UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____.
Commission File No. 000-30109
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LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-2747608
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS 78727
(Address of principal executive offices) (Zip Code)
(512) 219-8020
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.001
RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK,
PAR VALUE $0.001
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark 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 Registrant's 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. [ ]
Based on the closing sale price of common stock on The Nasdaq Stock
Market on March 15, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $233,367,596. Excludes an aggregate of
12,538,715 shares of common stock held by officers and directors and by each
person known by the Registrant to own 5% or more of the outstanding common
stock.
There were 29,219,744 shares of the Company's Common Stock, par value
$.001 per share, outstanding on March 15, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are documents parts of which are incorporated herein by
reference and the part of this report into which the document is incorporated:
Proxy Statement for the 2002 Annual Meeting of Stockholders - Part III
(which definitive proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to December 31,
2001).
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.......................................................................................1
Item 2. Properties ...................................................................................17
Item 3. Legal Proceedings.............................................................................17
Item 4. Submission of Matters to a Vote of Security Holders ..........................................17
Executive and Other Officers and Related Information..........................................17
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.....................20
Item 6. Selected Consolidated Financial Data..........................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation..........22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk....................................27
Item 8. Financial Statements and Supplementary Data...................................................27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .........44
PART III
Item 10. Directors and Executive Officers of the Registrant............................................45
Item 11. Executive Compensation........................................................................45
Item 12. Security Ownership of Certain Beneficial Owners and Management................................45
Item 13. Certain Relationships and Related Transactions................................................45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................46
Signatures...............................................................................................48
SAFE HARBOR CAUTIONARY STATEMENT
All statements in this report that do not discuss past results are
forward-looking statements. Generally, the words "believe," "expect," "intend,"
"estimate," "anticipate," "will" and similar expressions identify
forward-looking statements. All statements which address our outlook for our
businesses and their respective markets, such as projections of future
performance, statements of management's plans and objectives, forecasts of
market trends and other matters are forward-looking statements. It is important
to note that our actual results or performance could differ materially from
those projected in such forward-looking statements. Forward-looking statements
are based on management's current expectations and are therefore subject to
certain risks and uncertainties, including those discussed under the section
titled "Factors That May Affect Future Results" included in this Annual Report
on Form 10-K. Specific uncertainties which could cause our actual results to
differ materially from those projected include fluctuations in quarterly results
due to a lengthy and unpredictable sales cycle, risks and uncertainties relating
to market demand and acceptance, the dependence on strategic partners for
development and distribution of products, competition, our ability to scale-up
manufacturing operations, potential shortages of components and the timing of
regulatory approvals. We expressly disclaim any intent, obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained in this Annual Report on Form 10-K to reflect any change in
our expectations with regard to such statements or any change in events,
conditions or circumstances on which any such statements are based.
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Luminex(R) and xMAP(TM) (formerly known as LabMAP(R)) are trademarks of
Luminex Corporation. This report also refers to trademarks, service marks and
trade names of other organizations.
i
PART I.
ITEM 1. BUSINESS
OVERVIEW
Luminex Corporation manufactures and markets products incorporating a
proprietary technology that advances and simplifies biological testing for the
life sciences industry. This industry depends on a broad range of tests, called
bioassays, to perform diagnostic tests, to discover new drugs and to identify
new genes. Our xMAP technology allows our Luminex 100 System to simultaneously
perform up to 100 bioassays on a single drop of fluid by reading biological
tests taking place 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 the various segments of
the life sciences industry in the fields of drug discovery, clinical
diagnostics, genetic analysis and biomedical research.
Luminex was incorporated in May 1995 and began commercial production of
our first generation system in 1997. Our shares of common stock are traded on
The Nasdaq Stock Market under the symbol "LMNX."
Luminex is incorporated in the State of Delaware, our principal
executive offices are located at 12212 Technology Blvd., Austin, Texas 78727,
and our telephone number is (512) 219-8020.
INDUSTRY BACKGROUND
The life sciences industry uses bioassays to detect the presence of
certain biochemicals, proteins or genes in a sample. Drug discovery, genetic
analysis, pharmacogenomics, clinical diagnostics and general biomedical research
all use bioassays. For example, bioassays can be used to:
- measure the attraction, or affinity, between a chemical
compound and a disease target for drug discovery and
development;
- assist physicians in prescribing the appropriate drug therapy
to match the patient's unique genetic makeup, a process known
as pharmacogenomics;
- detect genetic variations, such as single nucleotide
polymorphisms (SNPs); or
- measure the presence and quantity of biochemicals in blood to
assist physicians in diagnosing, treating or monitoring
disease conditions.
Laboratories either develop bioassays internally to meet their specific
needs or purchase them in the form of off-the-shelf test kits or customized
services. Industry reports estimated the global market for tools and consumables
used in drug discovery and development, clinical diagnostics and biomedical
research to have been approximately $28.9 billion in 1999 and expect it to grow
at an annual rate of 8.3%.
The differing bioassay needs of life sciences laboratories have led to
the development of specialized techniques and instrumentation. As a result, most
laboratories have become compartmentalized. For example, clinical testing
facilities have traditionally been organized into functional groups, such as
chemistry, microbiology, immunology and infectious disease. Similarly,
pharmaceutical companies organize their laboratories by disease targets, such as
cancer and hypertension, as well as by the stages of the drug discovery process,
from initial bioassay development to toxicological testing. This
compartmentalization has created inefficiencies in many laboratories as they
must currently purchase multiple instruments, often from different vendors, to
meet their testing needs. This structure also limits their abilities to
standardize bioassay techniques, operator training and hardware maintenance.
While advances in bioassay technologies have delivered new capabilities, most
instrumentation systems remain specialized and reinforce the problems associated
with compartmentalization.
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The table below briefly describes the key bioassay technologies in the
life sciences industry:
- --------------------------------------------------------------------------------------------------
KEY TECHNOLOGIES DESCRIPTION MARKETS SERVED
- --------------------------------------------------------------------------------------------------
BioChips High-density arrays of DNA fragments Biomedical research
attached to a flat glass or silicon
surface
- --------------------------------------------------------------------------------------------------
Clinical immuno-analyzers Automated test-tube based platform Clinical diagnostics
- --------------------------------------------------------------------------------------------------
Gels and blots Physical separation of analyses for Clinical diagnostics and
visualization biomedical research
- --------------------------------------------------------------------------------------------------
Microarrays Low-density arrays of DNA fragments Biomedical research
attached to a flat glass or silicon
surface
- --------------------------------------------------------------------------------------------------
Microfluidics chips Miniaturized liquid handling system Biomedical research
on a chip
- --------------------------------------------------------------------------------------------------
Microtiter-based assays Plastic trays with discrete wells in Drug discovery, clinical
which assays are fixed diagnostics and biomedical
research
- --------------------------------------------------------------------------------------------------
XMAP TECHNOLOGY
Our xMAP technology has been designed to provide a testing platform
that can perform a wide range of bioassays in a cost-effective manner. The key
features of xMAP technology include the following:
- Multi-analyte/multi-format
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 capable
of performing only one type of bioassay, xMAP can perform
enzymatic, genetic and immunologic tests on the same
instrumentation platform.
- Flexibility/scalability
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 or the required labor, whether producing a small or
large number of microsphere-based tests.
- Throughput
Our technology's current ability to perform up to 100 tests in
a single tube with only a small amount of sample permits
efficient use for high-throughput applications.
- Ease of use
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 system which incorporates proprietary software to
automate data acquisition and analysis in real-time.
- Low cost
We have designed our xMAP systems to be relatively inexpensive
to manufacture and utilize. In addition, microsphere-based
bioassays are inexpensive compared to other technologies such
as biochips.
Our xMAP technology combines several 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 its result.
2
Polystyrene microspheres, approximately 5.6 microns in diameter, are a
fundamental component of the xMAP technology. We purchase undyed microspheres
and, in a proprietary process, dye them with varying intensities of a red and an
infrared fluorescent 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.
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 third fluorescent dye 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.
BUSINESS STRATEGY
Our goal is to establish our xMAP technology as the industry standard
for performing bioassays. To achieve this goal, we have implemented the
following strategies:
- Focus on large sectors
We will continue to focus our commercialization efforts on
large sectors of the life sciences industry. We have targeted
major pharmaceutical companies, large clinical laboratories,
in vitro diagnostic manufacturers and major medical
institutions for our principal marketing efforts. We believe
these customers provide the greatest opportunity for
maximizing the use of xMAP technology and that continued
adoption by these industry leaders will promote wider market
acceptance.
- Continue to develop strategic partnerships
We intend to broaden and accelerate market acceptance of xMAP
technology by continuing to enter into development, marketing
and distribution strategic partnerships with those leaders in
the life sciences industry that we believe can convert core
product lines to, and develop new applications on, Luminex
platforms. By leveraging our strategic partners' market
positions and utilizing their distribution channels and
marketing infrastructure, we believe we can continue to expand
our installed base.
- Allow easy technology access
We do not impose access fees on users of our technology. We
believe maximum value is derived from the recurring revenue
stream generated by widespread and frequent use. Easy access
is encouraged by a pricing structure that combines a low
system acquisition cost with relatively inexpensive
consumables.
- Develop next generation products
Our research and development group is pursuing projects
intended to advance our xMAP technology. We are also
collaborating with industry participants and biomedical
research institutions to develop additional xMAP products.
PRODUCTS
Instruments
Luminex 100. The Luminex 100 is a compact analyzer that integrates
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, the
3
Luminex 100 performs rapid, multi-analyte profiles under the control of a
Windows(R)-based personal computer and our proprietary software.
We also offer two peripheral components for the Luminex 100, the XY
Platform and the Luminex Sheath Delivery System ("Luminex SD"). The XY Platform
complements the Luminex 100 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 XY Platform can also be connected to
robotic systems that deliver these plates to the Luminex 100, allowing
integration into automated test centers. The Luminex SD is a pressurized,
external pump delivery system that enhances the delivery of sheath fluid to the
Luminex 100 by pumping sheath fluid from an external bulk reservoir, enabling
the Luminex 100 to operate for up to 24 hours without switching to a new
reservoir of sheath fluid.
Luminex HTS (High-Throughput System). The high-throughput version of
our xMAP analyzer, the Luminex HTS, is interfaced with an automated liquid
handler. The Luminex HTS utilizes a higher pressure flow system which produces a
flow rate approximately ten times greater than the flow rate of the Luminex 100.
Full commercial production of the Luminex HTS is expected to begin in the second
quarter of 2002.
Consumables
Our xMAP systems use polystyrene microspheres that are approximately
5.6 microns in size. We dye the microspheres in sets with varying intensities of
a red and an infrared fluorescent 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 also include sheath fluid and
spare parts.
SALES AND MARKETING
Our sales and marketing strategy is intended to expand the installed
base of xMAP systems and generate recurring revenues from royalties on bioassay
kits and testing services developed or performed by others that use our
technology, as well as from the sale of microspheres and other consumables. The
key elements of our strategy consist of:
- a strategic partner program with life sciences companies that
will develop applications or perform testing using our
technology platforms and distribute our systems to their
customers; and
- a direct sales effort to complement the strategic partner
program.
Strategic Partner Program
We intend to continue to use strategic partners as our primary
distribution channel. Strategic partners develop application-specific bioassay
kits for use on our systems that they sell to their customers generating
royalties for us. Certain strategic partners also perform services for third
parties using our technology that also result in royalties for us. Some
strategic partners also buy our products and then resell those products to their
customers. As of December 31, 2001, we had entered into strategic partnerships
with 35 companies, consisting of 21 companies principally addressing the
clinical diagnostics market and 14 companies principally addressing the research
market. Of our 35 strategic partners, 14 partners have released commercialized
products utilizing the Luminex platform. We 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 achieve rapid market penetration without a large direct
sales force.
We also serve as the original equipment manufacturer (OEM) for certain
strategic partners that choose to sell our xMAP systems under their own branding
and marketing efforts.
Direct Sales
At March 15, 2002, we had a direct sales staff of 15. Our direct sales
staff is supported by a team of in-house scientists with expertise in the
pharmaceutical industry, clinical diagnostics and biomedical research. We have
4
also added three field technical sales representatives to focus on customer
interaction and ensure satisfaction and implementation of the Luminex platform.
The direct sales staff and field sales representatives generally are located in
key biotech areas around the U.S. We also have opened an office in Amsterdam,
The Netherlands, with a staff of three individuals, for the European markets.
CUSTOMERS
At December 31, 2001, we had sold a total of 1,010 xMAP systems since
inception to customers in the biomedical research, clinical diagnostics and
pharmaceutical markets. During 2001, we began selling extended service contracts
to our customers. We sold approximately 125 extended service contracts during
the year ended December 31, 2001.
For the years ended December 31, 2001, 2000 and 1999, we had sales to
foreign customers of $2.3 million, $2.2 million and $400,000, respectively,
representing 11.2%, 26.7% and 15.0%, respectively, of our total product revenues
for such periods. Bio-Rad Laboratories, Inc. accounted for 13%, 13% and 10% of
our total revenues in 2001, 2000 and 1999, respectively. Miraibio, Inc., an
affiliate of Hitachi, Ltd., accounted for 16% of our total revenues in 2001. No
other customer accounted for more than 10% of our total revenues in 2001, 2000
or 1999.
TECHNICAL OPERATIONS
Our Technical Operations Group provides technical support to customers,
strategic partners and their customers. Most of the Company's technical
operation personnel are either biologists or biochemists 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.
Customer Support
Our in-house customer support department assists users through a
toll-free customer support hotline, facsimile and e-mail. 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
utilization. The information is categorized and presented to management for
weekly and monthly review.
In addition to resolving customer problems, our customer service group
also attends trade shows and visits customers to solicit feedback.
Training
Through our training group, we offer comprehensive programs in basic
system training, advanced assay development, instrument field service and
technical support functions. For larger customers who have many users, such as
our strategic partners, training may be performed on-site at their locations.
Field Service
We currently have five field service personnel based in Austin, Texas
and one in California. To support the increasing number of installed systems, we
have entered into agreements with third party service providers and intend to
base additional field service personnel on both the east and west coasts of the
U.S. for quicker, more cost-effective support of our customers. Additionally,
certain of our strategic partners provide their own field service support. We
also recently opened a technical service facility in Amsterdam, The Netherlands
to better support our increasing base of European customers.
Technical Applications
In order to allow customers to expedite the production of bioassays for
use on our systems, we have formed a technical applications group, based in
Austin, Texas, that includes experienced biological scientists. This group will
work closely with our customers and strategic partners in their development of
bioassays with the ultimate goal of faster adoption and commercialization.
5
RESEARCH AND DEVELOPMENT
Our research and development program is devoted to advancing the
capabilities of our xMAP technology to further penetrate the life sciences
industry. In 2001, we incurred research and development expenditures of $8.3
million, as compared with $9.0 million for 2000 and $6.2 million for 1999. As of
March 15, 2002, we employed approximately 50 engineers, scientists and
technicians dedicated to research and development. In addition, we are
collaborating with other companies and academic institutions to increase the
breadth of xMAP applications.
Our current research and development projects include:
- Rules-Based Medicine (RBM)
We formed a business unit that intends to use our xMAP
technology to analyze a large number of proteins on a sample
population of normal and diseased individuals. We intend to
identify combinations, levels or absences of proteins
associated with various diseased states. As patterns are
identified, we intend to patent these for future licensing
purposes.
The Company is analyzing the various legal, accounting and tax
implications of structuring alternatives for RBM that would be
designed to provide it with access to capital independent of
Luminex. These alternatives include (i) transferring the
business of RBM to a separately financed entity in exchange
for an equity interest in such entity and a royalty based on
revenues from products developed by that entity, or (ii)
operating RBM as a subsidiary of Luminex which would seek
funding from private equity or other strategic sources outside
of Luminex. We may decide to continue to operate and fund RBM
as a business unit within Luminex or implement another
structuring alternative. At this time, the board of directors
is continuing to monitor the development of RBM but no
decision has been reached regarding its operating structure.
RBM, so long as it remains a business unit within the Company,
will continue to require human and capital resources of the
Company to further develop the technology.
- Mixed sample measurement of cells and beads
We have initiated a project to examine the utility of xMAP
technology for blending bead-based assays for soluble analytes
with simultaneous cellular analysis of a complex biological
sample. Such a capability would expand the potential market
into the cellular arena to further enhance xMAP adoption.
- Expanding our multiple testing capabilities
Our current bead utilizes two 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.
- Integrating with liquid handling systems
We are collaborating with several of our strategic partners to
integrate our various xMAP instruments with their liquid
handling equipment to increase bioassay throughput.
- Enhancing biassay performance
One group of scientists and engineers are dedicated to further
enhancing xMAP in the areas of assay performance such as
sensitivity precision and ruggedness.
MANUFACTURING
The Company has approximately 18,000 square feet of manufacturing
facilities located at the Company's principal executive offices in Austin,
Texas. We are currently in the process of registering our quality management
system to the ISO 9001:2000 standard, which is an internationally recognized
standard for quality management systems. This is a two-stage process carried out
by a third-party registrar chosen by Luminex. The first stage is a complete
review of our higher level policies and procedures to ensure that we have
established a documented system compliant with the ISO standard. The second
stage is a comprehensive audit of all areas to determine whether we have
successfully implemented the documented system throughout the organization. The
first stage was successfully completed in February 2002. The second stage was
successfully completed in March 2002. Subsequent audits by the registrar will be
carried out at 6-month intervals to ensure we are maintaining our system in
compliance with ISO standards.
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Instruments
Certain components of our xMAP instruments are assembled by contract
manufacturers. The remaining assembly and manufacturing of our instruments is
performed by our employees at our facility in Austin, Texas. The quality control
and quality assurance protocols are also performed at this facility. Parts and
component assemblies that comprise our xMAP instruments are obtained from a
number of sources; however, we currently purchase lasers for our xMAP
instruments from one supplier. We purchase these lasers by purchase orders and
not pursuant to a long term contract. While we believe the supplier can continue
to meet our needs, there are other suppliers that could provide us lasers, if
necessary.
Microspheres
We dye polystyrene microspheres using a proprietary method in our
Austin, Texas manufacturing facility in large lots with ten intensities of a red
and an infrared dye to produce 100 distinctly colored microsphere sets. We
currently use one supplier for polystyrene microspheres, which we purchase
pursuant to purchase orders and not pursuant to a long term contract. While we
believe the microspheres will continue to be available from our supplier in
quantities sufficient to meet our production needs, there are other suppliers
that could provide us microspheres, if necessary. Additionally, we are currently
developing a process for the in-house production of microspheres in an effort to
reduce our dependence on third party suppliers.
COMPETITION
We designed our xMAP technology for use by customers across the various
segments of the life sciences industry. For this reason, much of our competition
is from existing technologies that perform many of the same functions as our
xMAP technology. Our competition includes companies marketing conventional
testing products based on established technologies, as well as companies
developing their own advanced testing technologies. Most of our competitors are
larger than we are and can commit significantly greater resources to their
competitive efforts.
The pharmaceutical industry is the largest market for the genomic and
high-throughput screening applications of the xMAP technology. In each
application area, Luminex faces a different set of competitors. Genomic testing
for variability in DNA also can be performed by products available from
Affymetrix Inc., Applied Biosystems, a business group of Applera Corporation,
Aclara Biosciences, Inc., Clontech Laboratories, Inc., a wholly-owned subsidiary
of Becton Dickinson & Company, Perkin-Elmer Life Sciences, a business unit of
PerkinElmer, Inc., and Sequenom, Inc., among others. In high-throughput
screening, Molecular Devices, IGEN, Amersham and Aurora BioSciences Corporation
offer products competitive with ours.
The clinical laboratory market is dominated by several very large
competitors. These include Abbott Laboratories, Bayer Corporation, Beckman
Coulter, Inc., Johnson & Johnson and Roche Bioscience, a division of F.
Hoffmann-La Roche Ltd., among others. These companies have technologies that can
perform a variety of established assays. While none currently offer
multi-analyte testing systems, these companies do offer integrated systems and
laboratory automation that are designed to meet the need for improved work
efficiencies in the clinical laboratory.
Competition within the biomedical research market is even more
fragmented than that within the pharmaceutical industry. There are hundreds of
suppliers to this market including Amersham Pharmacia Biotech, Applied
Biosystems, Molecular Devices Corporation and Stratagene Cloning Systems, Inc.
Any company in this field is a potential competitor with us.
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 implemented a patent strategy designed to maximize 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 six issued
patents in the United
7
States and have received notices of allowances for four additional patent
applications. In addition, our patent portfolio includes 18 other pending patent
applications in the United States and their corresponding international and
foreign counterparts in major industrial markets. Our patents and allowed 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
recently received notice of allowance on our "Zero Dead Time" sampling
architecture which uses digital oversampling to measure the area of a
fluorescence pulse instead of "peak detection," giving increased sensitivity
with no lost events. Other issued patents and allowed or 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 in Japan a patent application corresponding to our US
patent for real-time multiplexing techniques.
The source code for our proprietary software is protected as a trade
secret and/or as a copyrighted work.
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
The Food and Drug Administration regulates medical devices pursuant to
various statutes, including 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 and the FDA
Modernization Act of 1997. Medical devices, as defined by statute, include
instruments, machines, in vitro reagents or other similar or related articles,
including any component, part or accessory 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 human body. 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) are sufficient to
provide reasonable assurance of safety and effectiveness. Class II devices are
products where general controls are not sufficient to 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 purported or represented to be used to
support or sustain human life, are for a use that is of substantial importance
in preventing impairment of human health, or where the device presents a
potential unreasonable risk of illness or injury.
We manufacture a version of the Luminex 100, the Luminex 100 Integrated
System ("IS"), for use with diagnostic assay kits that are expected to become
available through our strategic partners. For FDA purposes, the Luminex 100 IS
is considered a component of our partners' kit products. Depending on the
particular kit's 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
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. There can be no assurance that the FDA will file, clear or
approve our strategic partners' submissions.
In November 2000, we submitted a device master file ("DMF") with
information about the Luminex 100 IS to the FDA. Our strategic partners can
reference the DMF in their premarket submissions. During the last year, FDA
reviewed our DMF while reviewing one of our strategic partner's submissions, and
asked questions of the Company about the content of the DMF. It is possible that
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 FDA's questions in a timely fashion, there can be no assurance
that our responses will be acceptable to the FDA.
Our products 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
8
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 compliance with the FDA's 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 postmarket controls such as labeling, complaint handling and
medical device reporting requirements. If the FDA has evidence demonstrating
that a company is not in compliance with applicable regulations, it can detain
or seize products, issue a recall, impose operating restrictions, enjoin future
violations and assess civil and criminal penalties against the company, its
officers or its employees, and can recommend criminal prosecution to the
Department of Justice. 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 products
outside the U.S.
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.
RBM is working on developing new technology designed to identify
associations among the proteins in blood that cause disease by testing different
blood samples for a large number of protein markers. By creating bioinformatics
software that will manipulate and analyze large amounts of data from blood
samples from people who develop a specific disease over a period of time, we
intend to create a database and algorithms to detect distinct disease patterns
indicated by the presence or absence of these protein markers. Some or all of
the products that may result from the bioinformatics software, database or
algorithms may be subject to FDA regulation and, therefore, may be subject to
premarket controls such as premarket clearance. There can be no assurance that
the FDA will clear such products.
We are subject to stringent and complex federal, state and local laws
and regulations relating to the protection of 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. Many 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, 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 or under
other locations where such substances or wastes have been taken for disposal.
These properties may be subject to investigatory, 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. 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
9
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 15, 2002, we had a total of 183 employees. None of our
employees is represented by a collective bargaining agreement, and we have not
experienced any work stoppage. We believe that relations with our employees are
good.
FACTORS THAT MAY AFFECT FUTURE RESULTS
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT OF APPROXIMATELY $51
MILLION AS OF DECEMBER 31, 2001.
We have incurred significant net losses since our inception, including
losses of $15.7 million in 2001, $12.5 million in 2000 and $12.6 million in
1999. At December 31, 2001, we had an accumulated deficit of approximately $51.1
million. To achieve profitability, we will need to generate and sustain
substantially higher revenue while maintaining reasonable cost and expense
levels. If we fail to achieve profitability within the time frame expected by
securities analysts or investors, the market price of our common stock will
likely decline. We do not know when or if we will become profitable. If we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or an annual basis.
IF OUR TECHNOLOGY AND PRODUCTS DO NOT BECOME WIDELY USED IN THE LIFE SCIENCES
INDUSTRY, IT IS UNLIKELY THAT WE WILL EVER BECOME PROFITABLE.
Life sciences companies have historically conducted biological tests
using a variety of technologies, including bead-based analysis. However,
compared to certain other technologies, our xMAP technology is new and
relatively 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 customers to utilize our system instead of competing
technologies. Market acceptance will depend on many factors, including our
ability to:
- - convince prospective strategic partners and customers that our
technology is an attractive alternative to other technologies for
pharmaceutical, research, clinical and biomedical testing and analysis;
- - manufacture products in sufficient quantities with acceptable quality
and at an acceptable cost; and
- - place and service sufficient quantities of our products.
Because of these and other factors, our products may not gain
sufficient market acceptance to achieve profitability.
OUR BUSINESS PLAN MAY NOT SUCCEED UNLESS WE ESTABLISH MEANINGFUL AND SUCCESSFUL
RELATIONSHIPS WITH OUR STRATEGIC PARTNERS.
Our strategy for the development and commercialization of our xMAP
technology is highly dependent on our ability to establish successful strategic
relationships with a number of partners. As of December 31, 2001, we had entered
into strategic partnerships with 35 companies, yet only 14 of these partners
have released commercialized products utilizing the Luminex platform.
Furthermore, two of our customers accounted for 29% of the Company's revenues
for the year ended December 31, 2001. The loss of any of our significant
strategic partners, or either of our two largest customers during 2001, would
have a material adverse effect on our growth and future results of operations.
Delays in implementation, changes in strategy or the financial difficulty of any
of our strategic partners for any reason could have a material adverse effect on
our business, financial condition and results of operation.
Our ability to enter into agreements with additional partners depends
in part on convincing them that our technology can help achieve and accelerate
their goals or efforts. We will expend substantial funds and management efforts
with no assurance that any additional strategic relationships will result. We
cannot assure you
10
that we will be able to negotiate additional strategic agreements in the future
on acceptable terms, if at all, or that current or future partners will not
pursue or develop alternative technologies either on their own or in
collaboration with others. 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.
Our business plan contemplates that 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 our existing strategic partner agreements do not
include minimum purchase requirements. In addition, we do not have the right or
ability to provide incentives to our strategic partners' sales personnel to sell
products based on xMAP technology or to 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.
OUR LIMITED OPERATING HISTORY AND RELIANCE ON STRATEGIC PARTNERS TO MARKET OUR
PRODUCTS MAKES FORECASTING DIFFICULT.
Because of our limited operating history, 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. As a result, if we do not achieve our
expected revenues, our operating results will be below our expectations. The
level of our revenues will depend upon the rate and timing of the adoption of
our technology as a method to perform bioassays. Due to our limited operating
history, predicting this timing and rate of adoption is difficult.
In addition, we anticipate that a large percentage 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:
- - We have no control over the timing or extent of product development,
marketing or sale of our products by our strategic partners.
- - 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.
- - A significant number of our strategic partners intend to produce
clinical diagnostic applications that may need to be approved by the
FDA.
- - 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.
We have and expect to maintain a limited marketing, sales and
distribution staff. As a result, if our strategic partners fail to achieve
projected levels of sales, we will likely not achieve our estimated operating
results.
WE EXPECT OUR OPERATING RESULTS TO CONTINUE TO FLUCTUATE SIGNIFICANTLY FROM
QUARTER TO QUARTER.
The sale of bioassay testing devices typically involves a significant
technical evaluation and commitment of capital by customers. Accordingly, the
sales cycle associated with our products typically is lengthy and subject to
11
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews that 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.
