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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

OR

/  / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission File No. 000-30109

LUMINEX CORPORATION

(Exact name of Registrant as specified in its charter)

(512) 219-8020
(Registrant’s telephone number, including area code)

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

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

     There were 30,228,879 shares of the Company’s Common Stock, par value $.001 per share, outstanding on November 10, 2003.

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INDEX

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PART I

ITEM 1. FINANCIAL STATEMENTS

LUMINEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LUMINEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared by Luminex Corporation (the “Company”) in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE 2 - INVENTORY, NET

     Inventory consisted of the following (in thousands):

NOTE 3 - ACCRUED WARRANTY COSTS

     Sales of the Company’s systems are subject to a warranty. System warranties typically extend for a period of twelve months from the date of installation. The Company estimates the amount of warranty claims on sold product that may be incurred based on current and historical data and includes this reserve in accrued liabilities. The actual warranty expense could differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted periodically. Warranty expenses and accruals for the nine months ended September 30, 2003 were as follows (in thousands):

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NOTE 4 - BUSINESS RESTRUCTURING COSTS

     In November 2002, the Company’s management approved a business restructuring plan to reduce headcount and infrastructure. As of September 30, 2003, the Company has completed the business restructuring plan and no other expenditures are expected. Components of the business restructuring charges through September 30, 2003 were as follows (in thousands):

NOTE 5 - SETTLEMENT OF LITIGATION

     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 defendants in this matter. On March 7, 2003, the parties executed a full, final and complete release regarding such action, without an admission of liability or wrongdoing on the part of the defendants. As consideration in connection with the settlement and release, the Company received approximately $1.8 million, net of legal and related costs and expenses.

NOTE 6 - INVESTMENT

     On September 5, 2002, the Company completed the sale of its Rules-Based Medicine™ research and development project. In addition to the sale of assets, the Company entered into a Development and Supply Agreement pursuant to which the Company licensed the Company’s proprietary xMAP® technology to RBM Acquisition, Inc. (“RBM”) and agreed to sell RBM instruments and microspheres. In exchange for $1.1 million of cash and cash related items, property and equipment (with a net book value of $452,000) and assumption of certain liabilities by RBM, the Company received 990,000 shares of Series A Preferred Stock of RBM, with a liquidation value of approximately $4.4 million, and 901,000 shares of RBM common stock, representing a 10% equity interest in RBM that is not subject to dilution except subsequent to a qualified public offering by RBM. The carrying value of the investment in RBM was evaluated as permanently impaired at December 31, 2002. As a result, the Company recognized $1.6 million in impairment charges for the year ended December 31, 2002.

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NOTE 7 - NET LOSS PER SHARE

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share, basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period.

     The Company has excluded all potentially dilutive securities such as convertible preferred stock, outstanding stock options and outstanding warrants to purchase common stock from the calculation of diluted loss per common share because such securities are anti-dilutive due to the Company’s net loss for all periods presented. The total shares excluded from the calculations of diluted net loss per share, prior to application of the treasury stock method for options and warrants, were 2,210,320 and 2,378,484 for the three and nine months ended September 30, 2003, respectively, and 2,105,670 and 1,919,491 for the three and nine months ended September 30, 2002, respectively.

NOTE 8 - STOCK BASED COMPENSATION

     During the three and nine month periods ended September 30, 2003 and 2002, the Company granted options to purchase shares of common stock and recorded stock compensation expense related to these issuances as follows:

     In connection with the transaction discussed in Note 6, the Company extended the exercise period of fully vested options by the former Company employees who left to join RBM for the lesser of two years or the stated expiration of such vested options. As a result, the Company incurred a one-time, non-cash stock compensation charge in the third quarter of 2002 in connection with the RBM transaction of approximately $1.6 million.

     SFAS No. 123 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 using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”).

     SFAS No. 123 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 September 30: