UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 2005

OR

o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period

Commission File No. 000-30109

LUMINEX CORPORATION

(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 þ No o

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

     There were 31,318,873 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on May 5, 2005.

INDEX

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PART I

ITEM 1. FINANCIAL STATEMENTS

LUMINEX CORPORATION

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

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LUMINEX CORPORATION

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

2

LUMINEX CORPORATION

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

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LUMINEX CORPORATION

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 months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.

NOTE 2 — INVESTMENTS

     Held-to-maturity securities as of March 31, 2005 consisted of $21,890,000 of federal agency debt securities. Amortized cost approximates fair value of these investments.

     The amortized costs of held-to-maturity debt securities at March 31, 2005, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

NOTE 3 — INVENTORY, NET

     Inventory consisted of the following (in thousands):

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NOTE 4 — 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 or no more than 15 months from the date of shipment. The Company estimates the amount of warranty claims on sold product that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted periodically. Warranty expenses and accruals for the three months ended March 31, 2005 were as follows (in thousands):

NOTE 5 — 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 restricted stock and outstanding stock options 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, were 2,121,419 and 1,389,662 for the three months ended March 31, 2005 and 2004, respectively.

NOTE 6 — STOCK-BASED COMPENSATION

     The Company granted shares of restricted stock and options to purchase shares of common stock, and recorded stock compensation expense related to these issuances as follows:

     The Company is expensing the cost of restricted stock on a straight-line basis over the vesting period of the stock. The options granted during the quarter ended March 31, 2005 were to a consultant, not a Company employee.

     SFAS No. 123, “Accounting for Stock-Based Compensation” (“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 March 31:

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     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 (in thousands, except per share amounts):

     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, this option valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of its employee stock options.

NOTE 7 — COMPREHENSIVE LOSS

     In accordance with the disclosure requirements of SFAS No. 130, “Reporting Comprehensive Income,” the Company’s comprehensive loss is comprised of net loss and foreign currency translation. Comprehensive loss for the three months ended March 31, 2005 and 2004 was approximately $261,000 and $153,000, respectively.

NOTE 8 — RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB revised SFAS No. 123, “Accounting for Stock-Based Compensation,” which established the fair-value-based method of accounting as preferable for share-based compensation awarded to employees and encouraged, but did not require entities to adopt it until July 1, 2005. On April 14, 2005, the Securities and Exchange Commission announced that it would provide for a phased-in implementation process that allowed non-small business registrants with a fiscal year ended December 31, 2005 an extension until January 31, 2006 to adopt SFAS No. 123(R). SFAS No. 123(R) eliminates the alternative to use APB Opinion No. 25, “Accounting for Stock Issued to Employees,” which allowed entities to account for share-based compensation

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arrangements with employees according to the intrinsic value method. SFAS No. 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. The Company plans to adopt SFAS No. 123(R) on January 1, 2006, requiring compensation cost to be recorded as expense for the portion of outstanding unvested awards, based on the grant-date fair value of those awards. The Company has not yet determined the effect adoption will have on its financial position or results of operation.

     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – An Amendment of ARB No. 43, Chapter 4,” which clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) be recognized as current period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS 151 will have a material impact on our results of operations or financial position.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Item 1 of this Report, the “Risk Factors” included in this Report and our Annual Report on Form 10-K for the year ended December 31, 2004.

SAFE HARBOR CAUTIONARY STATEMENT

     This Quarterly Report on Form 10-Q contains statements that are forward-looking statements as defined within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Forward-looking statements give our current expectations of forecasts of future events. All statements other than statements of current or historical fact contained in this report, including statements regarding our future financial position, business strategy, budgets, projected costs, and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,” “will,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements are based on our current plans and actual future activities, and our results of operations may be materially different from those set forth in the forward-looking statements as a result of known or unknown risks and uncertainties, including, among other things:

•	risks and uncertainties relating to market demand and acceptance of our products and technology,
•	dependence on strategic partners for development, commercialization and distribution of products,
•	fluctuations in quarterly results due to a lengthy and unpredictable sales cycle,
•	our ability to scale manufacturing operations and manage operating expenses, gross margins and inventory levels,
•	potential shortages of components,
•	competition,
•	the timing of regulatory approvals,
•	the implementation of the Company’s strategic operating plans, and
•	the potential adverse outcome of any pending or future litigation against or by our Company.

     Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions outlined above and described in the section titled “Risk Factors” below. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report, including in “Risk Factors” below.

     Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.

OVERVIEW

     During the quarter ended March 31, 2005, there were several significant factors that affected our financial performance as compared with the quarter ended March 31, 2004. These factors were: (i) an increased gross margin

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percentage; (ii) a continued increase in royalty revenue; and (iii) an increase in selling, general and administrative expenses.

     The gross margin percentage increased to 52% for the quarter ended March 31, 2005 from 43% for the quarter ended March 31, 2004. The rate increase in gross margin was primarily attributable to the increase in the percentage of consumables and royalties, our highest margin items, and the decrease in the percentage of system sales, a lower margin item, as a percentage of total revenue. Consumables and royalties comprised 34% of revenue for the quarter ended March 31, 2004 and 50% for the current quarter. System sales for the first quarter of 2005 decreased to 152 from 206 for the corresponding prior year period and 191 in the fourth quarter of 2004. Although our total sales are down relative to the prior period, they fall within our expected range of 150 to 220 sales per quarter as previously disclosed. We currently expect our quarterly system sales to remain within the range of 150 to 220 sales per quarter. The breadth of the range is primarily a function of the timing of our partners purchases and our inability, in the aggregate, to provide a more precise estimate.

     Our royalty revenue increased to $1.2 million representing over $78 million in annualized royalty bearing sales by our partners. As additional partners commercialize and expand their menu offerings, we would expect royalty revenues to continue to grow. We believe that this increase is an indication of the acceptance and utilization of our technology over a broader base. In addition, another key indicator of technology acceptance is long-term consumable purchases. For the tenth consecutive quarter, our 12-month moving average of consumable sales has increased. At March 31, 2005, our 12-month moving average of quarterly consumable sales was $2.5 million.

     Selling, general and administrative expenses increased to $4.3 million for the three months ended March 31, 2005 from $3.3 million for the comparable period in 2004. The increase of selling, general and administrative expenses over those of the first quarter of 2004 is primarily a result of additional infrastructure expansion to support our market driven initiatives and optimization and development of our partner relationships. Our intent is to continue to expand our research and development and marketing efforts in the near-term particularly in the (i) profile oriented screening; (ii) secondary screening; (iii) genetic disease testing; (iv) molecular infectuous disease testing and (v) immunodiagnostics markets.

     Our ability to achieve profitability continues to depend upon our ability to establish and maintain successful strategic partnerships with companies that will develop and market products incorporating our technology and market and distribute our systems and consumables. Our strategic partners may develop application-specific bioassay kits for use on our systems that they will sell to their customers, may perform testing services for third parties using our technology or may buy our consumable products and then resell those products to their customers, all generating royalties for us. At March 31, 2005, we had 22 strategic partners who had either released commercialized products based on the Luminex platform or were redistributing our products and were reporting royalties. These 22 commercialized, royalty-submitting, strategic partners provided 77% of total revenues for the three months ended March 31, 2005.

     As we continue to strive towards making xMAP technology a standard for performing bioassays within our key segments, we believe that we need to continue to concentrate on the following objectives: (i) enhance our focus on large and fast-growing segments of the life science and diagnostics markets, (ii) forge key partnerships to broaden and accelerate market acceptance of our technology, (iii) further enable our partners to design and develop tests using our technology, and (iv) expand the functionality of our xMAP technology based product line, including hardware, software and consumables. A critical component of these objectives will be to continually enhance our position via a customer-focused development process and a customer-focused service strategy.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be

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reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.

     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. If the criteria for revenue recognition are not met at the time of shipment, the revenue is deferred until all criteria are met. Royalty revenue is generated when a partner sells products incorporating our technology, provides testing services to third parties using our technology or resells our consumables. Royalty revenue is recognized as it is reported to us by our partners. We also sell extended service contracts for maintenance and support of our products. Revenue for service contracts is recognized ratably over the term of the agreement.

     Total deferred revenue as of March 31, 2005 was approximately $4.5 million and primarily consisted of (i) unamortized license fees for non-exclusive licenses and patent rights to certain Luminex technologies in the amount of $2.4 million, (ii) unamortized revenue related to extended service contracts in the amount of $1.4 million, and (iii) upfront payments from strategic partners to be used for the purchase of products or to be applied towards future royalty payments in the amount of $564,000. 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. Nonrefundable license fees are amortized into revenue over the estimated life of the license agreements.

