approximately 60% of all research and development expenses. The LBG division
contributed the remaining 40%. The LBG division research and development expenses increased 117%
to $2.6 million primarily as a result of increased activity related to product development.
Selling, general and administrative expenses increased to $9.6 million for the year ended
December 31, 2007 from $863,000 for the comparable period in 2006. As previously discussed, the
expenses for the twelve months ended December 31, 2007 include expenses related to LBG for the
entire twelve months and expenses related to LMD from March 1, 2007, the date of acquisition, to
December 31, 2007. The overall increase in selling, general and administrative expenses was
primarily attributable to the addition of the LMD division and to a lesser extent increased
activity by the LBG and the impact of foreign exchange transaction losses related to foreign
currency denominated balances. The LMD division contributed $8.5 million of selling, general and
administrative expenses, or 89%. The LBG division contributed the remaining 11%. The LBG division
selling, general and administrative expenses increased 36% to $1.1 million primarily as a result of
increased headcount.
43
Gain on settlement of liability. $2.3 million was recognized in the year ended December 31,
2007 related to the settlement of a liability related to the renegotiation of a contract acquired
as part of the acquisition of Tm.
We operated under one segment through the end of 2006; therefore, we have not included a 2006
to 2005 comparison by segment.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Cash and cash equivalents |
|
$ |
27,233 |
|
|
$ |
27,414 |
|
Short-term investments |
|
|
6,944 |
|
|
|
10,956 |
|
Long-term investments |
|
|
|
|
|
|
7,346 |
|
|
|
|
|
|
|
|
|
|
$ |
34,177 |
|
|
$ |
45,716 |
|
|
|
|
|
|
|
|
At December 31, 2007, we held cash and cash equivalents, and short-term and long-term
investments, of $34.2 million and had working capital of $40.8 million. At December 31, 2006, we
held cash and cash equivalents, and short-term and long-term investments, of $45.7 million and had
working capital of $44.2 million. The purchase price of the Tm
acquisition was approximately $49.4 million, including common stock valued at $41.8 million. In connection with closing the
acquisition, we paid off $13.2 million of Tms debt and related fees and paid transaction expenses
of approximately $5.7 million (including $3.6 million of transaction costs included as part of the
purchase price and $2.1 million of LMD transaction costs incurred prior to March 1, 2007). Our
cash, cash equivalents and investments have been reduced by approximately $11.5 million during the
year ended December 31, 2007 due primarily to the $18.9 million of specifically indentified costs
associated with the acquisition, our purchase property, plant and equipment of $6.7 million
primarily for our manufacturing expansion in preparation for new product offers, expansion of
capacity and facility expansion to accommodate our growth, offset by the receipt of $12.5 million
in the RBM settlement in the fourth quarter of 2007.
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 United States government or agencies thereof and U.S.
corporate debt securities. We do not have any investments in asset-backed commercial paper.
Cash provided by operations was $8.4 million for the year ended December 31, 2007. Significant
items affecting operating cash flows for the period were our net loss of $2.7 million and
adjustments for depreciation and amortization of $5.1 million, the write-off of in-process research
and development of $7.4 million, and stock compensation of $6.6 million, offset by an increase in
accounts receivable of $3.3 million and a gain on settlement of liability of $2.3 million.
Cash provided by investing was $1.8 million for the year ended December 31, 2007 as compared
with cash used in investing of $4.5 million for the year ended December 31, 2006. In 2007, our
capital expenditures for property, plant and equipment increased significantly to $6.7 million from
$2.6 million in 2006, primarily as a result our manufacturing expansion in preparation for the
introduction of new products, expansion of capacity, and facility and ERP expansion to accommodate
our growth and LMD. Currently, exclusive of changes in investments, we expect cash used in
investing activities to be primarily for purchases of property, plant and equipment and for it to
decrease towards historical levels.
Cash used in financing activities was $10.5 million for the year ended December 31, 2007 as
compared with cash provided by financing activities of $2.6 million for the year ended December 31,
2006. In 2007, our payments on debt were $12.3 million for Tm debt retired in connection with the acquisition.
44
We expect research and development expense as a percent of revenue to decrease to between 15%
and 20% of total revenue in 2008. While the percent is expected to decrease, we expect research
and development expense absolute dollars to scale with the companys revenue growth as a result of
our continuing investment in the research and development pipeline to support our strategy and
expanded focus on product and platform development. We do not expect selling, general and
administrative expenses in 2008, excluding the impact of foreign exchange on foreign denominated
balances, to continue to increase at the same rate as in prior year as management believes it can
leverage the current level of expenses to adequately support the ongoing growth of our business.
Our future capital requirements will depend on a number of factors, including our success in
developing and expanding markets for our products, payments under possible future strategic
arrangements, continued progress of our research and development of potential products, the timing
and outcome of regulatory approvals, the need to acquire licenses to new technology, costs
associated with strategic acquisitions including integration costs and assumed liabilities, the
status of competitive products and potential cost associated with both protecting and defending our
intellectual property. Additionally, actions taken as a result of the ongoing internal evaluation
of our business could result in expenditures not currently contemplated in our estimates for 2008.
We believe, however, that our existing cash and cash equivalents together with availability under
our revolving credit facility as described below are sufficient to fund our operating expenses,
capital equipment requirements and other expected liquidity requirements for the coming twelve
months. Based upon our current operating plan and structure, management anticipates total cash use
for 2008 to be no more than approximately $5.0 million, giving us an anticipated balance in cash,
cash equivalents, short-term and long-term investments at December 31, 2008 of approximately $25.0
million to approximately $30.0 million. Factors that could affect this estimate, in addition to
those listed above, include: (i) continued collections of accounts receivable consistent with our
historical experience, (ii) our ability to manage our inventory levels consistent with past
practices, (iii) signing of partnership agreements which include significant up front license fees,
and (iv) unanticipated costs associated with, and the negative operating cash flows resulting from,
the LMD acquisition. See also the Safe Harbor Cautionary Statement and Item 1A. Risk Factors
above.
On March 1, 2007, the Company entered into a senior revolving credit facility with JPMorgan
Chase Bank, N.A., which provides borrowings of up to a maximum aggregate principal amount
outstanding of $15.0 million based on availability under a borrowing base consisting of eligible
accounts and inventory. The obligations under the senior revolving credit facility are guaranteed
by the wholly-owned domestic subsidiaries of the Company and secured by all of the accounts,
equipment inventory and general intangibles (excluding intellectual property) of the
Company and the guarantors including the pledge of an intercompany note from LMD and payable
to the Company. Loans under the senior credit facility accrue interest on the basis of either a
base rate or a LIBOR rate. The base rate is calculated daily and is the greater of (i) prime minus
1.00% and (ii) federal funds rate plus .50%. Borrowings at the LIBOR rate are based on one, two or
three month periods and interest is calculated by taking the sum of (i) the product of LIBOR for
such period and statutory reserves plus (ii) 1.75%. We pay a fee of 0.125% per annum on the
unfunded portion of the lenders aggregate commitment under the facility. Approximately, $10.6
million is available for borrowing at December 31, 2007.
The senior credit facility contains conditions to making loans, representations, warranties
and covenants, including financial covenants customary for a transaction of this type. Financial
covenants include (i) a tangible net worth covenant of $25.0 million following the acquisition and
(ii) a liquidity requirement of availability not less than the funded debt of the Company and its
subsidiaries (including LMD) calculated using the unencumbered cash, cash equivalents and
marketable securities of the Company and the guarantors. The senior credit facility also contains
customary events of default as well as restrictions on undertaking certain specified corporate
actions, including, among others, asset dispositions, acquisitions and other investments,
dividends, fundamental corporate changes such as mergers and consolidations, incurrence of
additional indebtedness, creation of liens and negative pledges, transactions with affiliates and
agreements as to certain subsidiary restrictions and the creation of additional subsidiaries. If
an event of default occurs that is not otherwise waived or cured, the lender may terminate its
obligations to make loans under the senior credit facility and may declare the loans then
outstanding under the senior credit facility to be due and payable. We believe we are currently in
compliance with our financial and other covenants under the senior credit facility. As of March
11, 2008, no amounts were outstanding under the senior revolving credit facility.
45
To the extent capital resources are insufficient to meet future capital requirements; we will
have to raise additional funds to continue the development and deployment of our technologies.
There can be no assurance that debt or equity 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 (under our new credit facility or otherwise) 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.
Contractual Obligations
We currently have approximately $5.9 million in non-cancelable obligations for the next 12
months. These obligations are included in our estimated cash usage during 2008. The following
table reflects the Companys total current non-cancelable obligations by period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due By Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
Non-cancelable rental
obligations |
|
$ |
4,933 |
|
|
$ |
2,506 |
|
|
$ |
2,237 |
|
|
$ |
190 |
|
|
$ |
|
|
Non-cancelable purchase
obligations (1) |
|
|
3,194 |
|
|
|
3,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
obligations (2) |
|
|
5,725 |
|
|
|
134 |
|
|
|
1,401 |
|
|
|
4,190 |
|
|
|
|
|
Capital lease obligations |
|
|
96 |
|
|
|
37 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,948 |
|
|
$ |
5,871 |
|
|
$ |
3,697 |
|
|
$ |
4,380 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(2) |
|
On December 12, 2003, LMD entered into an agreement with the Ministry of Industry
of the Government of Canada under which the Government agreed to invest up to Canadian
(Cdn) $7.3 million relating to the development of several genetic tests. Funds were
advanced from Technology Partnerships Canada (TPC), a special operating program. The
actual payments received by the Company were predicated on eligible expenditures made
during the project period which ended July 31, 2006. LMD has received $4.3 million from
TPC which is expected to be repaid along with approximately $1.4 million of imputed
interest for a total of approximately $5.7 million. |
|
|
|
LMD has agreed to repay the TPC funding through a royalty on specific assay revenue related to
the funded product development. Royalty payments commenced in 2007 at a rate of 1% of assay
revenue and at a rate of 2.5% for 2008 and thereafter. Aggregate royalty repayment will
continue until total advances plus imputed interest has been repaid or until April 30, 2015,
whichever is earlier. The repayment obligation expires on April 30, 2015 and any unpaid
balance will be cancelled and forgiven on that date. Should the term of repayment be shorter
than we expect due to higher than expected assay revenue, the effective interest rate would
increase as repayment is accelerated. Repayments denominated in U.S. Dollars are currently
projected to be as shown in the table above, but actual future sales generating a repayment
obligation will vary from this projection and are subject to the risks and uncertainties
described elsewhere in this report, including under Risk Factors and Safe Harbor Cautionary
Statement. Furthermore, payment reflected in U.S. Dollars is subject to adjustment based
upon applicable exchange rates as of the reporting date. |
46
Inflation
We do not believe that inflation has had a direct adverse effect on our operations to date.
However, a substantial increase in product and manufacturing costs and personnel related expenses
could have an adverse impact on our results of operations in the event these expenses increase at a
faster pace than we can increase our system, consumable and royalty rates.
Recently Adopted Accounting Standards
In June 2006, the FASB issued FASB Interpretation (FIN) 48, Accounting for Uncertainty in
Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS 109, Accounting for Income Taxes. This
Interpretation defines the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. We adopted FIN 48 as of January 1, 2007. (See Note
10)
Recent Accounting Pronouncements
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157
provides enhanced guidance for using fair value to measure assets and liabilities. It does not
require any new fair value measurements, but does require expanded disclosures to provide
information about the extent to which fair value is used to measure assets and liabilities, the
methods and assumptions used to measure fair value, and the effect of fair value measures on
earnings. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157 (the FSP). The FSP delayed, for one year, the effective date of FAS 157 for all
nonfinancial assets and liabilities, except those that are recognized or disclosed in the financial
statements on at least an annual basis. Consequently, FAS 157 will be effective for our fiscal year
2008 for financial assets and liabilities recognized or disclosed in our Consolidated Financial
Statements. The deferred provisions of FAS 157 will be
effective for our fiscal year 2009. We have evaluated the effects of the initial adoption of
FAS 157 for our 2008 fiscal year and do not expect its adoption will have a material impact on our
Consolidated Financial Statements. We are currently evaluating the impact, if any, of the entirety
of FAS 157 on our fiscal year 2009 Consolidated Financial Statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115 (FAS 159). FAS 159
expands the use of fair value accounting but does not affect existing standards that require assets
or liabilities to be carried at fair value. Under FAS 159, a company may elect to use fair value to
measure various assets and liabilities including accounts receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable, guarantees and issued
debt. If the use of fair value is elected, any upfront costs and fees related to the item must be
recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally
made on an instrument-by-instrument basis, even if a company has similar instruments that it elects
not to measure based on fair value. At the adoption date, unrealized gains and losses on existing
items for which fair value has been elected are reported as a cumulative adjustment to beginning
retained earnings. Subsequent to the adoption of FAS 159, changes in fair value are recognized in
earnings. FAS 159 is effective for our fiscal year 2008. We are currently evaluating the impact, if
any, of FAS 159 on our Consolidated Financial Statements.
In December 2007, the FASB issued FAS No. 141 (Revised 2007), Business Combinations (FAS
141R) which replaces FAS No. 141, Business Combinations. FAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. The statement also establishes disclosure requirements that will enable
users to evaluate the nature and financial effects of the business combination. FAS 141R is
effective for our fiscal year 2009 and must be applied prospectively to all new acquisitions
closing on or after January 1, 2009. Early adoption of this standard is not permitted. We are
currently evaluating the impact, if any, of FAS 141R on our Consolidated Financial Statements.
47
In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements An Amendment of ARB No. 51 (FAS 160). FAS 160 requires that accounting and
reporting for minority interests be recharacterized as noncontrolling interests and classified as a
component of equity. The standard is effective for our fiscal year 2009 and must be applied
prospectively. We do not expect that the adoption of FAS 160 will have a material impact on our
Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our interest income is sensitive to changes in the general level of
domestic interest rates, particularly since our investments are in short-term and long-term
instruments held to maturity. A 50 basis point fluctuation from average investment returns at
December 31, 2007 would yield an approximate 10% variance in overall investment return. Due to our
intention to hold our investments to maturity, we have concluded that there is no material market
risk exposure.
Our revolving credit facility also will be affected by fluctuations in interest rates as it is
based on prime minus 1% or the Federal Funds Effective Rate in effect plus 0.50%. As of December
31, 2007, the Company has not drawn on this facility.
Foreign Currency Risk. As of December 31, 2007, as a result of our foreign operations, we
have costs, assets and liabilities that are denominated in foreign currencies, primarily Canadian
dollars and to a lesser extent the Euro. For example, some fixed asset purchases, certain expenses,
and the TPC debt of our Canadian subsidiary, LMD, are denominated in Canadian dollars while sales
of products are primarily denominated in U.S. dollars. All transactions in our Netherlands
subsidiary are denominated in Euros. As a consequence, movements in exchange rates could cause our
foreign currency denominated expenses to fluctuate as a percentage of net revenue, affecting our
profitability and cash flows. A significant majority of our revenues are denominated in U.S.
dollars. The impact of foreign exchange on foreign denominated balances will vary in relation to
changes between the U.S. and Canadian Dollar exchange rates. A 10% change in the Canadian Dollar in
relation to the U.S. dollar could result in a foreign exchange impact of approximately $409,000
dollars.
In addition, the indirect effect of fluctuations in interest rates and foreign currency
exchange rates could have a material adverse effect on our business financial condition and results
of operations. For example, currency exchange rate fluctuations could affect international demand
for our products. In addition, interest rates fluctuations could affect our customers buying
patterns. Furthermore, interest rate and currency exchange rate fluctuations may broadly influence
the United States and foreign economies resulting in a material adverse effect on our business,
financial condition and results of operations. As a result, we cannot give any assurance as to the
effect that future changes in foreign currency rates will have on our consolidated financial
position, results of operations or cash flows. Our aggregate foreign currency transaction loss of
$305,000 was included in determining our consolidated results for the year ended December 31, 2007.
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
|
|
|
|
|
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PAGE |
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50 |
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51 |
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|
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|
|
52 |
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|
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53 |
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54 |
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|
55 |
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|
56 |
|
|
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|
|
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Luminex Corporation.
We have audited Luminex Corporations internal control over financial reporting as of December 31,
2007, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Luminex
Corporations management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on Internal Control over Financial Reporting,
managements assessment of and conclusion on the effectiveness of internal control over financial
reporting did not include the internal controls of Luminex Molecular Diagnostics, which is included
in the 2007 consolidated financial statements of Luminex Corporation and constituted 54% of total
assets as of December 31, 2007 and 16% of revenues for the year then ended. Our audit of internal
control over financial reporting of Luminex Corporation also did not include an evaluation of the
internal control over financial reporting of Luminex Molecular Diagnostics.
In our opinion, Luminex Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Luminex Corporation as of December 31,
2007 and 2006, and the related consolidated statements of operations and comprehensive loss,
stockholders equity, and cash flows for each of the three years in the period ended December 31,
2007 of Luminex Corporation and our report dated March 12, 2008 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Austin, Texas
March 12, 2008
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Luminex Corporation
We have audited the accompanying consolidated balance sheets of Luminex Corporation (the Company)
as of December 31, 2007 and 2006, and the related consolidated statements of operations and
comprehensive loss, stockholders equity and cash flows for each of the three years in the period
ended December 31, 2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Luminex Corporation at December 31, 2007
and 2006 and the consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 2007 the Company changed its method of
accounting for income tax uncertainties. As discussed in Note 1 to the financial statements, in
2006 the Company changed its method of accounting for stock based compensation.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2007, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2008
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Austin, Texas
March 12, 2008
51
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,233 |
|
|
$ |
27,414 |
|
Short-term investments |
|
|
6,944 |
|
|
|
10,956 |
|
Accounts receivable, (net of allowance for doubtful accounts of
$356 and $301 at December 31, 2007 and 2006, respectively) |
|
|
11,827 |
|
|
|
8,237 |
|
Inventories, net |
|
|
6,508 |
|
|
|
4,571 |
|
Prepaids and other |
|
|
856 |
|
|
|
1,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
53,368 |
|
|
|
53,095 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
12,673 |
|
|
|
4,985 |
|
Intangible assets, net |
|
|
16,919 |
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
7,346 |
|
Goodwill |
|
|
39,617 |
|
|
|
|
|
Other |
|
|
982 |
|
|
|
1,270 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
123,559 |
|
|
$ |
66,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,346 |
|
|
$ |
3,255 |
|
Accrued liabilities |
|
|
6,811 |
|
|
|
2,905 |
|
Deferred revenue |
|
|
2,410 |
|
|
|
2,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,567 |
|
|
|
8,916 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
2,976 |
|
|
|
|
|
Deferred revenue |
|
|
4,536 |
|
|
|
3,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
20,079 |
|
|
|
12,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 200,000,000 shares authorized; issued and
outstanding: 35,391,211 shares in 2007; 31,678,608 shares in 2006 |
|
|
35 |
|
|
|
32 |
|
Preferred stock, $.001 par value, 5,000,000 shares authorized; none
issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
191,218 |
|
|
|
139,116 |
|
Accumulated other comprehensive loss |
|
|
(8 |
) |
|
|
65 |
|
Accumulated deficit |
|
|
(87,765 |
) |
|
|
(85,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
103,480 |
|
|
|
54,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
123,559 |
|
|
$ |
66,696 |
|
|
|
|
|
|
|
|
See the acompanying notes which are an integral part of these Consolidated Financial Statements.
52
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
75,010 |
|
|
$ |
52,989 |
|
|
$ |
42,313 |
|
Cost of revenue |
|
|
28,916 |
|
|
|
20,737 |
|
|
|
19,992 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
46,094 |
|
|
|
32,252 |
|
|
|
22,321 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
15,383 |
|
|
|
8,673 |
|
|
|
5,600 |
|
Selling, general and administrative |
|
|
40,729 |
|
|
|
24,160 |
|
|
|
20,217 |
|
In-process research and development |
|
|
7,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
63,512 |
|
|
|
32,833 |
|
|
|
25,817 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(17,418 |
) |
|
|
(581 |
) |
|
|
(3,496 |
) |
Interest expense from long-term debt |
|
|
(513 |
) |
|
|
|
|
|
|
|
|
Other income, net |
|
|
1,665 |
|
|
|
2,108 |
|
|
|
1,174 |
|
Settlement of litigation |
|
|
11,500 |
|
|
|
|
|
|
|
(322 |
) |
Gain on settlement of liability |
|
|
2,345 |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,421 |
) |
|
|
1,527 |
|
|
|
(2,644 |
) |
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
(290 |
) |
|
|
(20 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,711 |
) |
|
$ |
1,507 |
|
|
$ |
(2,666 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
|
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share, basic |
|
|
34,361 |
|
|
|
31,434 |
|
|
|
30,990 |
|
Net income (loss) per share, diluted |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
|
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share, diluted |
|
|
34,361 |
|
|
|
32,988 |
|
|
|
30,990 |
|
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
53
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,711 |
) |
|
$ |
1,507 |
|
|
$ |
(2,666 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
5,063 |
|
|
|
1,483 |
|
|
|
1,048 |
|
In-process research and development expense |
|
|
7,400 |
|
|
|
|
|
|
|
|
|
Gain on settlement of liability |
|
|
(2,345 |
) |
|
|
|
|
|
|
|
|
Amortization of deferred stock, restricted stock
and
stock compensation expense |
|
|
6,593 |
|
|
|
5,511 |
|
|
|
1,675 |
|
Imputed interest |
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
Loss on disposal of assets |
|
|
88 |
|
|
|
4 |
|
|
|
83 |
|
Other |
|
|
268 |
|
|
|
(15 |
) |
|
|
9 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(3,255 |
) |
|
|
(1,657 |
) |
|
|
(716 |
) |
Inventories, net |
|
|
(129 |
) |
|
|
(290 |
) |
|
|
3,369 |
|
Other assets |
|
|
1,019 |
|
|
|
(1,009 |
) |
|
|
(332 |
) |
Accounts payable |
|
|
(2,958 |
) |
|
|
(602 |
) |
|
|
1,770 |
|
Accrued liabilities |
|
|
(715 |
) |
|
|
(307 |
) |
|
|
137 |
|
Deferred revenue |
|
|
75 |
|
|
|
(566 |
) |
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,393 |
|
|
|
4,046 |
|
|
|
7,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of held-to-maturity securities |
|
|
(6,325 |
) |
|
|
(15,064 |
) |
|
|
(15,450 |
) |
Maturities of held-to-maturity securities |
|
|
17,717 |
|
|
|
13,175 |
|
|
|
15,919 |
|
Purchase of property and equipment |
|
|
(6,685 |
) |
|
|
(2,638 |
) |
|
|
(2,830 |
) |
Acquisition of business, net of cash acquired |
|
|
(2,686 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of assets |
|
|
30 |
|
|
|
45 |
|
|
|
21 |
|
Acquired intangible assets |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
Acquired technology rights |
|
|
(265 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
1,776 |
|
|
|
(4,507 |
) |
|
|
(2,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on debt |
|
|
(12,349 |
) |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
1,868 |
|
|
|
2,622 |
|
|
|
1,180 |
|
Other |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(10,468 |
) |
|
|
2,622 |
|
|
|
1,180 |
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash |
|
|
118 |
|
|
|
47 |
|
|
|
106 |
|
Change in cash and cash equivalents |
|
|
(181 |
) |
|
|
2,208 |
|
|
|
5,968 |
|
Cash and cash equivalents, beginning of year |
|
|
27,414 |
|
|
|
25,206 |
|
|
|
19,238 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
27,233 |
|
|
$ |
27,414 |
|
|
$ |
25,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and penalties paid |
|
|
1,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of leasehold improvements under trade
payable arrangement paid in 2007 |
|
$ |
|
|
|
$ |
445 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH
EFFECT OF ACQUISITIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price |
|
|
(49,401 |
) |
|
|
|
|
|
|
|
|
Common stock issued |
|
|
41,754 |
|
|
|
|
|
|
|
|
|
Conversion of Tm options and warrants |
|
|
2,315 |
|
|
|
|
|
|
|
|
|
Forgiveness of receivable from acquired company |
|
|
1,232 |
|
|
|
|
|
|
|
|
|
Write-off of acquired technology rights |
|
|
473 |
|
|
|
|
|
|
|
|
|
Cash acquired |
|
|
940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, net of cash acquired |
|
|
(2,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Other |
|
|
Deferred |
|
|
|
|
|
|
Total |
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Comprehensive |
|
|
Stock |
|
|
Accumulated |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income/(Loss) |
|
|
Compensation |
|
|
Deficit |
|
|
Equity |
|
Balance at December 31, 2004 |
|
|
31,169,692 |
|
|
$ |
31 |
|
|
$ |
131,833 |
|
|
$ |
(88 |
) |
|
$ |
(3,335 |
) |
|
$ |
(83,895 |
) |
|
|
44,546 |
|
Exercise of stock options |
|
|
204,837 |
|
|
|
1 |
|
|
|
1,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180 |
|
Amortization of deferred stock and
stock compensation expense |
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
|
|
312 |
|
|
|
|
|
|
|
(13 |
) |
Issuances of restricted stock, net |
|
|
307,428 |
|
|
|
|
|
|
|
2,967 |
|
|
|
|
|
|
|
(2,967 |
) |
|
|
|
|
|
|
|
|
Amortization of restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,606 |
|
|
|
|
|
|
|
1,606 |
|
Forfeiture of restricted stock |
|
|
(26,274 |
) |
|
|
|
|
|
|
(214 |
) |
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
(49 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,666 |
) |
|
|
(2,666 |
) |
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
31,655,683 |
|
|
|
32 |
|
|
|
135,440 |
|
|
|
18 |
|
|
|
(4,219 |
) |
|
|
(86,561 |
) |
|
|
44,710 |
|
Exercise of stock options |
|
|
422,499 |
|
|
|
|
|
|
|
2,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,622 |
|
Issuances of restricted stock, net of
shares withheld for taxes |
|
|
144,539 |
|
|
|
|
|
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242 |
) |
Effect of adoption of FAS 123R |
|
|
(544,113 |
) |
|
|
|
|
|
|
(4,220 |
) |
|
|
|
|
|
|
4,219 |
|
|
|
|
|
|
|
(1 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
5,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,516 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,507 |
|
|
|
1,507 |
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
31,678,608 |
|
|
|
32 |
|
|
|
139,116 |
|
|
|
65 |
|
|
|
|
|
|
|
(85,054 |
) |
|
|
54,159 |
|
Exercise of stock options |
|
|
331,754 |
|
|
|
|
|
|
|
1,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,868 |
|
Issuances of restricted stock, net of
shares withheld for taxes |
|
|
178,815 |
|
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(425 |
) |
Shares Exchanged in Tm Acquisition |
|
|
3,202,034 |
|
|
|
3 |
|
|
|
41,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,754 |
|
Value of Tm options and warrants traded |
|
|
|
|
|
|
|
|
|
|
2,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,315 |
|
Stock compensation |
|
|
|
|
|
|
|
|
|
|
6,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,593 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,711 |
) |
|
|
(2,711 |
) |
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
35,391,211 |
|
|
$ |
35 |
|
|
$ |
191,218 |
|
|
$ |
(8 |
) |
|
$ |
|
|
|
$ |
(87,765 |
) |
|
$ |
103,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
LUMINEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Luminex Corporation (the Company or Luminex) develops, manufactures and sells proprietary
biological testing technologies with applications throughout the life sciences industry. The
Companys xMAP® technology, an open architecture, multiplexing technology, allows the Luminex
systems to simultaneously perform up to 100 bioassays on a single drop of fluid by reading
biological tests on the surface of microscopic polystyrene beads called microspheres. xMAP
technology combines this miniaturized liquid array bioassay capability with small lasers, digital
signal processors and proprietary software to create a system offering advantages in speed,
precision, flexibility and cost. The Companys xMAP technology is currently being used within
various segments of the life sciences industry which includes the fields of drug discovery and
development, clinical diagnostics, genetic analysis, bio-defense, protein analysis and biomedical
research.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been eliminated upon
consolidation.