BECAUSE WE RECEIVE REVENUES PRINCIPALLY FROM LIFE SCIENCE COMPANIES, THE CAPITAL
SPENDING POLICIES OF THESE ENTITIES HAVE A SIGNIFICANT EFFECT ON THE DEMAND FOR
OUR PRODUCTS.
Our customers include 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 quarter to quarter volatility in revenue expectations and actual
revenue results. Therefore, our quarterly operating results can be materially
affected (negatively and positively) by the spending policies and priorities of
our customers.
THE LIFE SCIENCES INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL CHANGE AND WE MAY NOT HAVE THE RESOURCES NECESSARY TO SUCCESSFULLY
COMPETE.
We compete with companies in the United States and abroad that are
engaged in the development and production of similar products. We will continue
to face intense competition from existing competitors as well as 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. Our present or future products could be rendered
obsolete or uneconomical by technological advances by one or more of our current
or future competitors. In addition, the introduction or announcement of new
products by us or by others could result in a delay of or decrease in sales of
existing products, as customers evaluate these new products. Our future success
will depend on our ability to compete effectively against current technologies
as well as to respond effectively to technological advances.
THE INTELLECTUAL 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 on our ability to obtain, protect and enforce
patents on our technology and to protect our trade secrets. Any patents we own
may not afford full protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable. In addition, our current and future
patent applications may not result in the issuance of patents in the United
States or foreign countries. Competitors may develop products 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 the approval or
rejection of patent applications may take several years.
We have obtained six patents in the United States directed to various
aspects and applications of our technology. We have 22 pending applications in
the United States, four of which have been allowed. Moreover, we
12
have two published and 24 pending applications in certain foreign jurisdictions.
In Japan, due to a procedural omission by our previous patent counsel, we are
unable to obtain patent protection for our method of "real time" detection and
quantification of multiple analytes from a single sample 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, we may not be
able to prevent competitors from developing and marketing technologies similar
to our xMAP technology in Japan.
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. However, we cannot
guarantee that these agreements 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 and techniques, or otherwise gain access to our trade secrets. Our
failure to protect our proprietary information and techniques may inhibit or
limit our ability to exclude certain competitors from the market.
In order to protect or enforce our patent rights, we may have to
initiate legal proceedings against third parties, such as infringement suits or
interference proceedings. These legal proceedings could be expensive, take
significant time and divert management's attention from other business concerns.
If we lose, we may lose the benefit of some of our intellectual property rights,
the loss of which may inhibit or 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 on the intellectual property rights of
others. In addition, we may find it necessary, if threatened, to initiate a
lawsuit seeking a declaration from a court that we do not infringe the
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. In addition, litigation is time
consuming and could divert management attention and resources away from our
business. If we do not prevail in any litigation, in addition to any damages we
might have to pay, we could be required to stop the infringing activity or
obtain a license. Any required license may not be available to us on acceptable
terms, if at all. In addition, some licenses may be nonexclusive, and therefore,
our competitors may have access to the same technology licensed to us. If we
fail to obtain a required license or are unable to design around a patent, we
may be unable to sell some of our products, which could have a material adverse
affect on our business, financial condition and results of operations.
We are aware of a European patent granted to Dr. Ioannis Tripatzis,
which covers certain testing agents and certain methods of their use. Dr.
Tripatzis has publicly stated his belief that his European patent covers aspects
of our technology if practiced in Europe. This European patent expires in 2004.
We cannot assure you that a dispute with Dr. Tripatzis will not arise involving
our European activities or that any dispute with him will be resolved in our
favor.
WE HAVE ONLY PRODUCED OUR PRODUCTS IN LIMITED QUANTITIES AND WE MAY EXPERIENCE
PROBLEMS IN SCALING UP 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 projected revenues. We may not be able to
produce sufficient quantities or maintain consistency between differing lots of
consumables. If we encounter difficulties in scaling up our manufacturing
operations due to, among other things, quality control and quality assurance and
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
13
and increased expenses due to switching to alternate suppliers, any of which
would reduce our revenues and gross margins.
We presently outsource certain aspects of the assembly of our systems
to contract manufacturers. We have a minimum purchase requirement with a
contract manufacturer which requires us to take delivery of a minimum number of
products or the cost per unit will increase, which would adversely impact our
gross margin. In addition, certain key components of our product line are
currently purchased from a limited number of outside sources and may only be
available through a 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:
- - the possibility that one or more of our suppliers or our assemblers
could terminate their services at any time without penalty;
- - the potential inability of our suppliers to obtain required components;
- - the potential delays and expenses of seeking alternate sources of
supply or manufacturing services;
- - reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternate suppliers or assemblers; and
- - 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.
RBM IS SUBJECT TO ADDITIONAL RISKS AND UNCERTAINTIES AND HAS SIGNIFICANT HUMAN
AND CAPITAL RESOURCE REQUIREMENTS.
RBM seeks to identify associations among the proteins in blood that
cause disease. We intend to identify these associations by testing different
blood samples for a large number of protein markers. In addition, we will need
to create large panels of bioassays to test the blood samples. To the extent we
are unable to obtain sufficient quantities of relevant blood samples and medical
histories, or cannot develop a large panel of bioassays to test the samples, we
will not be able to produce meaningful information.
If we, or any third-party collaborators, encounter difficulties in
developing the software that will be used to analyze the information, our
ability to identify useful information will be adversely affected. There can be
no assurance that our efforts will lead to useful scientific information or that
we will be able to attract customers for this information. In addition, because
RBM will require manipulating and analyzing large amounts of data, we will be
dependent on the continuous, effective, reliable and secure operation of our
computer hardware, software, networks and related infrastructure. In addition,
as stated in "Government Regulations" above, some or all of the products that
may result from RBM may be subject to FDA regulation and, therefore, may be
subject to premarket controls such as premarket clearance. There can be no
assurance that the FDA will clear such products.
Furthermore, RBM utilizes significant human resources and requires
significant capital to fund the research and development associated with this
business unit. The Company is analyzing the various legal, accounting and tax
implications of structuring alternatives for RBM that would be designed to
provide it with access to capital outside of the Company. At this time, the
Company's Board of Directors is continuing to monitor the development of RBM but
no decision has been reached regarding its operating structure. So long as RBM
remains a business unit within the Company, the continuing need for human
resources and funding could detract from revenue producing opportunities of the
Company and materially adversely impact our operating margin and net loss.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO ATTRACT AND TO RETAIN OUR MANAGEMENT
AND STAFF.
We depend on the principal members of our management and scientific
staff, including our research and development, customer support, technical
service and sales staff. The loss of services of any of our key members of
management could delay or reduce our product development, sales and customer
support efforts. In addition, recruiting and retaining qualified scientific and
other personnel to perform research and development, customer support, technical
service 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. In March 2002, we created a Management
Evaluation and Search Committee to evaluate our existing management team and
organizational structure and to provide recommendations regarding changes and
additions to our management team and organizational structure, if deemed
appropriate. There can be no assurance that we will be able to attract
additional and retain existing personnel.
14
IF WE FAIL TO COMPLY WITH THE EXTENSIVE GOVERNMENTAL REGULATIONS THAT AFFECT OUR
BUSINESS, WE COULD BE SUBJECT TO ENFORCEMENT ACTIONS, INJUNCTIONS AND CIVIL AND
CRIMINAL PENALTIES THAT COULD DELAY OR PREVENT MARKETING OF OUR PRODUCTS.
The production, labeling, distribution and marketing of our products
for some purposes and products based on our technology expected to be produced
by our strategic partners are subject to governmental regulation by the Food and
Drug Administration in the United States and by similar agencies in other
countries. Some of our products and products based on our technology expected to
be produced by our strategic partners for in vitro diagnostic purposes are
subject to approval or clearance by the FDA prior to marketing for commercial
use. To date, only two such approvals or clearances have been obtained by our
strategic partners. The process of obtaining necessary FDA clearances or
approvals can be time-consuming, expensive and uncertain. Further, clearance or
approval may place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed. In addition, we are also
required to comply with FDA requirements relating to laser safety.
Approved or cleared products are subject to continuing FDA requirements
relating to quality control and quality assurance, maintenance of records and
documentation and labeling and promotion of medical devices. Our inability, or
the inability of our strategic partners, to obtain required regulatory approval
or clearance on a timely or acceptable basis could harm our business. In
addition, failure to comply with applicable regulatory requirements could
subject us or our strategic partners to enforcement action, including product
seizures, recalls, withdrawal of clearances or approvals, restrictions on or
injunctions against marketing our products or products based on our technology,
and civil and criminal penalties.
Medical device laws and regulations are also in effect in many
countries outside the United States. These range from comprehensive device
approval requirements for some or all of our medical device products to requests
for product data or certifications. The number and scope of these requirements
are increasing. Failure to comply with applicable federal, state and foreign
medical device laws and regulations may harm our business, financial condition
and results of operations. We are also subject to a variety of other laws and
regulations relating to, among other things, environmental protection and work
place safety.
RBM will also be subject to various governmental regulations, which may
delay or prohibit certain planned activities. Certain biological testing has
raised issues regarding confidentiality and the appropriate uses of the
resulting information. For example, concerns have been expressed towards
insurance carriers and employers using such tests to discriminate on the basis
of such information, resulting in barriers to the acceptance of such tests by
consumers. These concerns could lead to governmental authorities calling for
limits on or regulation of the use of testing of the type proposed to be
performed. Such regulations would likely reduce the potential markets for any
products that might be developed.
Our strategic partners and customers expect that our organization
operates to an established quality management system compliant with FDA quality
system regulations and industry standards, such as ISO 9000. Failure to maintain
compliance to FDA regulations and failure to obtain and maintain ISO
registration could reduce our competitive advantage in the international market
and also decrease satisfaction and confidence levels with our partners.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, WE MAY BE REQUIRED TO PAY
DAMAGES THAT EXCEED OUR INSURANCE COVERAGE.
Our business exposes us to potential product liability claims that are
inherent in the testing, production, marketing and sale of human diagnostic and
therapeutic products. While we believe that we are reasonably insured against
these risks, there can be no assurance that we will be able to obtain insurance
in amounts or scope sufficient to provide us with adequate coverage against all
potential liabilities. A product liability claim in excess of our insurance
coverage or a recall of one of our products would have to be paid out of our
cash reserves.
15
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, health maintenance
organizations and private insurers, are restricting payments for healthcare.
These restrictions may decrease demand for our products and the price we can
charge. Increasingly, Medicaid and other third-party payors are challenging the
prices charged for medical services, including clinical diagnostic tests. They
are also attempting to contain costs by limiting coverage and the reimbursement
level of tests and other healthcare products. Without adequate coverage and
reimbursement, consumer demand for tests will decrease. Decreased demand could
cause sales of our products, and sales and services by our strategic partners,
to fall. In addition, decreased demand could place pressure on us or our
strategic partners to lower prices on these products or services, resulting in
lower margins. Reduced sales or margins by us or our strategic partners would
hurt our business, profitability and business prospects.
OUR OPERATING RESULTS MAY BE AFFECTED BY CURRENT ECONOMIC AND POLITICAL
CONDITIONS.
On September 11, 2001, the United States was the target of
unprecedented terrorist attacks. These attacks have created many economic and
political uncertainties, some of which may adversely affect our business and
revenues. While we do not believe that the attacks had an adverse effect on our
operations during the remainder of 2001, the long-term effects of the attacks on
our business and revenues are unknown. The potential for future terrorist
attacks, the national and international responses to terrorist attacks, and
other acts of war or hostility have created many economic and political
uncertainties, which also could adversely affect our business and revenues in
the short or long term in ways that cannot presently be predicted.
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:
- - general economic conditions and interest rates;
- - instability in the United States and other financial markets as a
result of the terrorist attacks on September 11, 2001 and the
possibility of armed hostilities or further acts of terrorism in the
United States or elsewhere;
- - actual or anticipated variations in quarterly operating results from
historical results or estimates of results prepared by us or by
securities analysts;
- - announcements of technological innovations by us or our competitors;
- - new products or services introduced or announced by us or our
competitors;
- - changes in financial estimates by us or by securities analysts;
- - conditions or trends in the life science, biotechnology and
pharmaceutical industries;
- - announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- - additions or departures of key personnel; and
- - sales of our common stock.
In addition, the stock market in general, and The Nasdaq Stock Market
and the market for technology companies in particular, has experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further, there
has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
16
securities class action suit against us could result in substantial costs,
potential liabilities and the diversion of management's attention and resources.
OUR DIRECTORS AND EXECUTIVE OFFICERS HAVE SUBSTANTIAL CONTROL OVER LUMINEX,
WHICH COULD DELAY OR PREVENT A MERGER OR OTHER CHANGE IN CONTROL TRANSACTION.
Our directors and executive officers beneficially owned approximately
32% of our outstanding common stock as of March 15, 2002. These persons will be
able to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. This concentration of ownership may also delay or
prevent a change in control of the Company even if beneficial to our
stockholders.
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. These
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. We are also subject to certain provisions
of Delaware law that could delay, deter or prevent a change in control of us.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and
administrative facilities are currently located in approximately 58,000 square
feet of leased space in Austin, Texas. The Company recently extended the lease
term for its current facilities and leased additional adjacent space of
approximately 30,000 square feet beginning October 2002. The new lease
agreement, which covers approximately 98,000 square feet, expires on July 31,
2010. We believe that these facilities are adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
As a result of a procedural omission, we are unable to pursue a patent
in Japan which corresponds to some of our issued U.S. patents related to our
method of "real time" detection and quantification of multiple analytes from a
single sample. On January 31, 2000, we filed a lawsuit in Travis County, Texas
state district court alleging negligence and breach of contract on the part of
our prior patent counsel in this matter. The case is in discovery and should
have mediation in late 2002 and trial in early 2003. We cannot predict whether
this lawsuit will be successful and, if so, the amount of any damages we may
recover.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE AND OTHER OFFICERS AND RELATED MATTERS
The following sets forth information regarding our executive and other
officers:
Name Age Position
---- --- --------
Mark B. Chandler, Ph.D 48 Chairman of the Board, President and Chief Executive Officer
Gail S. Page 46 Executive Vice President and Chief Operating Officer
Van S. Chandler 51 Vice President, Instruments and Chief Technology Officer
Randel S. Marfin 45 Vice President, Business Development
Ralph L. McDade, Ph.D. 47 Vice President, Research & Development and Chief Scientific Officer
Oliver H. Meek 50 Vice President, Manufacturing
Michael D. Spain, M.D. 49 Vice President, Clinical Affairs and Chief Medical Officer
James E. Schepp 48 Vice President, Sales and Marketing
James W. Jacobson, Ph.D. 47 Vice President, Technical Operations
Harriss T. Currie 40 Acting Chief Financial Officer and Controller
17
Mark B. Chandler, Ph.D. Dr. Chandler co-founded our Company with his
brother Van S. Chandler, in May 1995, and has served as Chairman of the Board
and Chief Executive Officer since that date and as President since June 1999. He
also has served as a member of the executive committee of our board of directors
since its formation in July 1997. In 1982, he founded Inland Laboratories, Inc.,
which provides plant and bacterial toxins to the medical research community. As
the President and CEO of Inland, Dr. Chandler received the KPMG LLP, High
Technology Entrepreneur of the Year award in 1987. He received his Ph.D. in
Immunology from the University of Texas Southwestern Medical School in Dallas in
1981.
Gail S. Page. Ms. Page joined our Company in October 2000 as Executive
Vice President and Chief Operating Officer. From 1988 to 2000, Ms. Page held
various senior level management positions with Laboratory Corporation of
America. In 1993, she was named Senior Vice President, Office of Science and
Technology, responsible for the management of scientific affairs in addition to
the diagnostics business segment. Additionally, from 1995 to 1997, Ms. Page
headed the Cytology and Pathology Services business unit for LabCorp. From 1988
to 2000, she was a member of the Scientific Advisory Board and chaired the
committee from 1993 to 1997. She received her Medical Technology degree from the
University of Florida in 1976.
Van S. Chandler. Mr. Chandler, a co-founder, has served as Vice
President, Instruments and Chief Technology Officer since January 1998. In
addition, Mr. Chandler served the Company as a director from May 1995 to
February 2000 and as an independent contractor from 1995 to 1998. Since 1995, he
has led the design and development of the digital signal processing hardware and
data analysis software for our instrumentation systems. In 1990, Mr. Chandler
founded Sigma Logic Corp., and while serving as its President and CEO from 1990
to 1995, he developed an array of law enforcement technologies, including
wireless police data networks and imaging systems for the FBI. Mr. Chandler
founded Concept Communications, Inc. and served as its President and CEO from
1985 to 1990. He graduated from the University of Texas at Arlington in 1972
with a B.B.A. in Statistics.
Randel S. Marfin. Mr. Marfin has served as Vice President, Business
Development since joining our Company in June 1998 and has over 13 years of
clinical laboratory management experience. Prior to joining us, he worked for
three years at SpectraCell Laboratories, Inc., most recently as Vice President
of Sales and Marketing where he was responsible for business development,
acquisitions, strategic planning and sales and marketing. From 1990 to 1998, he
served as General Manager of Texas for both Damon Clinical Laboratories and
Nichols Institute. In addition, Mr. Marfin held sales management and business
development positions for Damon Clinical Laboratories and MPC Labs. Mr. Marfin
graduated from the University of Houston in 1986 with a B.S. in Biochemistry and
Biophysics and served in the United States Air Force.
Ralph L. McDade, Ph.D. Dr. McDade has served as Vice President,
Research & Development and Chief Scientific Officer since June 1999. From
January 1996 to June 1999, he served as Vice President of Development of the
Company. From 1988 until 2001, he served as Director of Research and Development
for Inland Laboratories. After post-doctoral training at The University of
Connecticut Health Center in Farmington, he held faculty positions at The
Rockefeller University in New York and at Louisiana State University Medical
Center in New Orleans. Dr. McDade received his Ph.D. in Microbiology from the
University of Texas Southwestern Medical School in 1980.
Oliver H. Meek. Mr. Meek has served as Vice President, Manufacturing
since February 2000 and served the Company as a consultant from 1999 to February
2000. From August 1985 to January 2000, he held management positions in the area
of Technical Product Development, Reagent and Instrument Manufacturing and
Quality with Abbott Laboratories. Mr. Meek graduated from The University of
Texas at Austin in 1979 with a B.A. degree in biology.
Michael D. Spain, M.D. Dr. Spain has served as Vice President, Clinical
Affairs and Chief Medical Officer since March 1997. From 1994 until joining us,
he served as Medical Director of Laboratory Corporation of America. From 1984 to
1994, he served as Medical Director of Quest Laboratory (formerly Damon Clinical
Laboratory). Following a four-year residency in pathology at Baylor University
Medical Center in Dallas, he became board certified in 1984. Dr. Spain received
his M.D. from the University of Texas Southwestern Medical School in Dallas in
1980.
James E. Schepp. Mr. Schepp joined Luminex as Vice President, Sales and
Marketing in April 2001. He served as Vice President, European Commercial
Operations for Beckman Coulter from 1999 until joining the Company in 2001. From
1992 to 1999, Mr. Schepp was responsible for all sales, marketing and customer
support in
18
the U.S. for Coulter Corporation, a predecessor to Beckman Coulter. Mr. Schepp
graduated from the University of North Carolina in 1975 with a B.S. in
Environmental Health and served an internship with the U.S. Public Health
Service in Norfolk, Virginia.
James W. Jacobson, Ph.D. Dr. Jacobson joined Luminex Corporation in May
1998, and he currently serves as Vice President, Technical Operations. From 1994
to 1998, Dr. Jacobson was Laboratory Director at Cytastar Laboratories, Virus
Reference Laboratories and SpectraCell Laboratories in Houston. Following
post-doctoral work at North Carolina State University and Duke University, he
was a faculty member in the Department of Biology, University of Houston,
Houston, Texas. Dr. Jacobson received the Ph.D. degree in 1986 from Washington
University in Saint Louis, Missouri.
Harriss T. Currie. Mr. Currie, a Certified Public Accountant, has
served as the Controller of Luminex since joining the Company in November 1998.
In March 2002, Mr. Currie was elected to serve as Acting Chief Financial Officer
of the Company. 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
of SpectraCell Laboratories from 1997 to 1998. Mr. Currie earned his B.B.A. from
Southwestern University in 1986 and his M.B.A. in Finance and Marketing from The
University of Texas at Austin in 1992. Prior to returning to school for his
M.B.A., Mr. Currie was a certified public accountant with Deloitte & Touche LLP.
In mid 2001, the Company's Chairman of the Board and Chief Executive
Officer, with the concurrence of the Company's Board of Directors, requested G.
Walter Loewenbaum, an outside director and beneficial owner of approximately
11.8% of the Company's outstanding common stock as of March 15, 2002, to
consult with and provide advice and assistance to the Company's senior
management team with respect to financial and strategic matters and general
business operations of the Company. In conjunction therewith, Mr. Loewenbaum
has maintained an office at the Company's principal executive offices on a
regular basis. Other than the compensation received in his capacity as an
outside director, Mr. Loewenbaum does not receive any compensation for these
services.
In March 2002, we created a Management Evaluation and Search Committee
to evaluate our existing management team and organizational structure and to
provide recommendations regarding changes and additions to our management team
and organizational structure, if deemed appropriate.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Our common stock is traded on The Nasdaq Stock Market under the symbol
"LMNX."
The following table sets forth the range of high and low sale prices on
The Nasdaq Stock Market for each quarter during 2000 and 2001.
2000 High Low
---- ---- ---
First Quarter (commencing March 30, 2000)......... $ 26.00 $ 17.875
Second Quarter.................................... $ 43.00 $ 13.25
Third Quarter..................................... $ 64.125 $ 25.25
Fourth Quarter.................................... $ 38.50 $ 18.75
2001 High Low
---- ---- ---
First Quarter..................................... $ 36.187 $ 15.875
Second Quarter.................................... $ 24.00 $ 11.95
Third Quarter..................................... $ 22.35 $ 13.42
Fourth Quarter.................................... $ 18.98 $ 12.49
HOLDERS
As of March 15, 2002, we had 287 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
shareholders 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.
RECENT SALES OF UNREGISTERED SECURITIES
Between January 1, 2001 and December 31, 2001, we issued 1,072,424
shares of common stock pursuant to the exercise of options granted to our
directors, employees and consultants pursuant to our 1996 Stock Option Plan for
exercise prices ranging from $.49 to $5.88 per share and a total of 75,165
shares of common stock pursuant to the exercise of various warrants issued at an
exercise price of $1.96 per share. In addition, during 2001, we issued 2,685
shares of common stock pursuant to the exercise of options granted to employees
pursuant to our 2001 Broad-Based Stock Option Plan for an exercise price of
$13.05 per share. We issued all of these shares in reliance upon the exemption
from the registration requirements of the Securities Act of 1933 set forth in
Section 4(2) or Rule 701 thereof.
20
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING
On March 29, 2000, in connection with our initial public offering, the
Securities and Exchange Commission declared our Registration Statement on Form
S-1 (No. 333-96317) effective. The net proceeds of the initial public offering
were approximately $77.0 million. As of December 31, 2001, we had used
approximately $33 million of this amount to fund our operations, including
continued development and manufacturing of existing products, research and
development of additional products, hiring additional personnel and expanding
our facilities. Pending their use, the remaining net proceeds are currently
invested in short-term, interest-bearing, investment grade securities.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operation" 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, 2001, 2000 and 1999 and the consolidated balance sheet data at
December 31, 2001 and 2000 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, 1998
and 1997 and the consolidated balance sheet data at December 31, 1999, 1998 and
1997 are derived from audited consolidated financial statements not included in
this Annual Report on Form 10-K.
Year Ended December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share data)
Consolidated Results of Operations Data:
Revenue ................................ $ 20,939 $ 8,570 $ 3,112 $ 386 $ 99
Gross profit ........................... 6,323 3,230 1,940 298 89
Loss from operations ................... (18,484) (16,372) (9,486) (5,879) (2,931)
Net loss ............................... (15,685) (12,474) (9,202) (5,596) (2,753)
Accretion of discount on convertible
preferred stock ................... $ -- $ -- $ (3,406) $ -- $ --
-------- -------- -------- -------- --------
Net loss applicable to common
Stockholders ...................... $(15,685) $(12,474) $(12,608) $ (5,596) $ (2,753)
======== ======== ======== ======== ========
Net loss before per common share, basic
and diluted ....................... $ (0.55) $ (0.52) $ (0.96) $ (0.43) $ (0.21)
======== ======== ======== ======== ========
Shares used in computing net loss per
share, basic and diluted .......... 28,330 23,828 13,151 13,086 12,842
At December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share data)
Consolidated Balance Sheet Data:
Cash and cash equivalents .............. $ 34,930 $ 7,106 $ 4,083 $ 8,437 $ 2,821
Short-term investments ................. 16,122 66,521 4,929 -- --
Working capital ........................ 63,018 76,779 10,426 8,391 2,761
Total assets ........................... 72,073 83,668 12,566 9,590 3,119
Total stockholders' equity ............. 67,255 78,688 11,195 9,190 2,964
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following information should be read in conjunction with the
Consolidated Financial Statements and the accompanying Notes included below in
Item 8 and "Factors That May Affect Future Results" included above in Item 1 of
this Annual Report on Form 10-K.
OVERVIEW
For the years ended December 31, 2001, 2000 and 1999, we had net losses
of $15.7 million, $12.5 million and $12.6 million, respectively. We anticipate
that our quarterly results of operations will continue to fluctuate for the
foreseeable future due to several factors, including a lengthy and unpredictable
sales cycle for our product offerings, the rate of market acceptance of current
and new products, the timing of the introduction by our strategic partners of
commercial products based on our technology, the timing of regulatory approvals,
our ability to scale up manufacturing operations and avoid component shortages,
the introduction of new products by our competitors, the timing, extent and
capital needs of our research and development efforts and the timing of
significant orders. Our limited operating history makes accurate predictions of
future operations difficult. Based upon preliminary first quarter revenue
analysis, we believe the Company's revenues will be significantly below the
Company's earlier guidance. We attribute the anticipated revenue shortfall
primarily to the fact that certain of our strategic partners continue to have
delays in their commercialization timetables, thereby resulting in significantly
reduced purchases of the Company's instruments and consumable products.
Our ability to achieve sustained profitability will depend upon our
ability to continue to enter into strategic partnerships with companies that
will develop and market products incorporating our technology and market and
distribute our systems and consumables. Strategic partners will develop
application-specific bioassay kits for use on our systems that they will sell to
their customers generating royalties for us. Strategic partners may also perform
testing services for third parties using our technology that will also result in
royalties for us. Some strategic partners will also buy our products and then
resell those products to their customers. Through December 31, 2001, we have
entered into strategic partnerships with 35 companies. Of our 35 strategic
partners, only 14 partners have released commercialized products utilizing the
Luminex platform.
Revenue on sales of our products is recognized when persuasive evidence
of an agreement exists, delivery has occurred, the fee is fixed and determinable
and collectibility is probable. Generally, these criteria are met at the time
our product is shipped. We expect that each system's sale will generate a
recurring revenue stream from the sale of consumable products. In addition, we
recognized royalty revenues for the first time from some of our strategic
partners during 2001. Royalty revenue is generated when a partner sells products
incorporating our technology or provides testing services to third parties using
our technology. Royalty revenue is recognized as it is reported to us by our
partners and payment is typically submitted concurrently with the report and is
reported as product revenue. During 2001, we also began selling to our customers
extended service contracts for maintenance and support of our products. In
accordance with the terms of a federal grant from which the Company withdrew on
July 1, 2001, grant revenue was recorded as research expenses relating to the
grant as incurred, provided that the amounts received were not refundable if the
research was not successful. Two customers accounted for 29% of product revenue
in 2001, 16% and 13% respectively. We believe these customers relationships to
be good; however, the loss of either customer, a significant reduction in
product purchases or financial difficulty for either customer could have a
material adverse effect on our business, financial condition and resulting
operations. We believe these customers will continue as significant customers in
2002; however, we do not currently expect such customers to maintain purchases
at the same level as 2001.
Cost of product revenue consists of direct and indirect manufacturing,
quality control, training, customer service and warranty costs. Our operating
expenses consist primarily of costs incurred in research and development,
manufacturing scale-up and business development and from general and
administrative costs associated with our operations. We expect research and
development expenses to increase in the future as we continue to develop the RBM
business unit and other new products and services. Our RBM business unit, so
long as it remains a business unit within the Company, will be incurring
research and development expenses, including expenses related to the acquisition
of blood samples, development of the assays, development of the software that
will capture the data and analyze the results and establishment of the
laboratory. Our selling and marketing expenses will increase as we continue to
commercialize our products, and general and administrative expenses will
increase as we add personnel and expand our facilities.
Deferred stock compensation represents the difference between the
deemed fair value of our common stock and the exercise price of options or
warrants and the fair market value of restricted stock grants. For options
granted to employees and directors, this difference is calculated as of the
grant date and amortized ratably over the vesting period. For options or
warrants granted to consultants, the difference is recognized as of the vesting
date with adjustments made to the recognized deferred compensation amount up and
until that time based on the market value of our common stock. As a result of
stock options, warrants and restricted stock grants, we recorded $886,000, $2.4
22
million and $1.3 million in deferred stock compensation expense in the years
ended December 31, 2001, 2000 and 1999, respectively. Total unamortized deferred
stock compensation as of December 31, 2001 was $623,000.
Total deferred revenue as of December 31, 2001 was $655,000 and
consisted of (i) payments received for sales to customers with rights of return
that had not yet expired, (ii) upfront payments from strategic partners to be
used for the purchase of products or to be applied towards future royalty
payments and (iii) unamortized revenue related to extended service contracts.
Upfront payments from our strategic partners are nonrefundable and will be
recognized as revenue as our strategic partners purchase products or apply such
amounts against royalty payments.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of certain
items in the 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,(1)
----------------------------
2001 2000 1999
---- ---- ----
Revenue:
Product revenue .................................... 98% 95% 84%
Grant revenue ...................................... 2% 5% 16%
---- ---- ----
Total revenue .................................. 100% 100% 100%
Cost of product revenue ............................ 70% 62% 38%
---- ---- ----
Gross profit .................................. 30% 38% 62%
Operating expenses:
Research and development ........................... 40% 104% 199%
Selling, general and administrative expenses ....... 79% 124% 168%
---- ---- ----
Total operating expenses ...................... 118% 228% 367%
Loss from operations ............................... (88)% (191)% (305)%
Interest income .................................... 13% 45% 9%
---- ---- ----
Net loss ........................................... (75)% (146)% (296)%
Accretion of discount on convertible preferred stock -- -- (109) %
---- ---- ----
Net loss applicable to common stockholders ......... (75)% (146)% (405)%
==== ==== ====
- ------------
(1) Rounding may cause percentages not to total.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Revenue. Revenue increased to $20.9 million in 2001 from $8.6 million
in 2000 primarily as a result of increases in instrumentation and consumable
revenue. Instrumentation revenue increased from $6.8 million in 2000 to $15.4
million in 2001, an increase of $8.6 million or 126%. The increase in
instrumentation revenue was attributable to increased sales of the Luminex 100
analyzer along with an increase in sales of the related peripheral components:
the Luminex XY Platform and Luminex SD. The following table summarizes the
number of instrument sales for 2001 compared with 2000:
Year Ended December 31,
-----------------------
2001 2000
---------- ---------
Luminex 100................................. 621 297
Luminex XY Platform......................... 500 243
Luminex SD.................................. 381 37
23
Consumables sales increased to $4.0 million in 2001 from $1.2 million
in 2000, an increase of $2.8 million or 233%. The increase in consumable sales
was attributable to the increase in the installed base of instrumentation.
We recognized royalty revenue for the first time during 2001 in the
amount of approximately $128,000, as eight of our strategic partners generated
royalty-bearing sales.
Other revenue increased to $990,000 in 2001 from $130,000 in 2000, an
increase of $860,000. Included in other revenue are shipping charges, service
contract revenue, training revenue and other miscellaneous sales. The increase
was primarily a result of an increase in shipping revenue of approximately
$200,000, an increase in other miscellaneous sales (primarily parts sales) of
approximately $380,000 and an increase in training and service contract sales of
approximately $250,000.
Grant revenue increased by 10% to $492,000 in 2001 from $446,000 in
2000. After being temporarily suspended in September 1999 when our prior joint
venture partner withdrew as a result of a change in its business strategy, the
grant was reinstated on July 1, 2000 with a new joint venture partner.
Subsequently, on July 1, 2001 we permanently withdrew from our grant
arrangement, and no further grant revenue is anticipated.
A breakdown of total revenue for the years ended December 31, 2001 and
2000 is as follows (in thousands):
Year Ended December 31,
-----------------------
2001 2000
------- ------
Instrument sales........................... $15,354 $6,804
Consumable sales........................... 3,975 1,190
Royalty revenue............................ 128 --
Other revenue.............................. 990 130
Grant revenue.............................. 492 446
------- ------
$20,939 $8,570
======= ======
Gross Profit. Gross profit increased by 97% to $6.3 million in 2001
from $3.2 million in 2000. Gross margin (gross profit as a percentage of total
revenue) decreased to 30% for the year ended December 31, 2001 from 38% for the
year ended December 31, 2000. The decrease in gross margin was primarily
attributable to: (i) an increase in raw material and component costs and (ii) an
increase in manufacturing overhead related to the expansion of operations for
anticipated future demand.
Research and Development Expense. Research and development expenses
decreased 8% to $8.3 million in 2001 from $9.0 million in 2000. The decrease in
2001 was primarily attributable to the completion of several initiatives during
the year related to the development of new products. Also, contributing to this
net decrease were reductions in consumable supplies and stock compensation
expenses of $1.1 million and $500,000, respectively, offset by increases in R &
D personnel costs of approximately $500,000.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased by $5.9 million to $16.5 million in 2001 from
$10.6 million in 2000, an increase of 56%. The increase was primarily
attributable to increased personnel costs of $2.8 million, increased consulting
and professional expenses of $1.0 million and increased corporate insurance and
taxes of $1.2 million.
Interest Income. Interest income decreased by $1.1 million to $2.8
million in 2001 from $3.9 million in 2000. The decrease was attributable to a
significant decrease in the average investment yields in 2001 compared with 2000
and a reduction in the average cash and short-term investment balances.
Income Taxes. As of December 31, 2001, we had federal net operating
loss carryforwards of approximately $63 million and federal research tax credit
carryforwards of approximately $1.4 million. The federal net operating loss and
credit carryforwards begin to expire in 2010, if not utilized. Utilization of
the federal net operating losses
24
and credit carryforwards will be limited by the change of ownership provisions
contained in Section 382 of the Internal Revenue Code.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Revenue. Revenue increased to $8.6 million in 2000 from $3.1 million in
1999 primarily as a result of product revenue which increased 212% to $8.1
million in 2000 from $2.6 million in 1999. Included in product revenue are
consumables sales, which increased by 214% to $1.2 million in 2000 from $379,000
in 1999. The following table summarizes the number of instrument sales for 2000
compared with 1999:
Year Ended December 31,
-----------------------
2000 1999
--------- ---------
Luminex 100.......................... $ 297 $ 92
Luminex XY Platform.................. 243 26
Luminex SD........................... 37 --
Grant revenue decreased by 12% to $446,000 in 2000 from $506,000 in
1999. After being temporarily suspended in September 1999 when our prior joint
venture partner withdrew due to a change in its business strategy, the grant was
reinstated on July 1, 2000 with a new joint venture partner.
A breakdown of revenue for the years ended December 31, 2000 and 1999
is as follows (in thousands):
Year Ended December 31,
------------------------
2000 1999
---------- ---------
Instrument sales............................. $ 6,804 $ 2,165
Consumable sales............................. 1,190 379
Grant revenue................................ 446 506
Other revenue................................ 130 62
---------- ---------
$ 8,570 $ 3,112
========== =========
Gross Profit. Gross profit increased by 66% to $3.2 million in 2000
from $1.9 million in 1999. Gross margin decreased to 38% for the year ended
December 31, 2000 from 62% for the year ended December 31, 1999. The decrease in
gross margin was primarily attributable to: (i) a reduction in the average
selling price of our systems, resulting from an increase in the number of sales
to strategic partners which are made at discounted prices, (ii) an increase in
cost of product revenue caused by higher material costs and (iii) the absence of
grant revenue in the first six months of 2000.
Research and Development Expense. Research and development expenses
increased 45% to $9.0 million in 2000 from $6.2 million in 1999. The increase
was attributable to several factors, including increased personnel costs of $1.4
million and increased consumption of parts and supplies of $1.4 million related
to the development of new products. These expenses were partially offset by a
$309,000 reduction in consulting and professional expenses.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased by 104% to $10.6 million in 2000 from $5.2
million in 1999. The increase was primarily attributable to increased personnel
costs of $2.0 million, increased non-cash stock compensation expenses of $1.2
million and increased sales and marketing expenses of $801,000.
Interest Income. Interest income increased to $3.9 million in 2000 from
$284,000 in 1999. The increase was attributable to an increase in the average
cash and short-term investment balances, resulting from investment of the net
proceeds of our initial public offering in April 2000.
Income Taxes. As of December 31, 2000, we had federal net operating
loss carryforwards of $34.8 million and federal research tax credit
carryforwards of $828,000. The federal net operating loss and credit
carryforwards begin to expire in 2010, if not utilized. Utilization of the
federal net operating losses and credit carryforwards will be
25
limited by the change of ownership provisions contained in Section 382 of the
Internal Revenue Code.
QUARTERLY RESULTS
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,
2001 2001 2001 2001
--------- -------- ------------- ------------
Revenue ............ $ 3,864 4,712 6,188 6,175
Gross profit ....... 1,254 794 2,006 2,269
Loss from operations (5,028) (5,146) (4,206) (4,104)
Net loss ........... (3,949) (4,369) (3,621) (3,746)
Basic loss per share (0.14) (0.15) (0.13) (0.13)
QUARTER ENDED
-----------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- -------- ------------- ------------
Revenue ............. $ 1,390 1,394 2,315 3,471
Gross profit ........ 667 409 899 1,255
Loss from operations (2,723) (4,845) (4,041) (4,763)
Net loss ............ (2,611) (3,644) (2,730) (3,489)
Basic loss per share (0.19) (0.13) (0.10) (0.13)
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, we held cash, cash equivalents and short-term
investments of $51.1 million and had working capital of $63.0 million. At
December 31, 2000, we held cash, cash equivalents and short-term investments of
$73.6 million. 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.
Cash used in operations was $22.6 million in 2001, compared with $10.4
million in 2000. Cash used consisted of the $15.7 million net loss for 2001,
increase in inventories of $6.3 million at December 31, 2001 and an increase in
receivables of $4.2 million. Purchases of property and equipment in 2001 totaled
$2.4 million, compared with $2.5 million in 2000.
We have contractual minimum purchase commitments with one of our
contract manufacturers. Should our production requirements fall below the level
of our commitments we could be required to take delivery of inventory for which
we have no immediate need or incur an increased cost per unit going forward. The
Company is not otherwise committed to scheduled purchase requirements. However,
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. Should the
Company's 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.
Our research and development expenses in 2001 were $8.3 million, of
which the RBM project was approximately $1 million. In 2002 we expect non-RBM
research and development expenses to remain comparable. With respect to RBM, our
research and development expenses could increase over prior year levels. Based
on current plans, it is anticipated that aggregate research and development
expenses for 2002 will be in the range of $8 to $11 million if RBM remains a
business unit within the Company. As set forth in Item 1 - "Business - Research
and Development", we are evaluating various legal, accounting and tax
implications of structuring alternatives designed to provide RBM with capital.
If and until such a transaction occurs, the research and development
26
expenses associated with RBM will continue to be incurred by the Company.
Anticipated research and development expenses for RBM for 2002 are expected to
be in the range of $2 to $4 million.
Selling, general and administrative expenses should increase slightly
over 2001 as a result of additions to personnel, increased production and
commercialization efforts and increased expenditures for product development and
for the expenses related to development of our business unit. 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 costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights,
the need to acquire licenses to new technology and the status of competitive
products. We believe that our existing cash, cash equivalents and short
term-investments are sufficient to fund our current operating expenses and
capital equipment requirements for 2002.
We have no credit facility or other committed sources of capital. To
the extent capital resources are insufficient to meet future capital
requirements, we will have to raise additional funds to continue the development
of our technologies. There can be no assurance that 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 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments held to maturity. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
All payments for our products, including sales to foreign customers, are
required to be made in U.S. dollars; therefore, we do not engage in any foreign
currency hedging activities. Accordingly, our foreign currency market risk is
limited.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
PAGE
----
Report of Independent Auditors................................................28
Consolidated Balance Sheets...................................................29
Consolidated Statements of Operations.........................................30
Consolidated Statements of Cash Flows.........................................31
Consolidated Statements of Changes in Stockholders' Equity....................32
Notes to Consolidated Financial Statements....................................33
27
Report of Independent Auditors
The Board of Directors
Luminex Corporation
We have audited the accompanying consolidated balance sheets of Luminex
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
statements of operations, cash flows and changes in stockholders' equity for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial position of Luminex
Corporation and subsidiaries at December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Austin, Texas
January 29, 2002
28
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31,
-------------------------
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 34,930 $ 7,106
Short-term investments .................................................. 16,122 66,521
Accounts receivable, net ................................................ 7,246 3,085
Inventories ............................................................. 8,748 2,408
Other ................................................................... 614 1,739
--------- ---------
Total current assets ................................................ 67,660 80,859
Property and equipment, net .................................................. 3,577 2,770
Notes receivable - related parties ........................................... 243 39
Other ........................................................................ 593 --
--------- ---------
Total assets ........................................................ $ 72,073 $ 83,668
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 2,163 $ 2,741
Accrued liabilities ..................................................... 2,000 673
Deferred revenue ........................................................ 479 666
--------- ---------
Total current liabilities ........................................... 4,642 4,080
Deferred revenue ............................................................. 176 900
--------- ---------
Total liabilities ............................................................ 4,818 4,980
Stockholders' equity
Common stock, $.001 par value, 200,000,000 shares authorized; issued and
outstanding:
28,788,305 in 2001; 27,586,050 in 2000 ............................. 29 28
Preferred Stock, $.001 par value, 5,000,000 shares authorized; issued and
outstanding:
none in 2001; none in 2000 ....................................... -- --
Additional paid-in capital .............................................. 118,995 115,651
Deferred stock compensation ............................................. (623) (1,529)
Accumulated other comprehensive income .................................. 1 --
Accumulated deficit ..................................................... (51,147) (35,462)
--------- ---------
Total stockholders' equity .......................................... 67,255 78,688
--------- ---------
Total liabilities and stockholders' equity .......................... $ 72,073 $ 83,668
========= =========
See the accompanying notes.
29
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
--------------------------------------
2001 2000 1999
-------- -------- --------
Revenue:
Product ................................................... $ 20,447 $ 8,124 $ 2,606
Grant ..................................................... 492 446 506
-------- -------- --------
Total revenue ........................................ 20,939 8,570 3,112
Cost of product revenue ........................................ 14,616 5,340 1,172
-------- -------- --------
Gross profit .............................................. 6,323 3,230 1,940
Operating expenses:
Research and development .................................. 8,280 8,953 6,188
Selling, general and administrative ....................... 16,527 10,649 5,238
-------- -------- --------
Total operating expenses ............................. 24,807 19,602 11,426
-------- -------- ---
Loss from operations ........................................... (18,484) (16,372) (9,486)
Other income, net ......................................... 2,799 3,898 284
-------- -------- --------
Net loss ....................................................... (15,685) (12,474) (9,202)
Accretion of discount on convertible preferred stock ........... -- -- (3,406)
-------- -------- --------
Net loss applicable to common stockholders ..................... $(15,685) $(12,474) $(12,608)
======== ======== ========
Net loss per share, basic and diluted .......................... $ (0.55) $ (0.52) $ (0.96)
======== ======== ========
Shares used in computing net loss per share, basic and diluted . 28,330 23,828 13,151
See the accompanying notes.
30
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-------------------------------------
2001 2000 1999
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................... $(15,685) $(12,474) $(9,202)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense ................................... 1,544 1,087 516
Amortization of deferred stock and stock compensation expense and
unearned restricted stock .......................................... 886 2,440 1,263
Implied interest ........................................................ 146 -- --
Forgiveness of note receivables - related parties ....................... 50 -- --
Loss on disposal of assets .............................................. 18 -- --
Changes in operating assets and liabilities:
Accounts receivable ................................................. (4,161) (1,744) (1,195)
Inventories ......................................................... (6,340) (1,745) (616)
Other ............................................................... 1,125 (1,523) (120)
Accounts payable .................................................... (578) 2,368 205
Accrued liabilities ................................................. 1,327 395 120
Deferred revenue .................................................... (911) 846 646
-------- -------- -------
Net cash used in operating activities ....................................... (22,579) (10,350) (8,383)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net maturities (purchase) of short-term investments ......................... 50,399 (61,592) (4,929)
Purchase of property and equipment .......................................... (2,362) (2,488) (1,085)
Acquired technology rights .................................................. (600) -- --
Notes receivable - related parties .......................................... (400) (74) --
-------- -------- -------
Net cash provided by (used in) investing activities ......................... 47,037 (64,154) (6,014)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock ...................................... 3,365 78,769 47
Stock issuance costs ........................................................ -- (1,242) (8)
Proceeds from issuance of Preferred Stock ................................... -- -- 9,904
-------- -------- -------
Net cash provided by financing activities ................................... 3,365 77,527 9,943
-------- -------- -------
Effect of exchange rates on cash ............................................ 1 -- --
Increase (decrease) in cash and cash equivalents ............................ 27,824 3,023 (4,454)
Cash and cash equivalents, beginning of year ................................ 7,106 4,083 8,537
-------- -------- -------
Cash and cash equivalents, end of year ...................................... $ 34,930 $ 7,106 $ 4,083
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Conversion of Preferred Stock ............................................... $ -- $ 28,946 $ --
See the accompanying notes.
31
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Convertible
Preferred Stock Common Stock Accumulated
------------------ ------------------ Additional Deferred Deficit and Total
Number of Number of Paid-In Stock Translation Stockholders'
Shares Amount Shares Amount Capital Compensation Adjustment Equity
-------- -------- ---------- ------ -------- ------------ ----------- -----------
Balance at December 31, 1998 ................ 758,821 $ 19,041 13,133,849 $13 $ 516 $ -- $(10,380) $ 9,190
Issuance of Preferred Stock, Series D net of
discount ................................ 57,538 6,499 -- -- 406 -- -- 6,905
Issuance of Preferred Stock, Series E, net of
discount ................................ 25,000 -- -- -- 3,000 -- -- 3,000
Stock issuance costs ....................... -- -- -- -- (8) -- -- (8)
Accretion of discount on convertible
Preferred Stock ......................... -- 3,406 -- -- -- -- (3,406) --
Exercise of stock options .................. -- -- 33,905 -- 47 -- -- 47
Deferred stock compensation related to
stock options ........................... -- -- -- -- 1,730 (1,730) -- --
Amortization of deferred stock and stock
compensation Expense .................... -- -- -- -- -- 1,263 -- 1,263
Net loss ................................... -- -- -- -- -- -- (9,202) (9,202)
-------- -------- ---------- --- -------- ------- -------- --------
Balance at December 31, 1999 ................ 841,359 $ 28,946 13,167,754 $13 $ 5,691 $ (467) $(22,988) $ 11,195
Conversion of Preferred Stock to Common Stock (841,359) (28,946) 8,768,582 9 28,937 -- -- --
Initial public offering, net of offering cost -- -- 4,869,000 5 75,737 -- -- 75,742
Exercise of stock options .................. -- -- 648,529 1 1,735 -- -- 1,736
Exercise of warrants ....................... -- -- 117,185 -- 49 -- -- 49
Deferred stock compensation related to
stock options ........................... -- -- -- -- 2,801 (2,801) -- --
Warrants granted ........................... -- -- -- -- 135 -- -- 135
Restricted stock granted ................... -- -- 15,000 -- 566 (566) -- --
Amortization of restricted stock ........... -- -- -- -- -- 78 -- 78
Amortization of deferred stock and stock
compensation Expense .................... -- -- -- -- -- 2,227 -- 2,227
Net loss ................................... -- -- -- -- -- -- (12,474) (12,474)
-------- -------- ---------- --- -------- ------- -------- --------
Balance at December 31, 2000 ................ -- $ -- 27,586,050 $28 $115,651 $(1,529) $(35,462) $ 78,688
Exercise of stock options .................. -- -- 1,123,487 1 3,364 -- -- 3,365
Exercise of warrants ....................... -- -- 78,768 -- -- -- -- --
Deferred stock compensation related to
stock options ........................... -- -- -- -- (20) 20 -- --
Amortization of restricted stock ........... -- -- -- -- -- 425 -- 425
Amortization of deferred stock and stock
compensation Expense .................... -- -- -- -- -- 461 -- 461
Net loss ................................... -- -- -- -- -- -- (15,685) (15,685)
Translation adjustment ..................... -- -- -- -- -- -- 1 1
-------- -------- ---------- --- -------- ------- -------- --------
Balance at December 31, 2001 ................ -- $ -- 28,788,305 $29 $118,995 $ (623) $(51,146) $ 67,255
======== ======== ========== === ======== ======= ======== ========
See the accompanying notes.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Luminex Corporation (the "Company"), a Delaware corporation, designs,
develops, manufactures, markets, services and supplies proprietary molecular
measurement and analysis systems (the "xMAP System") capable of performing
multiple tests on a single patient sample.
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.
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 EQUIVALENTS
Cash equivalents consist of cash deposits and investments with original
maturities of three months or less when purchased.
SHORT-TERM INVESTMENTS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company's short-term 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 discounts to maturity. Such amortization is included in interest
income. Interest on securities classified as held-to-maturity is also included
in interest income.
All of the short-term investments mature within 180 days of December
31, 2001.
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 Company's 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.
One customer accounted for 13%, 13% and 10% of the Company's total
revenues in 2001, 2000 and 1999, respectively. An additional customer accounted
for 16% of the Company's total revenues in 2001. No other customer accounted for
more than 10% of our total revenues in 2001, 2000 or 1999.
INVENTORIES
Inventories, consisting primarily of raw materials and purchased
components, are stated at the lower of cost (standard cost adjusted to actual at
period end) or market. The Company routinely assesses its on-hand inventory for
timely identification and measurement of obsolete, slow-moving or otherwise
impaired inventory.
33
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 three to seven years. Leasehold improvements 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.
SOFTWARE COSTS
During 2000, the Company adopted the American Institute of Certified
Public Accountants' Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The Company
capitalizes eligible software development costs incurred subsequent to
completion of the preliminary project stage. After all substantial testing and
deployment is completed and software is ready for its intended use, development
costs are amortized over the shorter of the expected useful life of the software
or five years. The impact of adoption on the consolidated financial statements
of the Company was not material. Prior to adoption of SOP No. 98-1, the Company
expensed these costs as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors its long-lived assets to determine if indicators
of impairment exist. The Company assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets can
be recovered through undiscounted estimated future operating cash flows. If
impairment is indicated, the amount of such impairment is determined by
comparing the carrying value of the asset to the present value of the estimated
future cash flows associated with the use of the asset. As of December 31, 2001,
no such indicators of impairment have been identified.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenue from sales of the Company's products are recognized when
persuasive evidence of an agreement exists, delivery of the product has
occurred, the fee is fixed and determinable and collectibility is probable.
Generally, these criteria are met at the time the product is shipped. Revenues
from royalties related to agreements with strategic partners are recognized when
such amounts are either reported to the Company or accrued based on shipment
activity provided by the respective strategic partner. Revenue from extended
service agreements are deferred and recognized ratably over the term of the
agreement.
In accordance with the terms of a federal grant in which the Company
participated, grant revenue was recognized as research expenses relating to the
grant were incurred, provided that the amounts received were not refundable if
the research was not successful.
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 we have 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 customers, or a further deterioration in the economic
environment, in general, could have a material adverse impact on the
collectibility 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.
34
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.
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 performance
metrics. Bonus accruals made throughout the year related to the various
incentive plans are based on management's best estimate of the achievement of
the specific financial metrics. Adjustments to the accruals are made on a
quarterly basis as forecasts of financial performance are updated. At year-end,
the accruals are adjusted to reflect the actual results achieved.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement prescribes the use of 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.
NET LOSS PER SHARE
SFAS No. 128, "Earnings Per Share," and Staff Accounting Bulletin
("SAB") No. 98, prescribe standards for computing net income (loss) 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.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options. As allowed by SFAS No. 123, the Company has
elected to continue to account for its employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25").
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("Interpretation 44"),
effective July 1, 2000. Interpretation 44 clarifies guidance for certain issues
that arose in the application of APB 25. The Company has applied the
requirements of APB 25 as clarified by Interpretation 44.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting comprehensive income and its components in a full set of financial
statements. In accordance with SFAS No. 130, there were no differences between
net loss and comprehensive loss for any of the periods presented.
35
SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires the use of a management approach in identifying the
business segments of an enterprise. Management has determined that the Company
operates in one business segment.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current
year presentation.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
2001 2000
------- -------
Accounts receivable .................. $ 7,746 $ 3,155
Less: allowance for doubtful accounts (500) (70)
------- -------
$ 7,246 $ 3,085
======= =======
The following table summarizes the changes in the allowance for doubtful
accounts (in thousands):
Balance at December 21, 1998 ....................... $ 14
Additions charged to costs and expenses .... 64
Write-offs of uncollectible accounts ....... (14)
----
Balance at December 21, 1999 ........................ 64
Additions charged to costs and expenses .... 94
Write-offs of uncollectible accounts ....... (88)
----
Balance at December 21, 2000 ........................ 70
Additions charged to costs and expenses .... 616
Write-offs of uncollectible accounts ....... (186)
----
Balance at December 21, 2001 ....................... $500
====
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31 (in thousands):
2001 2000
------- -------
Parts and supplies .................... $ 7,225 $ 2,002
Work-in-progress ...................... 735 322
Finished goods ........................ 1,288 174
------- -------
9,248 2,498
Less: Allowance for obsolete inventory (500) (90)
------- -------
$ 8,748 $ 2,408
======= =======
We have contractual minimum purchase commitments with one of our
component suppliers. Should our production requirements fall below the level of
our commitments, we could be required to take delivery of inventory for which we
have no immediate need or postpone delivery of inventory and incur an increased
per unit cost going forward.
36
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in
thousands):
2001 2000
------- -------
Laboratory equipment ........................... $ 2,690 $ 2,179
Leasehold improvements ......................... 850 1,037
Computer equipment ............................. 968 673
Purchased software and intangibles ............. 1,499 480
Furniture and fixtures ......................... 348 349
Construction in progress ....................... 44 --
------- -------
6,399 4,718
Less: Accumulated amortization and depreciation (2,822) (1,948)
------- -------
$ 3,577 $ 2,770
======= =======
NOTE 5 - NOTES RECEIVABLE - RELATED PARTIES
Notes Receivable - Related Parties consisted of the following at
December 31 (in thousands):
2001 2000
----- ----
Notes Receivable - Related Parties .......................... $ 389 $39
Implied Interest Discount on Notes Receivable - Related Party (146) --
----- ---
$ 243 $39
===== ===
Notes Receivable - Related Parties at December 31, 2001 consisted of
notes from two officers of the Company. During 2001, in connection with the
relocation and employment of an officer, the Company received a promissory note
in the amount of $400,000, secured by mortgaged real property. The promissory
note is non-interest bearing and is due on the earlier of (i) the termination of
the officer's employment with the Company or (ii) May 9, 2011. On October 2,
2001, according to the terms of the note, $50,000 of principal was forgiven.
Contingent upon the continued employment of the officer, additional principal
will be forgiven to the extent of $50,000 each October 2 through October 2,
2004, for a total additional principal reduction of $150,000.
Implied Interest Discount on Notes Receivable - Related Party is the
discount derived from imputing an interest rate of 10% on the outstanding
balance during the life of the note. This discount is amortized over the life of
the note and recognized as interest income. The current balance is the
unamortized portion remaining.
NOTE 6 - OTHER ASSETS
Other assets consisted of the following at December 31, (in thousands):
2001 2000
---- ------
Purchased Technology Rights (net).... $587 $ --
Other ............................... 6 --
---- ------
$593 $ --
==== ======
In March 2001, the Company entered into an agreement that provides the
Company with a license to commercialize products incorporating certain patented
technology. Under the terms of the agreement, the Company made $600,000 in
milestone payments through December 31, 2001 and has agreed to make additional
payments of $400,000 in the aggregate upon the achievement of additional
milestones. In addition, the Company will make royalty payments based on sales
of the developed products incorporating the licensed technology. The costs of
the technology rights acquired were capitalized and are being amortized on a
straight-line basis over their estimated useful life of approximately four
years. As of December 31, 2001, the Company had recognized amortization expense
related to the amortization of these acquired technology rights of approximately
$13,000.
37
NOTE 7 - INCOME TAXES
As of December 31, 2001, the Company had federal net operating loss
carryforwards of approximately $63 million and research and development credit
carryforwards of approximately $1.4 million that will begin to expire in 2010 if
not utilized prior to that time.
Current federal income tax laws impose substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change," as defined in such laws, of a corporation. The Company's
utilization of the net operating losses incurred prior to 2000 will be subject
to an annual limitation due to an "ownership change" resulting from the sales of
equity securities. The federal net operating loss and credit carryforwards
begin to expire in 2010, if not utilized. Utilization of the federal net
operating losses and credit carryforwards will be limited by the change of
ownership provisions contained in Section 382 of the Internal Revenue Code.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of December
31 are as follows (in thousands):
2001 2000
-------- --------
Deferred tax assets:
Deferred revenue .......................... $ 175 $ 577
Depreciable assets ........................ 453 352
Accrued expenses and other ................ 1,000 192
Net operating loss and credit carryforwards 24,680 13,692
Start-up and organization costs ........... -- 5
Stock compensation ........................ 681 538
-------- --------
Total deferred tax assets ...................... 26,989 15,356
Valuation allowance for deferred tax assets (26,880) (15,274)
-------- --------
Net deferred taxes ............................. 109 82
Deferred tax liabilities:
Prepaid expenses .......................... (109) (82)
-------- --------
Total deferred tax liabilities ................. (109) (82)
-------- --------
Net deferred taxes ............................. $ -- $ --
-------- --------
The Company has established a valuation allowance equal to the net
deferred tax assets due to uncertainties regarding the realization of deferred
tax assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $11.6 million during 2001. $6.2 million of
this increase was due to operating losses not benefited and $5.4 million was due
to stock option deductions. Approximately $8.1 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 compensation expense.
The Company's provision for income taxes differs from the expected tax
benefit amount computed by applying the statutory federal income tax rate of 34%
to income before income taxes as a result of the following:
Year Ended December 31,
2001 2000 1999
------ ------ ------
Statutory tax rate ................................ (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit ............... (3.0) (2.9) (3.0)
Nondeductible expenses............................. .3 0.7 0.1
Research credit generated.......................... (3.4) (2.3) (2.7)
Other.............................................. .3 0.4 (0.6)
Operating losses not benefited..................... 39.8 38.1 40.2
------ ------ ------
-- % -- % -- %
====== ====== ======
38
NOTE 8 - NET LOSS PER SHARE
The following is a reconciliation of the numerator and denominator of
basic and diluted net loss per share (in thousands, except per share amounts):
Year Ended December 31,
----------------------------------
2001 2000 1999
-------- -------- --------
Basic and diluted:
Net loss applicable to common stockholders .................. $(15,685) $(12,474) $(12,608)
======== ======== ========
Weighted average shares of common stock outstanding ......... 28,330 23,828 13,151
======== ======== ========
Basic and diluted net loss per share ........................ $ (0.55) $ (0.52) $ (0.96)
======== ======== ========
Pro forma basic and diluted:
Net loss applicable to common stockholders .................. $(15,685) $(12,474) $(12,608)
Add back accretion of discount on convertible preferred stock -- -- 3,406
-------- -------- --------
Pro forma net loss applicable to common stockholders ........ $(15,685) $(12,474) $ (9,202)
======== ======== ========
Shares used above ........................................... 28,330 23,828 13,151
Pro forma adjustment to reflect weighted average effect of
assumed conversion of preferred stock ................... -- 2,131 7,378
-------- -------- --------
Shares used in computing pro forma basic and diluted net loss
per share ............................................... 28,330 25,959 20,529
======== ======== ========
Basic and diluted pro forma net loss per share .............. $ (0.55) $ (0.48) $ (0.45)
======== ======== ========
The Company has excluded all convertible preferred stock, outstanding
stock options, outstanding warrants to purchase stock and shares subject to
repurchase from the calculation of diluted loss per common share because all
such securities are anti-dilutive for all applicable periods presented. The
total number of shares excluded from the calculations of diluted net loss per
share, prior to application of the treasury stock method for options, was
3,967,020, 5,428,763 and 12,741,278, for the years ended December 31, 2001, 2000
and 1999, respectively. Such securities, had they been dilutive, would have been
included in the computations of diluted net loss per share.
NOTE 9 - INITIAL PUBLIC OFFERING AND CAPITAL STOCK
INITIAL PUBLIC OFFERING
On March 30, 2000, trading of the Company's common stock on The Nasdaq
Stock Market commenced in conjunction with the Company's initial public offering
of 4,500,000 shares of common stock at $17 per share. Cash proceeds from the
offering, net of underwriting discounts and commissions, totaled approximately
$71.1 million and were received by the Company upon closing of the offering on
April 4, 2000. Concurrent with the initial public offering, a total of 841,359
shares of convertible preferred stock, representing all of the Company's issued
and outstanding preferred stock, were converted into 8,768,582 shares of common
stock.
On April 27, 2000, the underwriters of the initial public offering
exercised a portion of their over-allotment option and purchased an additional
369,000 shares of common stock, generating additional proceeds to the Company of
approximately $5.8 million, net of underwriting discounts and commissions.
STOCK SPLIT
On March 30, 2000, the number of authorized shares of common stock was
increased to 200,000,000. Additionally, on March 9, 2000, the Board of Directors
of the Company approved a 2.04-for-1 stock split of common stock in the form of
a stock dividend. All common stock and per share information has been adjusted
to reflect the stock dividend as if such stock dividend had taken place at the
inception of the Company.
39
PREFERRED STOCK
The Company's 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 Company's stockholders.
The Company had previously issued Series A, Series B, Series C, Series
D and Series E Convertible Preferred Stock. Effective March 30, 2000, in
connection with the Company's initial public offering, all outstanding classes
of convertible preferred stock were converted to common stock. At December 31,
2001 there was no preferred stock issued and outstanding.
STOCKHOLDER'S RIGHTS PLAN
On June 20, 2001, the Company's Board of Directors declared a dividend
of one right for each outstanding share of the Company's 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 $.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.
WARRANTS
In 2000, the Company granted warrants to purchase 13,000 shares of
common stock at $12.00 per share to a collaborative partner that expire on March
29, 2005. The Company recorded, in selling, general and administrative expense,
stock compensation in the amount of $135,000 in connection with the issuance of
these warrants. At December 31, 2001, the Company had outstanding warrants to
purchase 351,090 shares of the Company's common stock at prices ranging from
$1.96 to $12.00 per share. The warrants may be exercised, in whole or in part,
at any time prior to various expiration dates between April 2, 2002 and March
29, 2005.
DISCOUNT ON CONVERTIBLE PREFERRED STOCK
The Company recorded a beneficial conversion feature pursuant to the
requirements of FASB Emerging Issues Task Force Issue No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," for certain shares of preferred stock issued in
1999. The beneficial conversion feature was calculated as the difference between
the conversion price and the fair value of the common stock into which the
preferred stock was convertible. The Company recorded a discount of $406,000 for
Series D Convertible Preferred Stock issued in November 1999 and $3,000,000 for
Series E Convertible Preferred Stock issued in December 1999. The total discount
of $3,406,000 was immediately accreted as a preferred stock dividend since the
Series D Convertible Preferred Stock and the Series E Convertible Preferred
Stock were immediately convertible upon their issuance.
NOTE 10 - EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
Under the Company's 1996 Stock Option Plan (the "1996 Plan"), the 2000
Long-Term Incentive Plan (the "2000 Plan") and the 2001 Broad-Based Stock Option
Plan (the "2001 Plan"), certain employees, non-employees and non-employee
directors have been granted options to purchase shares of common stock. The
stock options generally vest on a monthly or annual basis over three years from
the date of grant and expire either five or ten years after the date of grant.
Since approval of the 2000 Plan in February 2000, no further option shares are
authorized for issuance under the 1996 Plan.
The Company's 2000 Plan allows the Company to grant a variety of
incentive awards to key employees, directors and consultants of the Company. A
maximum of 3.6 million shares of common stock were authorized for issuance under
the 2000 Plan and can be awarded in the form of non-qualified stock options,
stock appreciation
40
rights, restricted stock and other stock-based awards. A total of approximately
1.4 million shares are authorized and available for future issuance as of
December 31, 2001.
The Company's 2001 Plan allows the Company to grant non-qualified stock
options to employees and consultants of the Company. Directors and officers of
the Company are not eligible to participate in the 2001 Plan or to receive
grants thereunder. A maximum number of shares of common stock equal to five
percent (5%) of the maximum number of fully diluted common shares outstanding
from time to time, subject to adjustment, are authorized for issuance under the
2001 Plan. As of December 31, 2001, the maximum number of shares authorized for
issuance under the 2001 Plan was approximately 1.7 million. A total of
approximately 1.3 million shares are authorized and available for future
issuance as of December 31, 2001.
The 1996 Plan, the 2000 Plan and 2001 Plan are administered by the
Compensation and Stock Option Committee of the Board of Directors which has the
authority to determine the terms and conditions under which options will be
granted, including the number of shares, option price, vesting schedule and
term. Under certain circumstances, the Company may repurchase previously granted
options or shares issued upon the exercise of a previously granted option.
During the years ended December 31, 2001, 2000 and 1999 the Company
recorded deferred stock compensation expense of $886,000, $2.4 million and $1.3
million in connection with certain stock options granted. The amounts represent
the difference between the exercise price of stock option grants and the deemed
fair value of the common stock at the time of such grants amortized over the
vesting period of the grant. During 2000, the Company granted options to
purchase 255,000 shares of common stock with an exercise price of $11.76 per
share and fair value of $17.00 per share. The Company issued no options
requiring us to record deferred compensation during 2001. All deferred
compensation amounts are being amortized over the vesting periods of the
applicable options resulting in amortization of $481,000 and $1.7 million in
2001 and 2000, respectively.
A summary of the changes in stock options is as follows:
Weighted
Range of exercise average
Shares prices exercise price
--------- --------------- --------------
Options outstanding, December 31, 1998 2,242,980 $0.49 - $3.92 $ 2.10
Granted............................. 1,666,884 $1.96 - $5.88 $ 4.03
Exercised........................... (33,905) $0.49 - $1.96 $ 1.38
Surrendered......................... (438,600) $1.96 $ 1.96
--------- --------------- ------
Options outstanding, December 31, 1999 3,437,359 $0.49 - $5.88 $ 3.06
Granted............................. 1,718,000 $5.88 - $44.61 $ 9.88
Exercised........................... (648,529) $0.49 - $18.63 $ 2.67
Surrendered......................... (64,184) $1.96 - $17.00 $ 5.86
--------- --------------- ------
Options outstanding, December 31, 2000 4,442,646 $0.49 - $44.61 $ 9.71
Granted............................. 1,064,097 $12.81 - $30.82 $18.24
Exercised........................... (1,123,487) $0.49 - $44.61 $ 2.99
Surrendered......................... (80,480) $5.88 - $28.00 $16.73
--------- --------------- ------
Options outstanding, December 31, 2001 4,302,776 $0.49 -$44.61 $13.48
========= =============== ======
41
The following table summarizes outstanding and exercisable options at
December 31, 2001:
Options outstanding Options exercisable
--------------------------------- --------------------------------
Weighted
average Weighted Number Weighted
Number remaining average exercisable and average
Exercise price outstanding contractual life exercise price vested exercise price
--------------- ----------- ---------------- -------------- --------------- --------------
$ 0.49 - $ 2.94 404,050 0.85 $ 1.98 404,050 $ 1.98
$ 3.92 - $ 5.88 1,252,004 2.52 $ 4.14 857,604 $ 4.16
$11.76 - $18.63 1,723,222 8.48 $15.80 655,111 $14.96
$19.35 - $29.63 775,500 9.03 $24.64 293,781 $24.45
$30.25 - $44.61 148,000 8.72 $38.30 60,181 $38.60
--------- ---- ------ --------- ------
4,302,776 6.14 $13.48 2,270,727 $10.71
========= ==== ====== ========= ======
SFAS No. 123, "Accounting for Stock-Based Compensation," allows
companies to estimate the pro forma fair value of their stock-based compensation
using a generally recognized option pricing model and provide those results in
the form of footnote disclosure. The fair value of each option grant was
estimated using the Black Scholes Option-Pricing model based on the date of
grant and the following weighted average assumptions at December 31:
2001 2000 1999
---------- ---------- ---------
Dividend yield................................. 0.0% 0.0% 0.0%
Expected volatility............................ 0.9% 0.6% 0.0%
Risk-free rate of return....................... 5.0% 5.0% 6.0%
Expected life.................................. 10 yrs 5 yrs 5 yrs
Weighted Average Fair Value at Grant Date...... $ 16.44 $ 19.52 $ 1.04
========== ========== =========
For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the options' vesting periods. Because, for pro forma
purposes, the estimated fair value of the Company's employee stock options is
treated as if amortized to expense over the options vesting period, the effects
of applying SFAS No. 123 for pro forma disclosure are not necessarily indicative
of future amounts. The Company's pro forma information is as follows (in
thousands, except per share amounts):
Year Ended December 31,
--------------------------------------
2001 2000 1999
---------- ---------- --------
Net loss as reported............................ $ (15,685) $ (12,474) $ (9,202)
Pro forma net loss.............................. $ (27,025) $ (15,638) $ (9,468)
Diluted net loss per share as reported.......... $ (0.55) $ (0.52) $ (0.70)
Pro forma diluted net loss per share............ $ (0.95) $ (0.66) $ (0.72)
RESERVED SHARES OF COMMON STOCK
At December 31, 2001 and 2000, the Company had reserved 4,643,866 and
4,868,904 shares of common stock, respectively, for the conversion of the
following:
December 31,
--------------------------------
2001 2000
------------ ----------
Warrants.................................... 351,090 426,258
Options..................................... 4,302,776 4,442,646
------------ ----------
$ 4,653,866 4,868,904
============ ==========
EMPLOYEE SAVINGS PLANS
Beginning in 1998, the Company utilized a Savings Incentive Match Plan
for Employees ("SIMPLE") under Section 408(p) of the Internal Revenue Code. Each
employee of the Company was eligible to contribute up to $6,000 annually. The
Company matched such contributions on a dollar-for-dollar basis up to the lesser
of 3% of the employee's gross salary compensation or $6,000. All employee and
employer contributions were immediately
42
vested. The Company's contributions totaled approximately $0, $128,000 and
$92,000 in 2001, 2000 and 1999, respectively.
Effective January 1, 2001, the Company ceased its SIMPLE plan and began
sponsoring a retirement plan authorized by section 401(k) of the Internal
Revenue Code. In accordance with this 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 2001, each employee could contribute a percentage
of compensation up to a maximum of $10,500 per year with the Company matching
50% of each employee's contributions. The Company's contributions for 2001 were
$294,000.
RESTRICTED STOCK AWARDS
Restricted stock awards may be granted at the discretion of the Board
of Directors under the 2000 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
employee's agreement. During the year ended December 31, 2000, the Company
awarded 15,000 shares of restricted common stock, which had a fair value at the
date of grant of $566,250. Compensation under this restricted stock award is
charged to expense over the restriction period and amounted to $425,000 and
$79,000 in 2001 and 2000, respectively. As of December 31, 2001, the Company had
$63,000 of deferred stock compensation relating to this restricted stock award.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASE ARRANGEMENTS
The Company has operating leases related primarily to its office
facilities. Rental expense for these operating leases for the years 2001, 2000
and 1999 totaled approximately $736,000, $548,000 and $399,000, respectively.
Minimum annual rental commitments as of December 31, 2001 under
noncancellable leases for each of the next five years and in the aggregate were
as follows:
2002..................................... $ 561,000
2003..................................... 996,000
2004..................................... 1,001,000
2005..................................... 1,033,000
Thereafter............................... 4,978,000
-----------
Total............................... $ 8,569,000
===========
LEGAL PROCEEDINGS
As a result of a procedural omission, the Company is unable to pursue a
patent in Japan which corresponds to some of the Company's issued U.S. patents
related to the Company's method of "real time" detection and quantification of
multiple analytes from a single sample. On January 31, 2000, the Company filed a
lawsuit in Travis County, Texas state district court alleging negligence and
breach of contract on the part of the Company's prior patent counsel in this
matter. The case is in discovery and should have mediation in late 2002 and
trial in early 2003. The Company cannot predict whether this lawsuit will be
successful and, if so, the amount of any damages the Company may recover.
NOTE 12 - RELATED PARTY TRANSACTIONS
In December 1999, the Company issued 51,000 shares of Series E
Convertible Preferred Stock for an aggregate price of $3,000,000 to Koerner
Capital Corporation, of which John E. Koerner III, one of the Company's
directors is the sole stockholder.
On June 1, 1999, the Company entered into a consulting agreement with a
director of Luminex for consulting services. In consideration for those
services, the Company paid the director $5,833 per month. On November 1, 1999,
the Company amended that agreement to increase the amount of consulting services
provided to the Company and to increase the consulting fee to $11,666 per month.
In addition, the Company issued stock options for the purchase of 51,000 shares
of the Company's common stock to this director. The Company recorded
43
compensation expense related to these options of approximately $1.0 million and
$332,000 in 2000 and 1999, respectively. The consulting agreement terminated on
October 31, 2000.
During 2001, in connection with the relocation and employment of an
officer, the Company received a promissory note in the amount of $400,000,
secured by mortgaged real property. The promissory note is non-interest bearing
and is due on the earlier of (i) the termination of the officer or (ii) May 9,
2011. On October 2, 2001, according to the terms of the note, $50,000 of
principal was forgiven. Contingent upon the continued employment of the officer
additional principal will be forgiven to the extent of $50,000 each October 2
through October 2, 2004, for a total additional principal reduction of $150,000.
NOTE 13 - JOINT VENTURE RESEARCH ARRANGEMENT
The Company, along with a joint venture partner, was granted a special
assistance award in October 1998, by the National Institute of Standards and
Technology to conduct liquid array technology development. The government grant
was reinstated July 1, 2000 with a new joint venture partner after being
temporarily suspended in September 1999 when the prior joint venture partner
withdrew due to a change in its business strategy. Effective July 1, 2001, the
Company permanently withdrew from the arrangement, and no future revenue is
expected. The Company incurred expenses related to liquid array development
activities totaling approximately $591,000, $559,000 and $607,000 and recognized
grant revenues of approximately $492,000, $466,000 and $506,000 during 2001,
2000 and 1999, respectively.
NOTE 14 - SEGMENT INFORMATION
We operate in one business segment, biological testing in the life
sciences industry. The table below provides information regarding product
revenues from our sales to customers within the United States and in foreign
countries for the years ended December 31 (in thousands):
2001 2000 1999
-------- ------- -------
Domestic......................... $ 18,142 $ 5,966 $ 2,223
Foreign:
Europe........................... 1,590 1,392 259
Asia............................. 75 361 106
Other............................ 640 405 18
-------- ------- -------
$ 20,447 $ 8,124 $ 2,606
======== ======== =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item 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 annual meeting of
stockholders to be held on or about May 23, 2002. Our 2002 proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
subsequent to December 31, 2001.
Certain information with respect to our executive officers is set forth
under the caption "Executive and Other Officers and Related Information" in Item
4 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference to the sections entitled "Executive Compensation and Related
Information" contained in our proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial
owners and management is incorporated by reference to the section entitled
"Security Ownership of Certain Beneficial Owners and Management" contained in
our proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships is incorporated by
reference to the section entitled "Certain Relationships and Related Party
Transactions" contained in our proxy statement.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(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.
(3) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.1* Restated Certificate of Incorporation of the Company.
3.2* Amended and Restated Bylaws of the Company.
4.1* Warrant for the Purchase of Shares of Common Stock dated as
of April 2, 1997 by and between the Company and Southcoast
Capital Corporation.
4.2** Rights Agreement dated as of Jun 21, 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.
10.1*# 1996 Stock Option Plan of the Company, as amended.
10.2*# Form of Stock Option Agreement for the 1996 Stock Option Plan.
10.3*# Form of Incentive Stock Option Agreement for the 1996 Stock
Option Plan.
10.4*# 2000 Long-Term Incentive Plan of the Company.
10.5*# Form of Stock Option Award Agreement for the 2000 Long-Term
Incentive Plan.
10.6# 2001 Broad-Based Stock Option Plan of the Company.
10.7# Form of Option Grant Certificate for the 2001 Broad-Based
Stock Option Plan.
10.8*+ Development and Supply Agreement dated as of March 19, 1999
by and between the Company and Bio-Rad Laboratories, Inc.
10.9*+ Amendment to Development and Supply Agreement dated as of
January 13, 2000 by and between the Company and Bio-Rad
Laboratories, Inc.
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.
10.11+ Distribution, Development and Supply Agreement dated as of
August 6, 2001 by and between the Company and Miraibio, Inc.
10.12*+ Agreement for Electronic Manufacturing Services dated as of
January 1, 2000 by and between the Company and Sanmina
Corporation.
10.13# Form of Employment Agreement between the Company and
each of Mark B Chandler, Ph.D., Gail S. Page, Van S.
Chandler, Randel S. Marfin, Ralph L. McDade, Ph.D.,
Michael D. Spain, M.D., James E. Schepp, James W. Jacobson,
Ph.D. and Oliver H. Meek
10.14***# Restricted Stock Agreement dated as of October 2, 2000 by
and between the Company and Gail S. Page.
10.15# Amended and Restated Promissory Note between Gail S. Page
and Daniel M. Page, as Maker, and Luminex Corporation,
as Noteholder, dated May 9, 2001.
10.16**** Lease Agreement between Aetna Life Insurance Company, as
Landlord, and Luminex Corporation, as Tenant, dated
October 19, 2001.
46
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.17* Sublease Agreement dated as of December 20, 1999 by and
between the Company and American Innovations, Ltd., for
facilities situated at 12112 Technology Boulevard, Austin,
Texas 78727.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of
this report).
- ---------------
* Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-96317),
filed February 7, 2000, as amended, and incorporated
herein by this reference.
** Previously filed as Exhibit 4 to the Company's Current
Report on Form 8-K dated June 20, 2001, and incorporated
herein by this reference.
*** Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2000, and incorporated herein by this reference.
**** Previously filed as Exhibit 10.18 to the Company's Form
10-Q for the quarterly period ended September 30, 2001,
and incorporated herein by this reference.
# 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.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2001.
(c) See Exhibits listed under Item 14(a)(3).
47
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
29, 2002.
LUMINEX CORPORATION
By: /s/ MARK B. CHANDLER, PH.D
-------------------------------------
Mark B. Chandler, Ph.D.
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Mark B. Chandler, Ph.D., 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 (including post-effective 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 attorney-in-fact and agent, 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 attorney-in-fact and
agent, or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities 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.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ MARK B. CHANDLER, PH.D Chairman of the Board, President March 29, 2002
- ------------------------------------ and Chief Executive Officer
Mark B. Chandler, Ph.D. (Principal Executive Officer)
/s/ HARRISS T. CURRIE Controller (Principal Financial March 29, 2002
- ------------------------------------ and Accounting Officer)
Harriss T. Currie
/s/ C. THOMAS CASKEY, M.D. Director March 29, 2002
- ------------------------------------
C. Thomas Caskey, M.D.
/s/ ROBERT J. CRESCI Director March 29, 2002
- ------------------------------------
Robert J. Cresci
/s/ FRED C. GOAD, JR Director March 29, 2002
- ------------------------------------
Fred C. Goad, Jr.
/s/ LAURENCE E. HIRSCH Director March 29, 2002
- ------------------------------------
Laurence E. Hirsch
48
/s/ JIM D. KEVER Director March 29, 2002
- -----------------------------------
Jim D. Kever
/s/ JOHN E. KOERNER, III Director March 29, 2002
- -----------------------------------
John E. Koerner, III
/s/ G. WALTER LOEWENBAUM Director March 29, 2002
- -----------------------------------
G. Walter Loewenbaum
/s/ WILLIAM L. ROPER, M.D. Director March 29, 2002
- -----------------------------------
William L. Roper, M.D.
49
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.1* Restated Certificate of Incorporation of the Company.
3.2* Amended and Restated Bylaws of the Company.
4.1* Warrant for the Purchase of Shares of Common Stock dated as
of April 2, 1997 by and between the Company and Southcoast
Capital Corporation.
4.2** Rights Agreement dated as of Jun 21, 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.
10.1*# 1996 Stock Option Plan of the Company, as amended.
10.2*# Form of Stock Option Agreement for the 1996 Stock Option Plan.
10.3*# Form of Incentive Stock Option Agreement for the 1996 Stock
Option Plan.
10.4*# 2000 Long-Term Incentive Plan of the Company.
10.5*# Form of Stock Option Award Agreement for the 2000 Long-Term
Incentive Plan.
10.6# 2001 Broad-Based Stock Option Plan of the Company.
10.7# Form of Option Grant Certificate for the 2001 Broad-Based
Stock Option Plan.
10.8*+ Development and Supply Agreement dated as of March 19, 1999
by and between the Company and Bio-Rad Laboratories, Inc.
10.9*+ Amendment to Development and Supply Agreement dated as of
January 13, 2000 by and between the Company and Bio-Rad
Laboratories, Inc.
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.
10.11+ Distribution, Development and Supply Agreement dated as of
August 6, 2001 by and between the Company and Miraibio, Inc.
10.12*+ Agreement for Electronic Manufacturing Services dated as of
January 1, 2000 by and between the Company and Sanmina
Corporation.
10.13# Form of Employment Agreement between the Company and
each of Mark B Chandler, Ph.D., Gail S. Page, Van S.
Chandler, Randel S. Marfin, Ralph L. McDade, Ph.D.,
Michael D. Spain, M.D., James E. Schepp, James W. Jacobson,
Ph.D. and Oliver H. Meek
10.14***# Restricted Stock Agreement dated as of October 2, 2000 by
and between the Company and Gail S. Page.
10.15# Amended and Restated Promissory Note between Gail S. Page
and Daniel M. Page, as Maker, and Luminex Corporation,
as Noteholder, dated May 9, 2001.
10.16**** Lease Agreement between Aetna Life Insurance Company, as
Landlord, and Luminex Corporation, as Tenant, dated
October 19, 2001.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.17* Sublease Agreement dated as of December 20, 1999 by and
between the Company and American Innovations, Ltd., for
facilities situated at 12112 Technology Boulevard, Austin,
Texas 78727.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of
this report).
- ---------------
* Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-96317),
filed February 7, 2000, as amended, and incorporated
herein by this reference.
** Previously filed as Exhibit 4 to the Company's Current
Report on Form 8-K dated June 20, 2001, and incorporated
herein by this reference.
*** Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 2000, and incorporated herein by this reference.
**** Previously filed as Exhibit 10.18 to the Company's Form
10-Q for the quarterly period ended September 30, 2001,
and incorporated herein by this reference.
# 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.