     Inventories are valued at the lower of cost or market value and have been reduced by an allowance for excess and obsolete inventories. At March 31, 2005, the two major components of the allowance for excess and obsolete inventory were (i) a specific reserve for inventory items that we no longer use in the manufacture of our products or that no longer meet our specifications and (ii) a reserve against slow moving items for potential obsolescence. The total estimated allowance is reviewed on a regular basis and adjusted based on management’s review of inventories on hand compared to estimated future usage and sales.

     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.

     We continuously monitor collections and payments from our customers and maintain allowances for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses historically have been within our expectations, there can be no assurance that we will continue to experience the same level of credit losses that we have in the past. A significant change in the liquidity or financial position of any one of our significant customers, or a deterioration in the economic environment, in general, could have a material adverse impact on the collectibility of our accounts receivable and our future operating results, including a reduction in future revenues and additional allowances for doubtful accounts.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

     Revenue. Total revenue was $9.3 million for the three months ended March 31, 2005; level with $9.3 million for the comparable period in 2004. As previously disclosed in our Annual Report on Form 10-K, we continue to

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experience revenue concentration in a limited number of strategic partners, as two customers accounted for 45.7% of total revenue in the first quarter (22.9% and 22.8%, respectively). No other customer accounted for more than 10% of total revenue.

     A breakdown of revenue for the three months ended March 31, 2005 and 2004 is as follows (in thousands):

     System and peripheral component sales decreased to $3.6 million for the three months ended March 31, 2005 from $4.9 million for the first quarter of 2004. System sales for the first quarter of 2005 decreased to 152 from 206 for the corresponding prior year period bringing total system sales to 2,861 as of March 31, 2005. Although our total sales are down relative to the prior period, they fall within our expected range of 150 to 220 sales per quarter as previously disclosed. During the current quarter, three of our partners accounted for 117, or 77%, of total system sales for the quarter. These three partners accounted for 99, or 48%, of total system sales in the comparable period of 2004. System concentration continues to affect the variability of system sales revenue. As more of our partners commercialize, we expect to see some diffusion of this concentration and a reduction in the overall variability of system sales.

     Consumable sales, comprised of microspheres and sheath fluid, increased to $3.5 million during the first quarter of 2005 from $2.5 million for the first quarter of 2004. We believe the increase is primarily the result of seven bulk purchases of consumables totaling approximately $2.6 million as compared with seven bulk purchases totaling approximately $1.8 million in the corresponding prior year period. Bulk purchases are purchases of consumables by a single customer that in the aggregate are more than $100,000. Bulk purchases typically result when a customer seeks to produce or develop large quantities of product using the same lot of raw materials. The twelve month moving average of consumable sales increased to approximately $2.5 million, up sequentially over the fourth quarter of 2004 by approximately $230,000 and up over the prior year period by approximately $635,000. This represents the tenth consecutive quarterly increase in this metric which we believe is a result of the increased use and acceptance of our technology and the increased installed base of our systems. Partners who reported royalty-bearing sales accounted for $2.9 million, or 83%, of total consumable sales for the quarter ended March 31, 2005. As the number of applications available on our platform expands, we expect to see the overall level of consumable sales continue to rise.

     Royalty revenue increased to $1.2 million during the three months ended March 31, 2005 from $605,000 for the three months ended March 31, 2004. We believe this increase is also primarily the result of the increased use and acceptance of our technology. For the three months ended March 31, 2005, we had 22 commercial partners submit royalties as compared with 19 for the three months ended March 31, 2004. Additionally, the 19 partners for whom we recognized $605,000 in royalties for the first quarter of 2004 represented approximately $1.1 million of the first quarter 2005 total, an increase of approximately 75% over their prior year payments. Three of our partners reported royalties totaling approximately $640,000, or 53%, of the total royalties for the current period. Total royalty bearing sales by our partners were approximately $19.7 million for the quarter ended March 31, 2005 and over $78 million on an annualized basis.

     Service contracts, comprised of extended warranty contracts earned ratably over the term of the agreement, increased to $522,000 during the first quarter of 2005 from $319,000 for the first quarter of 2004. This increase is attributable to increased sales of extended service agreements, which is a direct result of the increase in the commercial base of Luminex Systems as compared to the prior year period. At March 31, 2005, we had 421 Luminex Systems covered under extended service agreements and $1.4 million in deferred revenue related to those contracts. At March 31, 2004, we had 257 Luminex Systems covered under extended service agreements and $960,000 in deferred revenue related to those contracts.

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     Other revenues, comprised of training revenue, shipping revenue, miscellaneous parts sales, amortized license fees and special project revenues, decreased to $527,000 for the three months ended March 31, 2005 from $989,000 for the three months ended March 31, 2004. This decrease is primarily the result of non-recurring special project revenues of $335,000 in the first quarter of 2004. For the quarter ended March 31, 2005, we had $336,000 of parts sales, $110,000 of shipping revenue and $81,000 of other miscellaneous revenue.

     Gross profit. The gross margin rate (gross profit as a percentage of total revenue) increased to 52% for the three months ended March 31, 2005 from 43% for the three months ended March 31, 2004. Gross profit increased to $4.8 million for the three months ended March 31, 2005, as compared to $4.0 million for the three months ended March 31, 2004. The rate increase in gross margin was primarily attributable to the increase in the percentage of consumables and royalties, our highest margin items, as a percentage of total revenue. Consumables and royalties comprised 34% of revenue for the quarter ended March 31, 2004 and 50% for the current quarter.

     Research and development expense. Research and development expenses were relatively flat at $1.0 million for the three months ended March 31, 2005 and $958,000 for the comparable period in 2004. Research and development headcount at March 31, 2005 and 2004 was 35 and 33, respectively.

     Selling, general and administrative expense. Selling, general and administrative expenses increased to $4.3 million for the three months ended March 31, 2005 from $3.3 million for the comparable period in 2004. The increase was primarily attributable to increases in incremental stock compensation charges related to equity issuances to employees, expenses associated with Section 404 compliance, incremental investment in our marketing effort, and personnel costs associated with the increase in employees to 51 on March 31, 2005 from 48 on March 31, 2004. We believe that our selling, general and administrative expenses are highly leverageable and can support additional revenue with minimal additions.

     Other income, net. Other income increased to $216,000 for the three months ended March 31, 2005 from $109,000 for the comparable period in 2004. The average rate earned on current invested balances increased to 2.0% at March 31, 2005 from 0.8% at March 31, 2004. This increase in the average rate earned is due to a change in the Company’s investment policy allowing longer-term investments that are low risk and highly liquid and an overall increase in market rates compared to the prior year period.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2005, we held cash, cash equivalents, and short-term and long-term investments of $36.2 million and had working capital of $37.6 million. At December 31, 2004, we held cash, cash equivalents, and short-term and long-term investments of $36.1 million and had working capital of $40.8 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 and long-term, interest-bearing instruments, including obligations of the United States government or agencies thereof and U.S. corporate debt securities.

     Cash provided by operations was $411,000 for the three months ended March 31, 2005, compared with cash used in operations of $3.0 million for the three months ended March 31, 2004.

     Our research and development expenses during the three months ended March 31, 2005 were $1.0 million. Research and development expenses related to the ongoing development of our xMAP technology and consumables are currently expected to be in the range of $1.0 to $1.5 million per quarter for the remaining three quarters of 2005 and between $4.5 and $5.5 million on an annual basis for 2005. Our expected increase in research and development expense for 2005 compared with 2004 is a result of our content strategy and expanded focus on product development.

     Our selling, general and administrative expenses during the three months ended March 31, 2005 were $4.3 million. We currently expect total selling, general and administrative expenses to be in the range of $4.3 to $5.3 million per quarter for the remaining three quarters of 2005 and $17.2 to $20.2 million on an annual basis for 2005. The expected increase of selling, general and administrative expenses over those of 2004 is primarily a result of additional infrastructure expansion to support our market driven initiatives and optimization and development of our partner relationships.

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     We presently outsource certain aspects of the assembly of our systems to contract manufacturers. Because of a long lead-time to delivery, we are required to place orders for a variety of items well in advance of scheduled production runs. We currently have approximately $3.7 million in non-cancelable obligations for the next 12 months. These obligations are included in our estimated cash usage during 2005 described below.