The acquisition of Tm Bioscience Corporation, or Tm, now known as Luminex Molecular
Diagnostics, or LMD, was completed on March 1, 2007; therefore, the results of operations of LMD in
our consolidated financial statements only include LMD results since that date.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual amounts and results
could differ from those estimates, and such differences could be material to the financial
statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and investments with original maturities of
three months or less when purchased.
Investments
The Companys investments are classified as held-to-maturity since the Company has the intent
and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is
included in other income. Interest on securities classified as held-to-maturity is also included in
other income.
Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash, cash equivalents, accounts
receivable, accounts payable, investments, and long-term debt approximate fair value due to the nature of the instruments.
56
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk
consist of short-term investments and trade receivables. The Companys short-term investments
consist of investments in high credit quality financial institutions and corporate issuers.
The Company provides credit, in the normal course of business, to a number of its customers
geographically dispersed primarily throughout the U.S. The Company attempts to limit its credit
risk by performing ongoing credit evaluations of its customers and maintaining adequate allowances
for potential credit losses and does not require collateral.
In 2007, two customers each accounted for more than 10% of our total revenues. Bio-Rad
Laboratories, Inc. accounted for 20%, 19% and 23% of our total revenues in 2007, 2006 and 2005,
respectively. One Lambda, Inc. accounted for 15%, 15% and 16% of our total revenues in 2007, 2006
and 2005, respectively. No other customer accounted for more than 10% of total revenues in 2007,
2006 or 2005.
Inventories
Inventories, consisting primarily of raw materials and purchased components, are stated at the
lower of cost, determined using average cost, or market. The Company routinely assesses its on-hand
inventory for timely identification and measurement of obsolete, slow-moving or otherwise impaired
inventory.
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and
depreciation. Property and equipment are generally amortized or depreciated on a straight-line
basis over the useful lives of the assets, which range from two to seven years. Leasehold
improvements and equipment under capital lease are amortized on a straight-line basis over the
shorter of the remaining term of the lease or the estimated useful life of the improvements and
equipment. The Company classifies the carrying value of Luminex xMAP Instruments placed within
the reagent rental program and the instruments on loan to customers in Property and equipment as
Assets on loan/rental.
Intangible Assets
Goodwill represents the excess of the cost over the fair value of the assets of the acquired
business. Goodwill is reviewed for impairment at least annually during the fourth quarter. No
goodwill impairments were recorded in 2007. Intangible assets are amortized on a straight line
basis over their respective estimated useful lives ranging from 2 to 15 years. The useful lives of
the assets acquired as part of the Merger were established as a result of the allocation of fair
values at March 1, 2007. We have no intangible assets with indefinite useful lives.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that their net book value may not be recoverable. When such
factors and circumstances exist, the Company compares the projected undiscounted future cash flows
associated with the related asset or group of assets over their estimated useful lives against
their respective carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets and is recorded in the period in which the determination
was made.
57
Revenue Recognition and Allowance For Doubtful Accounts
Revenue from sales of the Companys products is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed and determinable and
collectability is probable. Generally, these criteria are met at the time the product is shipped.
If the criteria for revenue recognition are not met at the time of shipment, the revenue is
deferred until all criteria are met. Revenues from royalties related to agreements with strategic
partners are recognized when such amounts are reported to the Company; therefore, the underlying
end-user sales may be related to prior periods. Revenue from extended service agreements is
deferred and recognized ratably over the term of the agreement.
Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue.
We continuously monitor collections and payments from our customers and maintain allowances
for doubtful accounts based upon our historical experience and any specific customer collection
issues that have been identified. While such credit losses have historically been within our
expectations, there can be no assurance that we will continue to experience the same level of
credit losses that we have in the past. A significant change in the liquidity or financial position
of any one of our significant customers, or a deterioration in the economic environment, in
general, could have a material adverse impact on the collectability of our accounts receivable and
our future operating results, including a reduction in future revenues and additional allowances
for doubtful accounts.
Warranty Programs
We provide for the estimated cost of product warranties at the time revenue is recognized.
While we engage in product quality programs and processes, our warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service delivery costs differ from
our estimates, revisions to the estimated warranty liability would be required.
Research and Development Costs
Research and development costs are generally expensed in the period incurred; however, the
Company capitalizes certain internally developed products, used for evaluation during development
projects that also have alternative future uses as defined by SFAS 2, Accounting for Research and
Development Costs. These assets are generally depreciated on a straight-line basis over the
useful life of the assets which range from two months to one year. The Company capitalized
$122,000 and $643,000 in 2007 and 2006, respectively. Depreciation expense of $305,000, $295,000
and $2,000 was recorded in 2007, 2006 and 2005, respectively. There was $122,000 and $627,000 of
capitalized research and development costs included in other assets at December 31, 2007 and
2006, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses were not significant
for any of the years presented.
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance
metrics. Bonus accruals made throughout the year related to the various incentive plans are based
on managements best estimate of the achievement of the specific metrics. Adjustments to the
accruals are made on a quarterly basis as forecasts of performance are updated. At year-end, the
accruals are adjusted to reflect the actual results achieved.
58
Income Taxes
The Company accounts for income taxes in accordance with the liability method whereby deferred
tax assets and liabilities are determined based on differences between the basis for financial
reporting purposes and the tax bases of such assets and liabilities, and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to reverse. A
valuation allowance is established when it is more likely than not the future realization of all or
some of the deferred tax assets will not be achieved.
Effective January 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, which clarifies the
accounting for uncertainty in tax positions. FIN No. 48 requires recognition of the impact of a tax
position in the Companys financial statements only if that position is more likely than not of
being sustained upon examination by taxing authorities, based on the technical merits of the
position. Any interest and penalties related to uncertain tax positions will be reflected in income
tax expense.
Earnings Per Share
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.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS
No. 123(R), Share-Based Payment (SFAS 123(R)), using the modified-prospective-transition
method. Under that transition method, compensation cost recognized for the year ended December 31,
2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R). Results for prior periods have not been restated. See Note 14,
Employee Benefit Plans and Stock-Based Compensation for further information.
Segment Reporting
Historically the Company had operated as a single segment. Subsequent to the acquisition of
LMD, management determined that we have two segments for financial reporting purposes: the
Technology Segment and the Assay Segment. See Note 17 Segment and Geographic Information.
NOTE 2 BUSINESS COMBINATIONS
Acquisition
On March 1, 2007, the Company completed the acquisition of Tm, a DNA-based research and
diagnostics company headquartered in Toronto, Canada. Prior to the acquisition, Tm was one of our
strategic partners. All intercompany balances were eliminated upon acquisition. We believe this
acquisition is a logical extension of our strategy and that the combined Company will be in a
position to take advantage of the complementary strengths of both companies in molecular
diagnostics. The acquired company is referred to as LMD and is included in our Assay Segment for
financial reporting purposes. The focus of LMD is to design, develop, manufacture and commercialize
nucleic-acid based testing products for use in the genetic testing, personalized medicine and
infectious disease markets.
59
Upon the closing of the acquisition, we exchanged 0.06 shares of Luminex common stock for each
outstanding Tm share, which resulted in the issuance of approximately 3.2 million shares of Luminex
common stock. The value of the approximately 3.2 million common shares issued was determined based on the average
market price of our common stock over the period including five days before and after the terms of
the acquisition were agreed to and announced in accordance with SFAS No. 141, Business
Combinations (SFAS 141). We also agreed to assume the 235,732 outstanding Tm options and the
457,912 outstanding warrants according to the applicable Tm plan provisions. At the date of
acquisition, these options and warrants were potentially exercisable for approximately 694,000
additional shares of Luminex common stock on an as-converted basis. The estimated fair value of
Luminex replacement options and warrants was calculated using the Black-Scholes model. In
accordance with Statement of Financial Accounting Standards No. 123R, Share-based Payments (SFAS
123R), the portion of the estimated fair value of unvested Tm options related to future service
(approximately $242,000) was deducted from the purchase price consideration and will be recognized
as compensation expense over those awards remaining vesting period. As of December 31, 2007,
there were 90,592 replacement options outstanding with exercise prices ranging from $11.12 to
$44.88 and approximately 413,000 replacement warrants outstanding with exercise prices ranging from
$10.11 to $37.18. All of the warrants are exercisable as of December 31, 2007.
Immediately subsequent to the acquisition, we retired approximately $13.2 million of Tm debt,
including an approximately $1.0 million contractual penalty, by using existing cash reserves.
Under the terms of one of the retired debt instruments, the balance of the note became callable
upon the acquisition and was subject to a contractual penalty if either called by the debt holder
or prepaid by Tm. The penalty was triggered when the Tm shareholders ratified the acquisition of
Tm by Luminex on February 21, 2007. The penalty was recorded by Tm prior to Luminex acquisition
based on the penalty amount agreed by the debt holder, and was reflected in the opening balance of
Other current liabilities assumed.
The acquisition was accounted for as a purchase business combination in accordance with SFAS
141. LMD results of operations are included with the Companys from the date of acquisition, March
1, 2007. The purchase price of the acquisition was approximately $49.4 million, including the
issuance of common stock valued at $41.8 million and transaction costs of approximately $3.6
million. The purchase price has been allocated to the net assets acquired based on estimates of
the fair values at the date of the acquisition.
Luminex completed the process of allocating fair values for certain tangible and intangible
assets and in-process research and development (IPR&D) identified during the acquisition. The
acquired intangible assets were allocated to the Assay Segment. The excess purchase price over the
fair values of the net tangible assets, identified intangible assets and liabilities was allocated
to goodwill. Luminex recorded $39.6 million of goodwill related to the Tm acquisition in our Assay
Segment. Goodwill is not expected to be deductible for tax purposes.
60
The following table summarizes the estimated fair values of net assets at the date of
acquisition (in thousands). Certain tangible and intangible assets and liabilities were adjusted
to their estimated fair market values upon the final analysis of these values during the fourth
quarter. Based on SFAS 141, the following intangible assets evaluated were: trade name (Tag-It),
customer list/contracts, technology/trade secrets, and in-process research and development. IPR&D
has been recorded at its estimated fair market value and charged to expense in 2007.
|
|
|
|
|
Cash |
|
$ |
940 |
|
Other current assets |
|
|
3,157 |
|
Other assets |
|
|
28 |
|
Property and equipment |
|
|
3,518 |
|
Purchased intangible assets |
|
|
18,800 |
|
In-process research and development |
|
|
7,400 |
|
Goodwill |
|
|
39,617 |
|
|
|
|
|
Total assets |
|
$ |
73,460 |
|
|
|
|
|
|
|
|
|
|
Current portion of debt assumed |
|
$ |
12,447 |
|
Accrued severance assumed |
|
|
1,945 |
|
Other current liabilities assumed |
|
|
7,148 |
|
Long-term debt assumed |
|
|
2,294 |
|
Other long-term liabilities assumed |
|
|
225 |
|
|
|
|
|
Total liabilities |
|
|
24,059 |
|
|
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
49,401 |
|
|
|
|
|
Pro Forma Information
The financial information in the table below summarizes the combined results of operations of
Luminex and LMD, on a pro forma basis, as though the companies had been combined at the beginning
of 2006.
The pro forma financial information is presented for informational purposes only and is not
indicative of the results of operation that would have been achieved if the acquisition of LMD had
taken place at the beginning of fiscal 2006.
The following table summarizes the pro forma financial information for the years ended
December 31, 2007 and 2006 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Revenues |
|
$ |
75,328 |
|
|
$ |
60,361 |
|
Net loss |
|
$ |
(8,488 |
) |
|
$ |
(17,792 |
) |
Net loss per share, basic and diluted |
|
$ |
(0.25 |
) |
|
$ |
(0.51 |
) |
61
In-process Research and Development (IPR&D)
IPR&D was allocated to each IPR&D project using the estimated fair value based on an income
approach using discounted cash flows related to the products that would result from each of the
projects. The discounted cash flows were estimated based on relevant market size and growth
factors, expected industry trends, individual product sales cycles, the estimated life of each
products underlying technology, historical pricing, costs to complete the projects, costs of
production, R&D costs required to maintain the products once they have been introduced into the
market and related selling and marketing costs. The discount rates used to discount the projected
net returns were based on an internal rate of return of capital relative to the Company and the
bio-technology industry, as well as the product-specific risk associated with the IPR&D projects.
Product-specific risk includes the stage of completion of each product, the complexity of the
development work completed to date, the likelihood of achieving technological feasibility, and
market acceptance. The forecast data employed in the analyses for IPR&D was based upon both
forecast information maintained by the acquired companies and the Companys estimate of future
performance of the business. The inputs used by the Company in assessing the value of IPR&D were
based upon assumptions that the Company believes to be reasonable but which are inherently
uncertain and unpredictable.
In conjunction with the acquisition, the Company has recorded total IPR&D expense of $7.4
million for acquired IPR&D which was not technologically feasible as of the acquisition date and
had no alternative future use.
NOTE 3 INVESTMENTS
Held-to-maturity securities as of December 31, 2007 and 2006 consisted of $6.9 million and
$18.3 million of federal agency debt securities, respectively. Amortized cost approximates fair
value of these investments.
The amortized cost of held-to-maturity debt securities at December 31, 2007 and 2006, by
contractual maturity, are shown below (in thousands). Expected maturities may differ from
contractual maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Accrued |
|
|
Amortized |
|
|
|
|
|
|
Accrued |
|
|
Amortized |
|
|
|
Cost |
|
|
Interest |
|
|
Cost |
|
|
Cost |
|
|
Interest |
|
|
Cost |
|
Due in one year or less |
|
$ |
6,944 |
|
|
$ |
38 |
|
|
$ |
6,982 |
|
|
$ |
10,956 |
|
|
$ |
183 |
|
|
$ |
11,139 |
|
Due after one year through two years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,346 |
|
|
|
84 |
|
|
|
7,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,944 |
|
|
$ |
38 |
|
|
$ |
6,982 |
|
|
$ |
18,302 |
|
|
$ |
267 |
|
|
$ |
18,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
Accounts receivable |
|
$ |
12,183 |
|
|
$ |
8,538 |
|
Less: Allowance for doubtful accounts |
|
|
(356 |
) |
|
|
(301 |
) |
|
|
|
|
|
|
|
|
|
$ |
11,827 |
|
|
$ |
8,237 |
|
|
|
|
|
|
|
|
62
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
278 |
|
Reductions charged to costs and expenses |
|
|
90 |
|
Write-offs of uncollectible accounts |
|
|
(2 |
) |
Recoveries of uncollectible accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
366 |
|
Additions charged to costs and expenses |
|
|
(52 |
) |
Write-offs of uncollectible accounts |
|
|
(13 |
) |
Recoveries of uncollectible accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
301 |
|
Reductions charged to costs and expenses |
|
|
|
|
Write-offs of uncollectible accounts |
|
|
(1 |
) |
Additions due to acquired accounts receivable |
|
|
56 |
|
Recoveries of uncollectible accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
356 |
|
|
|
|
|
NOTE 5 INVENTORY, NET
Inventory consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Parts and supplies |
|
$ |
3,613 |
|
|
$ |
3,504 |
|
Work-in-progress |
|
|
1,632 |
|
|
|
555 |
|
Finished goods |
|
|
1,956 |
|
|
|
932 |
|
|
|
|
|
|
|
|
|
|
|
7,201 |
|
|
|
4,991 |
|
|
|
|
|
|
|
|
|
|
Less: Allowance for excess and obsolete inventory |
|
|
(693 |
) |
|
|
(420 |
) |
|
|
|
|
|
|
|
|
|
$ |
6,508 |
|
|
$ |
4,571 |
|
|
|
|
|
|
|
|
The Company has non-cancelable purchase commitments with certain of its component suppliers in
the amount of approximately $3.2 million for 2007. Should production requirements fall below the
level of the Companys commitments, the Company could be required to take delivery of inventory for
which it has no immediate need or incur an increased cost per unit going forward.
63
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
Laboratory equipment |
|
$ |
7,686 |
|
|
$ |
4,502 |
|
Leasehold improvements |
|
|
6,089 |
|
|
|
3,284 |
|
Computer equipment |
|
|
1,944 |
|
|
|
1,477 |
|
Purchased software and intangibles |
|
|
4,463 |
|
|
|
2,738 |
|
Furniture and fixtures |
|
|
1,512 |
|
|
|
574 |
|
Assets on loan/rental |
|
|
1,341 |
|
|
|
|
|
Capital lease equipment |
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,150 |
|
|
|
12,575 |
|
Less: Accumulated amortization and depreciation |
|
|
(10,477 |
) |
|
|
(7,590 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,673 |
|
|
$ |
4,985 |
|
|
|
|
|
|
|
|
Depreciation expense was $3.0 million, $1.3 million, and $880,000 for the years ended December
31, 2007, 2006, and 2005, respectively.
NOTE 7 INTANGIBLE ASSETS
As of December 31, 2007, we had amortized identifiable intangible assets of the following (in
thousands except weighted average lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying |
|
|
Accumulated |
|
|
Weighted |
|
|
|
amount |
|
|
amortization |
|
|
average life |
|
Technology/trade secrets |
|
$ |
17,400 |
|
|
$ |
1,570 |
|
|
|
9 |
|
Customer lists/contracts |
|
|
1,100 |
|
|
|
61 |
|
|
|
15 |
|
Trade name |
|
|
300 |
|
|
|
250 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,800 |
|
|
$ |
1,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization expense related to purchased intangible assets for the year ended December
31, 2007 was $1.9 million. The estimated aggregate amortization expense for the next five years is
as follows (in thousands):
|
|
|
|
|
|
|
For the year ending |
|
|
|
December 31, |
|
2008 |
|
|
2,013 |
|
2009 |
|
|
1,963 |
|
2010 |
|
|
1,963 |
|
2011 |
|
|
1,963 |
|
2012 |
|
|
1,963 |
|
64
NOTE 8 OTHER ASSETS
Other assets consisted of the following at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
Purchased technology rights (net of accumulated amortization of
$108,000 and $416,000 in 2007 and 2006, respectively) |
|
$ |
509 |
|
|
$ |
856 |
|
Other |
|
|
587 |
|
|
|
531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,096 |
|
|
|
1,387 |
|
Less: Current portion |
|
|
(114 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
982 |
|
|
$ |
1,270 |
|
|
|
|
|
|
|
|
For the years ended December 31, 2007 and 2006, the Company recognized amortization expense
related to the amortization of these acquired technology rights of approximately $89,000 and
$108,000, respectively. Future amortization expense will be $114,000 in 2008, $114,000 in 2009,
$114,000 in 2010, $105,000 in 2011, $21,000 in 2012 and $43,000 thereafter.
NOTE 9 ACCRUED WARRANTY COSTS
Sales of certain of the Companys systems are subject to a warranty. System warranties
typically extend for a period of twelve months from the date of installation or no more than 15
months from the date of shipment. The Company estimates the amount of warranty claims on sold
product that may be incurred based on current and historical data. The actual warranty expense
could differ from the estimates made by the Company based on product performance. Warranty
expenses are evaluated and adjusted periodically.
The following table summarizes the changes in the warranty accrual (in thousands):
|
|
|
|
|
Accrued warranty costs at December 31, 2004 |
|
$ |
504 |
|
Warranty expenses |
|
|
(785 |
) |
Accrual for warranty costs |
|
|
632 |
|
|
|
|
|
Accrued warranty costs at December 31, 2005 |
|
|
351 |
|
Warranty expenses |
|
|
(635 |
) |
Accrual for warranty costs |
|
|
595 |
|
|
|
|
|
Accrued warranty costs at December 31, 2006 |
|
|
311 |
|
Warranty expenses |
|
|
(525 |
) |
Accrual for warranty costs |
|
|
473 |
|
|
|
|
|
Accrued warranty costs at December 31, 2007 |
|
$ |
259 |
|
|
|
|
|
NOTE 10 INCOME TAXES
The components of income (loss) before income taxes for the years ended December 31 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Domestic |
|
|
12,164 |
|
|
|
1,428 |
|
|
|
(2,786 |
) |
Foreign |
|
|
(14,585 |
) |
|
|
99 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(2,421 |
) |
|
|
1,527 |
|
|
|
(2,666 |
) |
|
|
|
|
|
|
|
|
|
|
65
The components of the provision for income taxes attributable to continuing operations for the
years ended December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
177 |
|
|
$ |
|
|
|
$ |
|
|
Foreign |
|
|
84 |
|
|
|
40 |
|
|
|
22 |
|
State |
|
|
29 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
290 |
|
|
|
20 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
290 |
|
|
$ |
20 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had U.S. federal net operating loss carryforwards of
approximately $85.8 million and research and development credit carryforwards of approximately $2.5
million that will begin to expire in 2013 if not utilized prior to that time. Due to the taxable
income that resulted from the RBM settlement, $8.7 million of our operating loss carryforwards were
utilized in 2007. In addition, due to the acquisition of Tm, the Company has Canadian non-capital
income tax loss carryforwards of $40.4 million, a scientific research and experimental development
pool in Canada of $23.8 million, and investment tax credits in Canada of $4.9 million that will
begin to expire in 2009 if not utilized prior to that time Utilization of the net operating losses
and tax credits may be subject to substantial annual limitation due to the change in ownership
provisions of the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and research and development credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Companys deferred tax liabilities and
assets as of December 31 are as follows (in thousands):
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and other |
|
$ |
1,061 |
|
|
$ |
775 |
|
|
$ |
645 |
|
|
|
|
|
|
|
|
|
|
|
Gross current deferred tax assets |
|
|
1,061 |
|
|
|
775 |
|
|
|
645 |
|
Valuation allowance |
|
|
(1,059 |
) |
|
|
(628 |
) |
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets |
|
|
2 |
|
|
|
147 |
|
|
|
220 |
|
Noncurrent deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards |
|
|
54,168 |
|
|
|
34,155 |
|
|
|
35,018 |
|
Deferred revenue |
|
|
2,535 |
|
|
|
2,342 |
|
|
|
2,562 |
|
Depreciation and amoritization |
|
|
7,902 |
|
|
|
348 |
|
|
|
279 |
|
Investment basis |
|
|
|
|
|
|
1,637 |
|
|
|
1,637 |
|
Stock compensation and other |
|
|
1,981 |
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Noncurrent Deferred Tax Assets |
|
|
66,586 |
|
|
|
39,097 |
|
|
|
39,496 |
|
Valuation allowance |
|
|
(60,944 |
) |
|
|
(39,069 |
) |
|
|
(39,496 |
) |
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax assets |
|
|
5,642 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
(147 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
Total current deferred tax liabilities |
|
|
|
|
|
|
(147 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
Net current
deferred tax asset (liability) |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
Noncurrent deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangibles |
|
$ |
(5,521 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities |
|
$ |
(5,521 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncurrent deferred tax asset (liability) |
|
$ |
121 |
|
|
$ |
28 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred
tax assets (liabilities) |
|
$ |
123 |
|
|
$ |
28 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The Company has established a valuation allowance equal to the net deferred tax assets less
the federal benefit amount of the Texas margin deferred tax asset of $123,000 due to uncertainties
regarding the realization of deferred tax assets based on the Companys lack of earnings history.
The valuation allowance increased by approximately $21.8 million during 2007 due to the acquisition
of LMD. Approximately $12.0 million of the valuation allowance relates to tax benefits for stock
option deductions included in the net operating loss carryforward, which when realized, will be
allocated directly to contributed capital to the extent the benefits exceed amounts attributable to
deferred stock compensation expense. As of December 31, 2007, the valuation allowance includes
approximately $24.5 million of pre-acquisition deferred tax assets of Tm. To the extent any of
these assets are recognized, the adjustment will be applied first to reduce to zero any goodwill
related to the acquisition, and then as a reduction to the tax provision.
Undistributed earnings of our foreign subsidiary are considered permanently reinvested and,
accordingly, no provision for U.S. federal or state income taxes has been provided thereon.
The Companys provision (benefit) for income taxes attributable to continuing operations
differs from the expected tax expense (benefit) amount computed by applying the statutory federal
income tax rate of 34% to income before income taxes as a result of the following:
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Statutory tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State taxes, net of federal benefit |
|
|
3.6 |
% |
|
|
(2.7 |
)% |
|
|
3.0 |
% |
Permanent items |
|
|
(21.2 |
)% |
|
|
3.3 |
% |
|
|
(1.4 |
)% |
Effect of foreign operations |
|
|
14.7 |
% |
|
|
0.5 |
% |
|
|
0.0 |
% |
Research and incentive tax credit generated |
|
|
35.8 |
% |
|
|
(22.0 |
)% |
|
|
0.0 |
% |
Canadian tax rate change |
|
|
(64.8 |
)% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Deferred assets not benefited |
|
|
(11.4 |
)% |
|
|
(11.7 |
)% |
|
|
(36.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.3 |
)% |
|
|
1.4 |
% |
|
|
(0.8 |
)% |
|
|
|
|
|
|
|
|
|
|
On January 1, 2007, the Company adopted the provisions of FIN No. 48, which prescribes a
comprehensive model for how a company should recognize, measure, present and disclose in its
financial statements uncertain tax positions that the company has taken or expects to take on a tax
return. Though the validity of any tax position is a matter of tax law, the body of statutory,
regulatory and interpretive guidance on the application of the law is complex and often ambiguous.
Because of this, whether a tax position will ultimately be sustained may be uncertain.
Prior to January 1, 2007, the impact of an uncertain tax position that did not create a
difference between the financial statement basis and the tax basis of an asset or liability was
included in our income tax provision if it was probable the position would be sustained upon audit.
The benefit of any uncertain tax position that was temporary was reflected in our tax provision if
it was more likely than not that the position would be sustained upon audit. Prior to the adoption
of FIN 48, we recognized interest expense based on our estimates of the ultimate outcomes of the
uncertain tax positions.
Under FIN 48, the impact of an uncertain tax position that is more likely than not of being
sustained upon audit by the relevant taxing authority must be recognized at the largest amount that
is more likely than not to be sustained. No portion of an uncertain tax position will be recognized
if the position has less than a 50% likelihood of being sustained. Also, under FIN 48, interest
expense is recognized on the full amount of deferred benefits for uncertain tax positions.
As of the date of adoption of FIN 48 and at December 31, 2007, all of the unrecognized tax
benefits are associated with tax carryforwards that, if recognized, would have no effect on the
effective tax rate because the recognition of the associated deferred tax asset would be offset by
an increase to the valuation allowance. In the United States, the federal income tax returns for
years after 1996 are open and in Canada, the federal income tax returns for years after 2003 are
open. There are numerous other income tax jurisdictions for which tax returns are not yet settled,
none of which are individually significant. Reserves for interest and penalties are not
significant. The Company does not expect significant changes in the aggregate amount of
unrecognized tax benefits that may occur within the next twelve months.
NOTE 11 LONG-TERM DEBT
On December 31, 2007, long-term debt consisted of a loan payable to Technology Partnership
Canada (TPC) valued at $3.0 million and the related short term interest payable of $134,000.
On December 12, 2003, Tm entered into an agreement with the Ministry of Industry of the
Government of Canada under which the Government agreed to invest up to Canadian (Cdn) $7.3
million relating to the development of several genetic tests. Funds were advanced from Technology
Partnerships Canada (TPC), a special operating program. The actual payments received by the
Company were predicated on eligible expenditures made during the project period which ended July
31, 2006. As of December 31, 2007, the Company had received $4.4 million from TPC which is
expected to be repaid along with approximately $1.3 million of imputed interest for a total of
approximately $5.7 million.
68
Tm agreed to repay the TPC funding through a royalty on specific assay revenue related to the
funded product development. This liability was assumed by the Company as part of the acquisition
and the liability was recorded at fair value as the date of acquisition. This liability is subject
to adjustments for foreign currency translation effects as it is a foreign currency denominated
balance. Royalty payments commenced in 2007 at a rate of 1% of assay revenue and at a rate of 2.5%
for 2008 and thereafter. Aggregate royalty repayment will continue until total advances plus
imputed interest has been repaid or until April 30, 2015, whichever is earlier. The repayment
obligation expires on April 30, 2015 and any unpaid balance will be cancelled and forgiven on that
date. Should the term of repayment be shorter than we expect due to higher than expected assay
revenue, the effective interest rate would increase as repayment is accelerated.
Estimated principal repayments on the debt for the next five years and thereafter are as
follows (in thousands):
|
|
|
|
|
2008 |
|
$ |
134 |
|
2009 |
|
|
531 |
|
2010 |
|
|
870 |
|
2011 |
|
|
1,948 |
|
2012 |
|
|
2,242 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
5,725 |
|
Less: Amount representing implied interest |
|
|
(1,345 |
) |
|
|
|
|
Total principal repayments |
|
$ |
4,380 |
|
Revaluation of debt |
|
|
(1,404 |
) |
|
|
|
|
|
|
$ |
2,976 |
|
|
|
|
|
In 2007, the Company had imputed interest expense related to its long-term debt of $201,000.
The effective interest rate was 6.65% as of December 31, 2007.
NOTE 12 NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per
share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,711 |
) |
|
$ |
1,507 |
|
|
$ |
(2,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss) per share -
weighted average common stock outstanding |
|
|
34,361 |
|
|
|
31,434 |
|
|
|
30,990 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and awards |
|
|
|
|
|
|
1,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income (loss) per share -
weighted average shares outstanding - diluted |
|
|
34,361 |
|
|
|
32,988 |
|
|
|
30,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
|
|
$ |
(0.09 |
) |
Diluted net income (loss) per share |
|
$ |
(0.08 |
) |
|
$ |
0.05 |
|
|
$ |
(0.09 |
) |
69
Restricted stock awards (RSAs) and stock options to acquire $1.1 million, 658,000, and 1.7
million shares for the years ended December 31, 2007, 2006 and 2005, respectively, were excluded
from the computations of diluted EPS because the effect of including the RSAs and stock options
would have been anti-dilutive.
NOTE 13 STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME/ LOSS
Preferred Stock
The Companys Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote or action by the
Companys stockholders. At December 31, 2007 and 2006, there was no preferred stock issued and
outstanding.
Stockholders Rights Plan
On June 20, 2001, the Companys Board of Directors declared a dividend of one right for each
outstanding share of the Companys common stock to stockholders of record at the close of business
on July 2, 2001. Each right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.001 per share, at a purchase price of $100 per fractional share, subject to adjustment.
The rights are not currently exercisable and will become exercisable only in the event a person or
group acquires beneficial ownership of 20 percent or more of common stock. The rights expire on
June 20, 2011.
Comprehensive Income/Loss
The Companys comprehensive income or loss is comprised of net income or loss and foreign
currency translation. Comprehensive loss for the year ended December 31, 2007 was approximately
$2.8 million and comprehensive income for the year ended December 31, 2006 was approximately $1.6
million.
NOTE 14 EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Stock-Based Compensation
At December 31, 2007, the Company has two stock-based employee compensation plans pursuant to
which grants may be made, the 2006 Equity Incentive Plan (the Equity Incentive Plan) and the 2006
Management Stock Purchase Plan (the MSPP) which were approved at our Annual Meeting on May 25,
2006. No further grants shall be made pursuant to the 1996 Stock Option Plan (the 1996 Plan),
the 2000 Long-Term Incentive Plan (the 2000 Plan), the 2001 Broad-Based Stock Option Plan (the
2001 Plan), or the Tm Bioscience Corporation Share Option Plan (the Tm Plan) that the Company
assumed in connection with the Tm acquisition. The Tm Plan governs the former Tm options which
were exchanged for options to purchase shares of Luminex common stock in connection with the
acquisition. Prior to January 1, 2006, the Company accounted for its plans under the recognition
and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). Pursuant thereto, compensation costs related to employee stock options
granted at fair value under those plans were not recognized in the consolidated statements of
income. Compensation costs related to RSAs and stock options granted below fair value were
recognized in the consolidated statements of income.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS
123(R), using the modified-prospective-transition method.
70
Equity Incentive Plans
Under the Companys Equity Incentive Plan, 1996 Plan, 2000 Plan, 2001 Plan, and the Tm Plan,
certain employees, consultants and non-employee directors have been granted RSAs, restricted share
units (RSUs) and options to purchase shares of common stock. The options, RSAs, and RSUs generally
vest in installments over a
four to five year period, and the options expire either five or ten years after the date of
grant. Under the Equity Incentive Plan, certain employees, directors of, and consultants to the
Company are eligible to be granted RSAs, RSUs, and options to purchase common stock. The MSPP
provides for the granting of rights to defer an elected percentage of their bonus compensation
through the purchase of restricted shares of the Companys common stock, discounted by 20%, to
certain officers of the Company. As of December 31, 2007, there were 858,000 shares authorized for
future issuance under the Companys Equity Incentive Plan and 500,000 shares eligible for purchase,
pursuant to the terms and conditions thereof, under the MSPP.
In connection with the Tm acquisition, warrants for the purchase of Tm common stock were
converted to the right to acquire shares of Luminex common stock. There are currently outstanding
warrants to purchase up to approximately 413,000 shares of Luminex common stock with a weighted
average exercise price of $20.95 per share expiring on or before November 2011.
The Equity Incentive Plan, the MSPP, the 1996 Plan, the 2000 Plan, the 2001 Plan, and the Tm
Plan are administered by the Compensation Committee of the Board of Directors. The Compensation
Committee has the authority to determine the terms and conditions under which awards will be
granted from the Equity Incentive Plan, including the number of shares, vesting schedule and term,
as applicable. Any option award exercise prices, as set forth in the Equity Incentive Plan, will be
equal to the fair market value on the date of grant. Under certain circumstances, the Company may
repurchase previously granted RSAs and RSUs.
On March 25, 2007, the Compensation Committee approved an amendment to the restricted stock
agreement, dated May 17, 2004 (the Restricted Stock Agreement), of our CEO, Patrick J. Balthrop.
The Company and Mr. Balthrop initially entered into the Restricted Stock Agreement in connection
with the hiring of Mr. Balthrop as the President and Chief Executive Officer of the Company. The
Restricted Stock Agreement provided for the grant of 200,000 restricted shares, which would vest in
portions based on the attainment of certain performance goals related to Company revenue, earnings
and stock price. If the goals provided for in the Restricted Stock Agreement were not achieved by
the end of the fifth anniversary of the date of the Restricted Stock Agreement, all non-vested
shares would be forfeited. The amendment provides for the automatic vesting of all unvested
restricted shares immediately prior to the fifth anniversary of the date of the Restricted Stock
Agreement, to the extent any or all of the performance measures have not been previously achieved.
Mr. Balthrops 200,000 share restricted stock award, as amended, has market, service or performance
criteria for vesting of all shares. We have assumed that vesting will occur at the end of the five
years based on achievement of the service criteria so all expense is being amortized straight-line
over the five-year period from May 17, 2004 through 2009. Pursuant to the amendment to this award,
the award was revalued to the market price on the date of amendment of $14.39. This resulted in
additional expense to the Company of approximately $356,000 of which approximately $257,000 was
recognized in 2007 and approximately $99,000 of which will be recognized pro-rata over the
remaining term of the award.
In connection with the hiring of our Chief Executive Officer, the Company issued Patrick J.
Balthrop a non-qualified stock option grant for the purchase of 500,000 shares of the Companys
common stock dated May 15, 2004 at an exercise price of $9.36 per share (the Balthrop Option).
The Balthrop Option vests 25% on the first anniversary of the date of grant and ratably on a
monthly basis for the three years following the initial vesting date. This award was not pursuant
to any of the Companys existing equity incentive plans. As previously reported, at a meeting of
the Compensation Committee of the Board of Directors on February 10, 2005, the committee approved
resolutions to increase the exercise price of the Balthrop Option from $9.36 per share to $10.10
per share (the closing market price on the date immediately preceding the original grant date).
This modification was made in order to eliminate the potential application of certain adverse tax
implications in light of tax law changes created as a result of the American Jobs Creation Act of
2004. In connection therewith, the Compensation Committee approved a cash bonus payable to Mr.
Balthrop to be paid consistent with the vesting period of the option grant, subject to Mr.
Balthrops continued employment, equal to $370,000. According to the vesting schedule and assuming
no acceleration event contemplated by the Balthrop Option, one quarter of the cash bonus was paid
as of May 15, 2005 (the first vesting date and consistent with the equity vesting) and the balance
of such payments is being made in equal monthly installments over the 36 months thereafter.
71
Accounting for Stock Compensation
Stock-based compensation costs are generally based on the fair value calculated from the
Black-Scholes option-pricing model on the date of grant for stock options and intrinsic value on
the date of grant for RSAs. The fair values of stock are amortized as compensation expense on a
straight-line basis over the vesting period of the grants.
In accordance with SFAS 123(R), the Company evaluates the assumptions used in the
Black-Scholes model on an annual basis using a consistent methodology for computing expected
volatility, expected term and risk-free rate of return. Calculation of expected volatility is based
on historical volatility. The expected term is calculated using the contractual term of the options
as well as an analysis of the Companys historical exercises of stock options. The estimate of
risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
Company has never paid cash dividends and does not currently intend to pay cash dividends, thus has
assumed a 0% dividend yield. The assumptions used are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected volatility |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Risk-free rate of return |
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
5.0 |
% |
Expected life |
|
4 yrs. |
|
|
6 yrs. |
|
|
7 yrs. |
|
Weighted average fair
value at grant date |
|
$ |
4.70 |
|
|
|
N/A |
[1] |
|
$ |
4.68 |
|
|
|
|
[1] |
|
No stock options were issued to employees during this period. |
As part of the requirements of SFAS 123(R), the Company is required to estimate potential
forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of
forfeitures is based on historical forfeiture performance and will be adjusted over the requisite
service period to the extent that actual forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up
adjustment in the period of change and will also impact the amount of stock compensation expense to
be recognized in future periods.
The Companys stock option activity for the year ended December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
Stock Options |
|
(in thousands) |
|
|
Price |
|
|
Life |
|
|
(in thousands) |
|
Outstanding at December 31, 2006 |
|
|
3,163 |
|
|
$ |
9.76 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
823 |
|
|
|
20.91 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(332 |
) |
|
|
5.63 |
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(210 |
) |
|
|
23.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
3,444 |
|
|
$ |
11.96 |
|
|
|
4.88 |
|
|
|
19,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2007 and expected to vest |
|
|
3,437 |
|
|
$ |
11.95 |
|
|
|
4.87 |
|
|
|
19,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
3,186 |
|
|
$ |
11.83 |
|
|
|
4.67 |
|
|
|
18,873 |
|
During the years ended December 31, 2007, 2006 and 2005, the total intrinsic value of stock
options exercised was $3.2 million, $4.3 million, and $799,000, respectively, and the total fair
value of stock options that vested was $2.8 million, $2.5 million and $4.1 million, respectively.
The Company had $1.5 million of total unrecognized
compensation costs related to stock options at December 31, 2007 that are expected to be
recognized over a weighted-average period of 1.7 years.
72
The Companys stock option activity for the years ended December 31, 2006 and 2005 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Options outstanding, December 31, 2004 |
|
|
4,066 |
|
|
$ |
9.76 |
|
Granted |
|
|
53 |
[1] |
|
$ |
7.48 |
|
Exercised |
|
|
(205 |
) |
|
$ |
5.76 |
|
Surrendered |
|
|
(156 |
) |
|
$ |
12.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2005 |
|
|
3,758 |
|
|
$ |
9.85 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(423 |
) |
|
$ |
6.22 |
|
Surrendered |
|
|
(172 |
) |
|
$ |
20.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2006 |
|
|
3,163 |
|
|
$ |
9.76 |
|
|
|
|
[1] |
|
This number has been adjusted to include options that were granted in
the period, but previously reflected as available for future issuance. |
The Companys restricted share activity for the year ended December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Grant-Date |
|
Restricted Stock Awards |
|
(in thousands) |
|
|
Fair Value |
|
Non-vested at December 31, 2006 |
|
|
798 |
|
|
$ |
13.54 |
|
Granted |
|
|
776 |
|
|
|
13.23 |
|
Vested |
|
|
(209 |
) |
|
|
13.48 |
|
Cancelled or expired |
|
|
(32 |
) |
|
|
13.53 |
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007 |
|
|
1,333 |
|
|
$ |
13.37 |
|
As of December 31, 2007, there was $13.8 million of unrecognized compensation cost related to
RSAs and RSUs. That cost is expected to be recognized over a weighted average-period of 3.3 years.
The total fair value of shares vested during the year ended December 31, 2007, 2006 and 2005 was
$2.8 million, $1.5 million, and $437,000, respectively.
RSAs may be granted at the discretion of the Board of Directors under the Equity Incentive
Plan in connection with the hiring or retention of key employees and are subject to certain
conditions. Restrictions expire at certain dates after the grant date in accordance with specific
provisions in the applicable agreement. During the year ended December 31, 2007, the Company
awarded 776,359 shares of restricted common stock, which had a fair value at the date of grant
ranging from $12.43 $14.39. During the year ended December 31, 2006, the Company awarded 426,458
shares of restricted common stock, which had a fair value at the date of grant ranging from $11.91
- $19.13. During the year ended December 31, 2005, the Company awarded 307,428 shares of
restricted common stock, which had a fair value at the date of grant ranging from $7.53 $10.40.
Compensation under these restricted stock awards was charged to expense over the restriction period
and amounted to $4.4 million, $2.8 million and $1.6 million in 2007, 2006 and 2005, respectively.
There were no significant stock compensation costs capitalized into assets as of December 31,
2007.
73
The Company received $1.9 million, $2.6 million, and $1.2 million for the exercise of stock
options during the year ended December 31, 2007, 2006 and 2005, respectively. Cash was not used to
settle any equity instruments previously granted. The Company issued shares pursuant to grants
relating to each of the Equity Incentive Plan, 2000 Plan and 2001 Plan from reserves upon the
exercise of stock options and vesting of RSAs. The Company does not currently expect to repurchase
shares from any source to satisfy such obligation under these plans.
The following are the stock-based compensation costs recognized in the Companys consolidated
statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Cost of revenue |
|
$ |
380 |
|
|
$ |
318 |
|
|
$ |
81 |
|
Research and development |
|
|
810 |
|
|
|
594 |
|
|
|
116 |
|
Selling, general and administrative |
|
|
5,403 |
|
|
|
4,599 |
|
|
|
1,478 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs reflected
in net income (loss) |
|
$ |
6,593 |
|
|
$ |
5,511 |
|
|
$ |
1,675 |
|
As discussed above, results for prior periods have not been restated to reflect the effects of
implementing SFAS 123(R). The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS 123 to stock options
granted under the Companys stock option plans for the year ended December 31, 2005. For purposes
of this pro forma disclosure, the value of the stock options was estimated using a Black-Scholes
option-pricing formula and amortized to expense over the options vesting periods (in thousands):
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2005 |
|
|
|
|
|
|
Net loss, as reported |
|
$ |
(2,666 |
) |
Add: Stock-based employee compensation expense
included in reported net loss |
|
|
1,575 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards |
|
|
(4,834 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(5,925 |
) |
|
|
|
|
Earnings per share |
|
|
|
|
Basic and Diluted - as reported |
|
$ |
(0.09 |
) |
Basic and
Diluted - pro forma |
|
$ |
(0.19 |
) |
74
Reserved Shares of Common Stock
At December 31, 2007 and 2006, the Company had reserved 4,801,687 and 5,389,865 shares of
common stock, respectively, for the issuance of common stock upon the exercise of options, issuance
of RSAs, RSUs, purchase of common stock pursuant to the MSPP or other awards issued pursuant to the
Companys equity plans and arrangements. The following table summarizes the reserved shares by plan
as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options / Warrants |
|
|
Shares Available |
|
|
Total Shares |
|
|
|
Outstanding |
|
|
for Future Issuance |
|
|
Reserved |
|
1996 Plan |
|
|
20,400 |
|
|
|
|
|
|
|
20,400 |
|
2000 Plan |
|
|
1,665,118 |
|
|
|
|
|
|
|
1,665,118 |
|
2001 Plan |
|
|
625,412 |
|
|
|
|
|
|
|
625,412 |
|
2006 Equity Incentive Plan |
|
|
129,173 |
|
|
|
858,006 |
|
|
|
987,179 |
|
2006 Mangement Stock Purchase Plan |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
Tm Plan |
|
|
90,592 |
|
|
|
|
|
|
|
90,592 |
|
Other * |
|
|
912,986 |
|
|
|
|
|
|
|
912,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,443,681 |
|
|
|
1,358,006 |
|
|
|
4,801,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Balthrop Option and Tm Warrants |
Employee Savings Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by
section 401(k) of the Internal Revenue Code. In accordance with the 401(k) plan, all employees are
eligible to participate in the plan on the first day of the month following the commencement of
full time employment. For 2007, 2006 and 2005, each employee could contribute a percentage of
compensation up to a maximum of $15,500, $15,000 and $14,000 per year, respectively, with the
Company matching 50% of each employees contributions. The Companys contributions for 2007, 2006
and 2005 were $543,000, $435,000 and $345,000, respectively.
NOTE 15 COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company has operating leases related primarily to its office and manufacturing facilities
with original lease periods up to 10 years. Rental and lease expense for these operating leases for
the years 2007, 2006 and 2005 totaled approximately $1.2 million, $995,000 and $842,000,
respectively.
Minimum annual lease commitments as of December 31, 2007 under non-cancelable leases for each
of the next five years and in the aggregate were as follows (in thousands):
|
|
|
|
|
2008 |
|
$ |
2,506 |
|
2009 |
|
|
1,652 |
|
2010 |
|
|
585 |
|
2011 |
|
|
134 |
|
Thereafter |
|
|
56 |
|
|
|
|
|
Total |
|
$ |
4,933 |
|
|
|
|
|
These non-cancelable lease commitments related to facilities include certain rent escalation
provisions which have been included in the minimum annual rental commitments shown above. These
amounts are recorded to expense on a straight-line basis over the life of the lease. In addition,
some of the Companys leases contain options
to renew the lease for five to ten years at the then prevailing market rental rate, right of
first refusal to lease additional space that becomes available, or leasehold improvement incentives
75
Non-Cancelable Purchase Commitments
As of December 31, 2007 the Company had approximately $3.2 million in purchase commitments
with several of its inventory suppliers. These commitments require delivery of minimum amounts of
components throughout 2008. None of the Companys current commitments extend past 2008.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives.
Generally, certain amounts may become payable in the event the Company terminates the executives
employment without cause or the executive resigns for good reason.
Gain on Settlement of Liability
The Company has renegotiated a contract acquired as part of the acquisition of Tm Bioscience.
As part of the contract renegotiation there was a settlement of a liability of $2.3 million which
we have recorded as a gain on settlement of liability.
Legal Proceedings
On January 16, 2008, Luminex Corporation and Luminex Molecular Diagnostics, Inc. were served
with a complaint, filed by The Research Foundation of the State University of New York (SUNY) in
Federal District Court for the Northern District of New York, alleging, among other claims, that
LMD breached its license agreement with SUNY by failing to pay royalties allegedly owed under the
agreement. On February 9, 2008, Luminex and LMD filed an answer to this complaint denying all
claims brought by SUNY.
Unfunded Credit Facility
On March 1, 2007, the Company entered into a senior revolving credit facility with JPMorgan
Chase Bank, N.A., which provides borrowings of up to a maximum aggregate principal amount
outstanding of $15.0 million based on availability under a borrowing base consisting of eligible
accounts and inventory. The obligations under the senior revolving credit facility are guaranteed
by the wholly-owned domestic subsidiaries of the Company and secured by all of the accounts,
equipment inventory and general intangibles (excluding intellectual property) of the Company and
the guarantors including the pledge of an intercompany note from LMD and payable to the Company.
Loans under the senior credit facility accrue interest on the basis of either a base rate or a
LIBOR rate. The base rate is calculated daily and is the greater of (i) prime minus 1.00% and (ii)
federal funds rate plus .50%. Borrowings at the LIBOR rate are based on one, two or three month
periods and interest is calculated by taking the sum of (i) the product of LIBOR for such period
and statutory reserves plus (ii) 1.75%. We pay a fee of 0.125% per annum on the unfunded portion
of the lenders aggregate commitment under the facility. Approximately, $10.6 million is available
for borrowing at December 31, 2007.
The senior credit facility contains conditions to making loans, representations, warranties
and covenants, including financial covenants customary for a transaction of this type. Financial
covenants include (i) a tangible net worth covenant of $25.0 million following the acquisition and
(ii) a liquidity requirement of availability not less than the funded debt of the Company and its
subsidiaries (including LMD) calculated using the unencumbered cash, cash equivalents and
marketable securities of the Company and the guarantors. The senior credit facility also contains
customary events of default as well as restrictions on undertaking certain specified corporate
actions, including, among others, asset dispositions, acquisitions and other investments,
dividends, fundamental corporate changes such as mergers and consolidations, incurrence of
additional indebtedness, creation of liens and negative pledges, transactions with affiliates and
agreements as to certain subsidiary restrictions and the creation of additional subsidiaries. If
an event of default occurs that is not otherwise waived or cured, the lender may terminate its
obligations to make loans under the senior credit facility and may declare the loans then
outstanding under the senior credit facility to be due and payable. We believe we are currently in
compliance with our financial and other
covenants under the senior credit facility. As of December 31, 2007, no amounts were
outstanding under the senior revolving credit facility.
76
NOTE 16 GUARANTEES
The terms and conditions of the Companys development and supply and license agreements with
its strategic partners generally provide for a limited indemnification of such partners, arising
from the sale of Luminex Systems and consumables, against losses, expenses and liabilities
resulting from third-party claims based on an alleged infringement on an intellectual property
right of such third party. The terms of such indemnification provisions generally limit the scope
of and remedies for such indemnification obligations. To date, the Company has not had to reimburse
any of its strategic partners for any losses arising from such indemnification obligations.
NOTE 17 SEGMENT AND GEOGRAPHIC INFORMATION
The Chief Operating Decision Maker (CODM), as defined by SFAS No. 131, is Luminexs Chief
Executive Officer. The CODM allocates resources to and assesses the performance of each operating
segment using information about its revenue and projections. Our reporting segments reflect the
nature of the products offered to customers and the markets served and are comprised of the
following:
Technology Segment represents our base business and consists of system sales to partners,
raw bead sales, royalties, service and support of the technology, and other miscellaneous items.
Assay Segment consists of LBG and LMD and is primarily involved in the development and sale
of assays on xMAP technology for use on Luminexs installed base of systems.
Intersegment sales are recorded at fixed prices which approximate the prices charged to third
party strategic partners and are not a measure of segment operating earnings.
Following is selected information for the year ended December 31, 2007 or as of December 31,
2007 (in thousands), with recognition that the LMD impact is only for the period of March 1, 2007
through December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
Assay |
|
|
Intersegment |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
65,912 |
|
|
$ |
12,642 |
|
|
$ |
(3,544 |
) |
|
$ |
75,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenue |
|
|
3,476 |
|
|
|
68 |
|
|
|
(3,544 |
) |
|
|
(3,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,241 |
|
|
|
3,049 |
|
|
|
(227 |
) |
|
|
5,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss) |
|
|
15,651 |
|
|
|
(18,236 |
) |
|
|
(126 |
) |
|
|
(2,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
139,010 |
|
|
|
65,635 |
|
|
|
(81,086 |
) |
|
|
123,559 |
|
77
The assay segment net loss for 2007 includes two significant non-cash items: (i) the write off
of $7.4 million of IPR&D and (ii) the $2.3 million gain on settlement of liability. The table
below provides information regarding long-term assets and product revenues from our sales to
customers within the United States and in foreign countries for the years ended December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers |
|
|
Long-Term Assets |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
63,591 |
|
|
$ |
40,823 |
|
|
$ |
32,844 |
|
|
|
10,863 |
|
|
|
6,042 |
|
|
|
4,234 |
|
Foreign: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
7,835 |
|
|
|
5,760 |
|
|
|
5,310 |
|
|
|
501 |
|
|
|
173 |
|
|
|
151 |
|
Asia |
|
|
739 |
|
|
|
2,870 |
|
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
846 |
|
|
|
2,157 |
|
|
|
2,061 |
|
|
|
58,676 |
(1) |
|
|
|
|
|
|
|
|
Other |
|
|
1,999 |
|
|
|
1,379 |
|
|
|
975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
75,010 |
|
|
$ |
52,989 |
|
|
$ |
42,313 |
|
|
$ |
70,040 |
|
|
$ |
6,215 |
|
|
$ |
4,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
$39,617 of the $58,676 represents goodwill from the acquisition of LMD. |
NOTE 18 SETTLEMENT OF LITIGATION
The Company settled its pending litigation with Rules Based Medicine, Inc. (RBM) on October
15, 2007. As part of the settlement, Luminex received a cash payment of $12.5 million. The cash
payment was made by RBM in exchange for resolution of the dispute between the companies regarding
Biophysical Corporation as well as the retirement of Luminex stock ownership in RBM and the grant
of certain additional licensing rights from Luminex. All other terms of the agreement are
confidential. The parties formally dismissed the lawsuit on October 24, 2007, as required by the
settlement agreement. We recorded $11.5 million of the $12.5 million payment in the fourth quarter
as a gain on settlement of litigation. The remaining $1.0 million has been deferred related to the
license agreement with RBM and will be recognized over the term of the license agreement.
NOTE 19 RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS 157). FAS 157
provides enhanced guidance for using fair value to measure assets and liabilities. It does not
require any new fair value measurements, but does require expanded disclosures to provide
information about the extent to which fair value is used to measure assets and liabilities, the
methods and assumptions used to measure fair value, and the effect of fair value measures on
earnings. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157 (the FSP). The FSP delayed, for one year, the effective date of FAS 157 for all
nonfinancial assets and liabilities, except those that are recognized or disclosed in the financial
statements on at least an annual basis. Consequently, FAS 157 will be effective for our fiscal year
2008 for financial assets and liabilities recognized or disclosed in our Consolidated Financial
Statements. The deferred provisions of FAS 157 will be effective for our fiscal year 2009. We have
evaluated the effects of the initial adoption of FAS 157 for our 2008 fiscal year and do not expect
its adoption will have a material impact on our Consolidated Financial Statements. We are currently
evaluating the impact, if any, of the entirety of FAS 157 on our fiscal year 2009 Consolidated
Financial Statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115 (FAS 159). FAS 159
expands the use of fair value accounting but does not affect existing standards that require assets
or liabilities to be carried at fair value. Under FAS 159, a company may elect to use fair value to
measure various assets and liabilities including accounts receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable, guarantees and issued
debt. If the use of fair value is elected, any upfront costs and fees related to the item must be
recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally
made on an instrument-by-instrument basis, even if a company has similar instruments that it elects
not to measure based on fair value. At the adoption date, unrealized gains and losses on existing
items for which fair value has been elected are
reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption
of FAS 159, changes in fair value are recognized in earnings. FAS 159 is effective for our fiscal
year 2008. We are currently evaluating the impact, if any, of FAS 159 on our Consolidated Financial
Statements.
78
In December 2007, the FASB issued FAS No. 141 (Revised 2007), Business Combinations (FAS
141R) which replaces FAS No. 141, Business Combinations. FAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. The statement also establishes disclosure requirements that will enable
users to evaluate the nature and financial effects of the business combination. FAS 141R is
effective for our fiscal year 2009 and must be applied prospectively to all new acquisitions
closing on or after January 1, 2009. Early adoption of this standard is not permitted. We are
currently evaluating the impact, if any, of FAS 141R on our Consolidated Financial Statements.
In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements An Amendment of ARB No. 51 (FAS 160). FAS 160 requires that accounting and
reporting for minority interests be recharacterized as noncontrolling interests and classified as a
component of equity. The standard is effective for our fiscal year 2009 and must be applied
prospectively. We do not expect that the adoption of FAS 160 will have a material impact on our
Consolidated Financial Statements.
79
SELECTED QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods indicated (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
16,607 |
|
|
$ |
17,548 |
|
|
$ |
19,353 |
|
|
$ |
21,501 |
|
Gross profit |
|
|
10,429 |
|
|
|
10,337 |
|
|
|
12,017 |
|
|
|
13,310 |
|
Income (loss) from operations |
|
|
(372 |
) |
|
|
(12,244 |
) |
|
|
(1,858 |
) |
|
|
(2,943 |
) |
Net income (loss) |
|
|
136 |
|
|
|
(12,056 |
) |
|
|
(1,852 |
) |
|
|
11,061 |
|
Basic income (loss) per share |
|
|
0.00 |
|
|
|
(0.34 |
) |
|
|
(0.05 |
) |
|
|
0.31 |
|
Diluted income (loss) per share |
|
|
0.00 |
|
|
|
(0.34 |
) |
|
|
(0.05 |
) |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
12,997 |
|
|
$ |
13,268 |
|
|
$ |
12,514 |
|
|
$ |
14,210 |
|
Gross profit |
|
|
8,260 |
|
|
|
7,660 |
|
|
|
7,782 |
|
|
|
8,550 |
|
Income (loss) from operations |
|
|
113 |
|
|
|
(267 |
) |
|
|
(435 |
) |
|
|
7 |
|
Net income |
|
|
526 |
|
|
|
271 |
|
|
|
111 |
|
|
|
599 |
|
Basic income (loss) per share |
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.00 |
|
|
|
0.02 |
|
Diluted income (loss) per share |
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.00 |
|
|
|
0.02 |
|
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
80
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934 (the Exchange Act), which are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. We carried out an
evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedure as of the end of the period covered by this report. Based on
the evaluation and criteria of these disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2007 based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31, 2007. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Managements assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of Luminex Molecular Diagnostics, which
is included in the 2007 consolidated financial statements of Luminex Corporation and constituted
54% of total assets as of December 31, 2007 and 16% of revenues for the year then ended.
The Companys independent registered public accounting firm, Ernst & Young LLP, has issued a
report on their assessment of the effectiveness of the Companys internal control over financial
reporting, which is provided at Item 8, page 50.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Exchange Act Rule 13a-15(d) during the fourth quarter of
2007 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
81
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item concerning our directors, audit committee, and audit
committee financial experts, code of ethics and compliance with Section 16(a) of the Exchange Act
is incorporated by reference to information under the caption Proposal 1 Election of Directors
and to the information under the caption Section 16(a) Beneficial Ownership Reporting Compliance
in our definitive proxy statement for our 2008 annual meeting of stockholders to be held on or
about May 22, 2008 (the Proxy Statement). It is anticipated that our Proxy Statement will be
filed with the Securities and Exchange Commission on or about April 20, 2008.
Pursuant to General Instruction G(3), certain information with respect to our executive
officers is set forth under the caption Executive Officers of the Registrant in Item 4 of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the sections of the Proxy
Statement entitled Executive Compensation and Related Matters.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS |
Information required by this Item is incorporated by reference to the sections of the Proxy
Statement entitled Security Ownership of Certain Beneficial Owners and Management.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2007, certain information with respect to
shares of the Companys common stock authorized for issuance under the Companys equity
compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining |
|
|
|
|
|
|
|
|
|
|
|
Available for Future Issuance |
|
|
|
Number of Securities to |
|
|
Weighted-Average |
|
|
Under Equity Compensation Plans |
|
|
|
be Issued Upon Exercise |
|
|
Exercise Price of |
|
|
(Excluding Securities Reflected |
|
Plan Category |
|
of Outstanding Options |
|
|
Outstanding Options |
|
|
in Column (A)) (1) |
|
|
|
(A) |
|
|
(B) |
|
|
(C) |
|
Equity compensation plans
approved by security
holders |
|
|
1,814,691 |
|
|
$ |
10.75 |
|
|
|
1,358,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
` |
|
Equity compensation plans
not approved by security
holders (2) |
|
|
1,628,990 |
|
|
$ |
13.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,443,681 |
|
|
|
|
|
|
|
1,358,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In February 2001, our Board of Directors approved the 2001 Broad-Based Stock Option Plan (the
2001 Plan), a non-stockholder approved plan, for grants of stock options to employees who are not
directors or officers of the Company. Options may be granted to such employees at not less than
100% of the fair market value of the common stock on the date of grant. The options become
exercisable in whole or in such installments as determined by the Board of Directors and generally
expire 10 years after the grant date. Since approval of the Equity Incentive Plan in May 2006, no
securities are available for future issuances under this plan. For additional information
regarding the Companys 2001 Plan see Note 14 to the Consolidated Financial Statements. |
82
|
|
|
(2) |
|
Includes shares issuable upon the exercise of options granted under the Tm Bioscience
Corporation Share Option Plan assumed by Luminex in connection with the acquisition of Tm
Bioscience. These options have a weighted average exercise price of $21.54. No further grants
will be made pursuant to this plan. Also includes option to purchase 500,000 shares of the
Companys common stock issued to Patrick J. Balthrop, Sr. on May 15, 2004, in connection with his
hiring and outside of any stockholder approved equity incentive plan. The terms of this option,
together with the amendment to the related option agreement, are more fully described in Note 14 to
the Consolidated Financial Statements. |
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE |
Information required by this Item is incorporated by reference to the sections of the Proxy
Statement entitled Certain Relationships and Related Party Transactions and Corporate
Governance.
ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES
Information required by this Item is incorporated by reference to the section of the Proxy
Statement entitled Ratification of Appointment of Independent Registered Public Accountants.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item 8 of this report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown
in the Financial Statements or in the notes thereto.
83
|
|
|
|
|
EXHIBIT |
|
|
NUMBER |
|
DESCRIPTION OF DOCUMENT |
|
|
2.1 |
|
|
Merger Agreement, dated December 14, 2006, by and between the Company
and Tm Bioscience Corporation (Previously filed as an Exhibit to the
Companys Current Report on Form 8-K dated December 15, 2006). |
|
|
|
|
|
|
3.1 |
|
|
Restated Certificate of Incorporation of the Company (Previously
filed as an Exhibit to the Companys Registration Statement on Form
S-1 (File No. 333-96317), filed February 7, 2000, as amended). |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of the Company (Previously filed as an
Exhibit to the Companys Registration Statement on Form S-1 (File No.
333-96317), filed February 7, 2000, as amended). |
|
|
|
|
|
|
4.1 |
|
|
Rights Agreement dated as of June 20, 2001 between Luminex
Corporation and Mellon Investor Services, LLC, as Rights Agent which
includes as Exhibit A the form of Certificate of Designations of
Series A Junior Participating Preferred Stock setting forth the terms
of the Series A Junior Participating Preferred Stock, as Exhibit B
the form of Rights Certificate and as Exhibit C the Summary of Rights
(Previously filed as Exhibit 4 to the Companys Current Report on
Form 8-K dated June 21, 2001). |
|
|
|
|
|
|
10.1# |
|
|
1996 Stock Option Plan of the Company, as amended (Previously filed
as an Exhibit to the Companys Registration Statement on Form S-1
(File No. 333-96317), filed February 7, 2000, as amended). |
|
|
|
|
|
|
10.2# |
|
|
Form of Stock Option Agreement for the 1996 Stock Option Plan
(Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as
amended). |
|
|
|
|
|
|
10.3# |
|
|
Form of Incentive Stock Option Agreement for the 1996 Stock Option
Plan (Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended). |
|
|
|
|
|
|
10.4# |
|
|
2000 Long-Term Incentive Plan of the Company, as amended (Previously
filed as an Exhibit to the Companys Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002). |
|
|
|
|
|
|
10.5# |
|
|
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive
Plan (Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended). |
|
|
|
|
|
|
10.6# |
|
|
2001 Broad-Based Stock Option Plan of the Company (Previously filed
as an Exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended December 30, 2001). |
|
|
|
|
|
|
10.7# |
|
|
Form of Option Grant Certificate for the 2001 Broad-Based Stock
Option Plan (Previously filed as an Exhibit to the Companys Annual
Report on Form 10-K for the fiscal year ended December 30, 2001). |
|
|
|
|
|
|
10.8+ |
|
|
Development and Supply Agreement dated as of March 19, 1999 by and
between the Company and Bio-Rad Laboratories, Inc. (Previously filed
as an Exhibit to the Companys Registration Statement on Form S-1
(File No. 333-96317), filed February 7, 2000, as amended). |
|
|
|
|
|
|
10.9+ |
|
|
Amendment to Development and Supply Agreement dated as of January 13,
2000 by and between the Company and Bio-Rad Laboratories, Inc.
(Previously filed as an Exhibit to the Companys Registration
Statement on Form S-1 (File No. 333-96317), filed February 7, 2000,
as amended). |
|
|
|
|
|
|
10.10 |
|
|
Second Amendment to Development and Supply Agreement dated as of June
12, 2000 by and between the Company and Bio-Rad Laboratories, Inc.
(Previously filed as an Exhibit to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2000). |
84
|
|
|
|
|
EXHIBIT |
|
|
NUMBER |
|
DESCRIPTION OF DOCUMENT |
|
|
10.11# |
|
|
Form of Amended and Restated Employment Agreement between the Company
and each of Randel S. Marfin and Oliver H. Meek (Previously filed as
an Exhibit to the Companys Quarterly Report on Form 10-Q for the
period ended June 30, 2002). |
|
|
|
|
|
|
10.12# |
|
|
Form of Indemnification Agreement dated May 22, 2002 between the
Company and each of the directors and officers of the Company
(Previously filed as an Exhibit to the Companys Quarterly Report on
Form 10-Q for the period ended June 30, 2002). |
|
|
|
|
|
|
10.13 |
|
|
Lease Agreement between Aetna Life Insurance Company, as Landlord,
and Luminex Corporation, as Tenant, dated October 19, 2001
(Previously filed as an Exhibit to the Companys Form 10-Q for the
quarterly period ended September 30, 2001). |
|
|
|
|
|
|
10.14 |
|
|
First Amendment to Lease Agreement between Aetna Life Insurance
Company, as Landlord, and Luminex Corporation as Tenant, dated July
25, 2002. (Previously filed as an Exhibit to the Companys Quarterly
Report on Form 10-Q for the period ended June 30, 2002). |
|
|
|
|
|
|
10.15 |
|
|
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and
Luminex Corporation, as Tenant, dated January 27, 2003 (Previously
filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2002). |
|
|
|
|
|
|
10.16 |
|
|
Sublease Agreement dated as of May 2, 2002 by and between the Company
and American Innovations, Ltd., for facilities situated at 12112
Technology Boulevard, Austin, Texas 78727 (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the period
ended June 30, 2002). |
|
|
|
|
|
|
10.17# |
|
|
Employment Agreement, effective as of October 1, 2003, by and between
Luminex Corporation and Harriss T. Currie (Previously filed as an
Exhibit to the Companys Annual Report on form 10-K for the fiscal
year ended December 31, 2003). |
|
|
|
|
|
|
10.18# |
|
|
Employment Agreement effective as of October 1, 2003, by and between
Luminex Corporation and David S. Reiter (Previously filed as an
Exhibit to the Companys Annual Report on form 10-K for the fiscal
year ended December 31, 2003). |
|
|
|
|
|
|
10.19# |
|
|
Employment Agreement effective as of May 15, 2004, by and between
Luminex Corporation and Patrick J. Balthrop (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K dated May 17,
2004). |
|
|
|
|
|
|
10.20# |
|
|
Employment Agreement effective as of October 25, 2004, by and between
Luminex Corporation and Gregory J. Gosch (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K dated October 22,
2004). |
|
|
|
|
|
|
10.21# |
|
|
Employment Agreement effective as of May 23, 2005, by and between
Luminex Corporation and Russell W. Bradley (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K dated May 23,
2005). |
|
|
|
|
|
|
10.22# |
|
|
Form of Restricted Stock Agreement for the 2000 Long-Term Incentive
Plan and 2001 Broad-Based Stock Option Plan (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2004). |
|
|
|
|
|
|
10.23# |
|
|
Form of Non-Qualified Stock Option Agreement dated as of May 15,
2004, by and between Luminex Corporation and Patrick J. Balthrop
(Previously filed as an Exhibit to the Companys Current Report on
Form 8-K dated May 17, 2004). |
|
|
|
|
|
|
10.24# |
|
|
2006 Executive Officer Compensation Summary (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2006). |
|
|
|
|
|
|
10.25# |
|
|
Form of Amendment to Executive Employment Agreements (Previously
filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2006). |
|
|
|
|
|
|
10.26# |
|
|
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as
Exhibit A to the Companys Proxy Statement for its Annual Meeting of
Shareholders held on May 25, 2006). |
85
|
|
|
|
|
EXHIBIT |
|
|
NUMBER |
|
DESCRIPTION OF DOCUMENT |
|
|
10.27# |
|
|
Form of Non-Qualified Stock Option Agreement for the 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Companys
Current Report on Form 8-K dated May 25, 2006). |
|
|
|
|
|
|
10.28# |
|
|
Form of Restricted Share Award Agreement for Officers & Employees for
the 2006 Equity Incentive Plan (Previously filed as an Exhibit to the
Companys Current Report on Form 8-K dated May 25, 2006). |
|
|
|
|
|
|
10.29# |
|
|
Form of Restricted Share Award Agreement for Directors for the 2006
Equity Incentive Plan (Previously filed as an Exhibit to the
Companys Current Report on Form 8-K dated May 25, 2006). |
|
|
|
|
|
|
10.30# |
|
|
Luminex Corporation 2006 Management Stock Purchase Plan (Previously
filed as Exhibit B to the Companys Proxy Statement for its Annual
Meeting of Shareholders held on May 25, 2006). |
|
|
|
|
|
|
10.31 |
|
|
Credit Agreement, dated March 1, 2007, by and between the Luminex
Corporation and JPMorgan Chase Bank, N.A. (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K dated March 1,
2007). |
|
|
|
|
|
|
10.32# |
|
|
Employment Agreement effective as of February 7, 2007, by and between
Luminex Corporation and John C. Carrano (Previously filed as an
Exhibit to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006). |
|
|
|
|
|
|
10.33# |
|
|
Employment Agreement effective as of March 1, 2007, by and between
Luminex Corporation, Tm Bioscience and Jeremy Bridge-Cook (Previously
filed as an Exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2006). |
|
|
|
|
|
|
10.34# |
|
|
Form of Restricted Stock Unit Agreement for the 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2006). |
|
|
|
|
|
|
10.35# |
|
|
Amendment to Restricted Stock Agreement, dated as of March 25, 2007,
by and between Luminex Corporation and Patrick J. Balthrop, Sr.
(Previously filed as an Exhibit to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2007). |
|
|
|
|
|
|
10.36# |
|
|
Amendment to Luminex Corporation 2000 Amended and Restated Long-Term
Incentive Plan dated as of May 24, 2007 (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2007). |
|
|
|
|
|
|
10.37# |
|
|
Amendment to Luminex Corporation 2001 Broad-Based Stock Option Plan
dated as of May 24, 2007 (Previously filed as an Exhibit to the
Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2007). |
|
|
|
|
|
|
10.38# |
|
|
Amendment to Luminex Corporation 2006 Management Stock Purchase Plan
dated as of May 24, 2007 (Previously filed as an Exhibit to the
Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2007). |
|
|
|
|
|
|
10.39# |
|
|
Amendment to Luminex Corporation 2006 Equity Incentive Plan dated as
of May 24, 2007 (Previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2007). |
|
|
|
|
|
|
10.40# |
|
|
Form of Amendments to Equity Award Agreements (Previously filed as an
Exhibit to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2007). |
|
|
|
|
|
|
10.41# |
|
|
Employment Agreement, dated as of July 16, 2007, by and between
Luminex Corporation and Douglas C. Bryant (Previously filed as an
Exhibit to the Companys Current Report on Form 8-K filed July 18,
2007). |
|
|
|
|
|
|
10.42# |
|
|
Employment Agreement, effective as of September 30, 2007, by and
between Luminex Corporation and James W. Jacobson (Previously filed
as an Exhibit to the Companys Current Report on Form 8-K filed
September 19, 2007). |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Company. |
86
|
|
|
|
|
EXHIBIT |
|
|
NUMBER |
|
DESCRIPTION OF DOCUMENT |
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
24.1 |
|
|
Power of Attorney (incorporated in the signature page of this report). |
|
|
|
|
|
|
31.1 |
|
|
Certification by CEO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification by CFO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted 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 by CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
# |
|
Management contract or compensatory plan or arrangement. |
|
+ |
|
Confidential treatment requested for certain portions of this Exhibit pursuant to Rule
406 promulgated under the Securities Act and Rule 24b-2 promulgated under the Securities
Exchange Act, which portions are omitted and filed separately with the Securities and Exchange
Commission. |
|
87
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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 March 14, 2008.
|
|
|
|
|
|
LUMINEX CORPORATION
|
|
|
By: |
/s/ Patrick J. Balthrop
|
|
|
|
Patrick J. Balthrop |
|
|
|
President and Chief Executive Officer |
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes
and appoints Patrick J. Balthrop and Harriss T. Currie, each his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report, and to file the
same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
S-1
|
|
|
|
|
SIGNATURES |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/ Patrick J. Balthrop
Patrick J. Balthrop
|
|
President and Chief Executive Officer, Director
(Principal Executive Officer)
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Harriss T. Currie
Harriss T. Currie
|
|
Chief Financial Officer, Vice President,
Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Robert J. Cresci
Robert J. Cresci
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Thomas W. Erickson
Thomas W. Erickson
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Fred C. Goad, Jr.
Fred C. Goad, Jr.
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Jay B. Johnston
Jay B. Johnston
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Jim D. Kever
Jim D. Kever
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ G. Walter Loewenbaum II
G. Walter Loewenbaum II
|
|
Chairman of the Board of Directors Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Kevin M. McNamara
Kevin M. McNamara
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ J. Stark Thompson
J. Stark Thompson
|
|
Director
|
|
March 14, 2008 |
|
|
|
|
|
/s/ Gerard Vaillant
Gerard Vaillant
|
|
Director
|
|
March 14, 2008 |
S-2
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
21.1 |
|
|
Subsidiaries of the Company. |
|
|
|
|
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
31.1 |
|
|
Certification by CEO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification by CFO pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d 14(a), as adopted 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 by CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |