-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CD7JkTBzdl+V4oHhhz9cr5lawe/kSxa8IsoQd4q76m9128loQBkNct5VpuU7qeZ3 npvOJSH9T2HijQSlSEFhtg== 0000898430-01-501885.txt : 20010815 0000898430-01-501885.hdr.sgml : 20010815 ACCESSION NUMBER: 0000898430-01-501885 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTANA MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000893160 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 942976937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20931 FILM NUMBER: 1711812 BUSINESS ADDRESS: STREET 1: 3865 N BUSINESS CENTER DRIVE CITY: TUCSON STATE: AZ ZIP: 85705 BUSINESS PHONE: 5208872155 MAIL ADDRESS: STREET 1: 3865 N BUSINESS CENTER DR CITY: TUCSON STATE: AZ ZIP: 85705 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 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 Number: 000-20931 Ventana Medical Systems, Inc. (Exact name of registrant as specified in its charter) Delaware 94-2976937 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 3865 North Business 85705 Center Drive (Zip Code) Tucson, AZ (Address of principal executive offices) Registrant's telephone number, including area code: (520) 887-2155 Not Applicable (Formal name, former address and former fiscal year, if changed from last report) 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 ---- ---- Applicable Only to Issuers Involved in Bankruptcy (Formal name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes ____ No ____ Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $0.001 par value --- 16,044,583 shares as of July 31, 2001 Ventana Medical Systems, Inc. INDEX TO FORM 10-Q ------------------ Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets June 30, 2001 and December 31, 2000 Condensed Consolidated Statements of Operations Three and six months ended June 30, 2001 and 2000 Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2001 and 2000 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signature 2 Ventana Medical Systems, Inc. Condensed Consolidated Balance Sheets (in thousands except share data) (Unaudited)
June 30, December 31, ASSETS 2001 2000 ---- ---- Current assets: Cash and cash equivalents $ 25,938 $ 38,512 Accounts receivable 13,911 16,682 Inventories 9,397 8,100 Prepaid expenses 408 460 Deferred tax benefit, current portion 4,817 4,817 Other current assets 422 492 ----------- ------------ Total current assets 54,893 69,063 Property and equipment, net 31,706 22,329 Intangibles, net 11,084 11,887 Other assets 2,704 2,318 Deferred tax benefit, long term portion 3,985 3,985 ----------- ------------ Total assets $ 104,372 $ 109,582 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,625 $ 5,943 Other current liabilities 7,422 13,143 =========== ============ Total current liabilities 12,047 19,086 Long term debt 2,804 3,408 Stockholders' equity: Common stock - $.001 par value; 50,000,000 shares authorized; 15,975,046 and 15,444,122 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively 16 15 Additional paid-in capital 138,365 134,862 Accumulated deficit (47,748) (46,636) Accumulated other comprehensive loss (512) (553) Treasury stock - 40,000 shares, at cost (600) (600) ----------- ------------ Total stockholders' equity 89,521 87,088 ----------- ------------ Total liabilities and stockholders' equity $ 104,372 $ 109,582 =========== ============
See accompanying notes 3 Ventana Medical Systems, Inc. Condensed Consolidated Statements of Operations (in thousands except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------- ------- 2001 2000 2001 2000 ---- ---- ---- ---- Sales: Reagents and other $ 15,143 $ 12,304 $ 28,907 $ 24,305 Instruments 6,195 6,419 11,711 11,544 -------- -------- -------- -------- Total net sales 21,338 18,723 40,618 35,849 Cost of goods sold 7,051 18,782 13,226 24,752 -------- -------- -------- -------- Gross profit (loss) 14,287 (59) 27,392 11,097 Operating expenses: Research and development 3,850 3,461 7,156 5,445 Selling, general and administrative 10,221 14,930 20,980 22,890 Nonrecurring expenses - 4,519 - 4,519 Amortization of intangibles 382 391 754 669 -------- -------- -------- -------- Loss from operations (166) (23,360) (1,498) (22,426) Other income 286 452 625 404 -------- -------- -------- -------- Income (loss) before taxes and cumulative effect of accounting change 120 (22,908) (873) (22,022) Provision for income taxes 105 - 239 350 -------- -------- -------- -------- Net income (loss) before cumulative effect of accounting change 15 (22,908) (1,112) (22,372) Cumulative effect of accounting change, net of applicable income tax benefit of $1,436 - - - (2,154) -------- -------- -------- -------- Net income (loss) $ 15 $(22,908) $ (1,112) $(24,526) ======== ======== ======== ======== Per share data: Income (loss) before cummulative effect of accounting change: --Basic $ - $ (1.52) $ (0.07) $ (1.56) ======== ======== ======== ======== --Diluted $ - $ (1.52) $ (0.07) $ (1.56) ======== ======== ======== ======== Net loss --Basic $ - $ (1.52) $ (0.07) $ (1.71) ======== ======== ======== ======== --Diluted $ - $ (1.52) $ (0.07) $ (1.71) ======== ======== ======== ======== Shares used in computing earnings (loss) per common share: --Basic 15,970 15,097 15,790 14,366 ======== ======== ======== ======== --Diluted 16,722 15,097 15,790 14,366 ======== ======== ======== ========
See accompanying notes 4 Ventana Medical Systems, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)
Six Months Ended June 30 ------- 2001 2000 ---- ---- Operating activities: Net loss $ (1,112) $(24,526) Adjustments to reconcile net loss to cash used in operating activities: Cumulative effect of accounting change -- 2,154 Depreciation and amortization 3,194 2,617 Change in deferred tax benefit -- 1,255 Non-cash intangibles and property and equipment charges -- 7,914 Changes in operating assets and liabilities (5,790) 8,463 -------- -------- Net cash used in operating activities (3,708) (2,123) Investing activities: Purchase of property and equipment (11,807) (6,279) Purchase of intangible assets, net -- (2,390) -------- -------- Net cash used in investing activities (11,807) (8,669) Financing activities: Repayment of debt (604) (71) Net proceeds from private placement -- 46,847 Issuance of common stock 3,504 5,610 -------- -------- Net cash provided by financing activities 2,900 52,386 Effect of exchange rate change on cash 41 36 -------- -------- Net (decrease) increase in cash and cash equivalents (12,574) 41,630 Cash and cash equivalents, beginning of period 38,512 1,787 -------- -------- Cash and cash equivalents, end of period $ 25,938 $ 43,417 ======== ========
See accompanying notes 5 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2001 are not necessarily indicative of the results that maybe expected for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 2. Revenue Recognition The Company recognizes revenue upon shipment of its products that do not require installation at the customer's site. During the year ended December 31, 2000, the Company changed its methods of revenue recognition for its products which do require installation at the customer's site in accordance with Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements. Previously, the Company had recognized revenue for products upon shipment to the customer, but prior to installation at the customer's site. The Company had routinely completed such installation services in the past, but a substantive effort is required and the Company is the only one who can perform the service. Under the new accounting method adopted retroactive to January 1, 2000, the Company now recognizes revenue upon the completion of installation of the product at the customer's site. For the three and six months ended June 30, 2001, the Company recognized revenues of $859 and $3,619, respectively from instruments shipped in the prior year. The effect of that revenue was to increase gross margin by $681 and $2,924 during the three and six-month periods, respectively. 6 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 3. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The company is currently reviewing the impact of SFAS Nos. 141 and 142. At the present time, the company reviews, on a quarterly basis, the utility of these assets and recognizes any impairment should the condition exist. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the balance sheet and measures those investments at fair value. Implementation of this standard has been delayed by the FASB for a twelve month period. The Company adopted SFAS 133 in the first quarter of fiscal 2001 with no effect to the Company's operations or financial position. 4. Inventories Inventories consist of the following (in thousands):
June 30, December 31, 2001 2000 ---- ---- Raw material and work-in-process $ 4,049 $ 3,603 Finished goods 5,348 4,497 ------- ------ $ 9,397 $ 8,100 ======= =======
5. Comprehensive Income (Loss) The components of comprehensive loss for the three and six months ending June 30, 2001 and 2000 are as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Net income (loss) $ 15 $ (22,908) $ (1,112) $ (24,526) Foreign currency translation 358 6 41 36 ------- --------- -------- --------- Comprehensive income (loss) $ 373 $ (22,902) $ (1,071) $ (24,490)
Accumulated comprehensive income (loss) consists exclusively of foreign currency translation adjustments. 7 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 6. Provision for Income Taxes Management believes no benefit for corporate income taxes is required for U.S. tax jurisdictions for the three and six month periods ending June 30, 2001 given that the deferred tax assets generated by the operating loss have not been assessed as being more likely than not of being recovered in the foreseeable future. The actual tax provision reported consists of certain state taxes as well as other international income taxes. 7. Line of Credit The Company has a $10.0 million line of credit arrangement with a bank which is subject to renewal May 31, 2002. Borrowings under the line are collateralized by the Company's receivables, inventories, machinery and equipment, and intellectual property. The line of credit contains certain financial covenants (measured quarterly) with which the Company must comply, prohibits the payment of dividends on the Company's stock and limits the number of treasury shares the Company may purchase. The Company was in compliance with these covenants as of June 30, 2001. In addition, borrowings are limited based on outstanding accounts receivables, which as of June 30, 2001 resulted in available borrowing of $9.0 million, of which, $6.4 million has been committed in support of various standby letters of credit. 8 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 8. Operating Segment and Enterprise Data The Company has two reportable segments: North America (the United States and Canada) and International (primarily France, Germany, and Japan). Segment information for the three and six months ended June 30, 2001, and 2000 are as follows (in thousands):
Three months ended June 30, 2001 -------------------------------------------------------------- Elimina- U.S. International tions Totals -------------------------------------------------------------- Sales to external customers $ 15,774 $ 5,564 $ - $ 21,338 Segment (loss) profit (466) 481 - 15 Three months ended June 30, 2000 -------------------------------------------------------------- Elimina- U.S. International tions Totals -------------------------------------------------------------- Sales to external customers $ 13,795 $ 4,928 $ - $ 18,723 Segment (loss) profit (22,463) (445) - (22,908) Six months ended June 30, 2001 -------------------------------------------------------------- Elimina- U.S. International tions Totals -------------------------------------------------------------- Sales to external customers $ 29,379 $ 11,239 $ - $ 40,618 Segment (loss) profit (2,150) 1,038 - (1,112) Segment assets 100,139 18,905 (14,672) 104,372 Six months ended June 30, 2000 -------------------------------------------------------------- Elimina- U.S. International tions Totals -------------------------------------------------------------- Sales to external customers $ 25,921 $ 9,928 $ - $ 35,849 Segment (loss) profit (22,829) (1,697) - (24,526) Segment assets 120,165 15,674 (30,183) 105,656
9 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations The following discussion of the financial condition and results of operations of Ventana Medical Systems, Inc. ("Ventana" or "the Company") should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto included elsewhere in this Form 10-Q. This Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, by their very nature, contain risks and uncertainties. Accordingly, actual events or results may differ materially from those anticipated by such forward-looking statements. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the Company's control, include the following: market acceptance of new automated histology products, continued success in asset management, continued improvements in our manufacturing efficiencies, on-schedule launches of our new products, currency exchange rate variability, competition and competitive pressures on pricing and general economic conditions in the United States and in the regions served by the Company. A more complete listing of cautionary statements and risk factors is contained in the Company's report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission. Overview Ventana develops, manufactures and markets instrument/reagent systems that automate tissue preparation and slide staining in clinical histology and drug discovery laboratories worldwide. Ventana's clinical systems are important tools used in the diagnosis and treatment of cancer and infectious diseases. Ventana's drug discovery systems are used to accelerate the discovery of new drug targets and evaluate the safety of new drug compounds. Results of Operations Net Sales Net sales for the three and six months ended June 30, 2001 as compared to the same periods in 2000 increased 14% and 13% to $21.3 million and $40.6 million from $18.7 million and $35.8 million, respectively. Net sales growth was attributable to a 23% and 19% increases in reagent and non-instrument sales for the three and six month periods respectively. The increase in reagent sales is driven by the growth in the underlying install base. Instrument sales decreased 3% during the three month period while for the six month period increased 1%. This resulted directly from the discontinuance of the sale of electron microscopy products after the third quarter of 2000. Sales increased in the 2001 three and six month periods compared to the same periods in 2000 across both geographic segments: 14% and 13% in the US ($15.8 million and $29.4 million versus $13.8 million and $25.9 million) and 13% for both periods internationally ($5.6 million and $11.2 million versus $4.9 million and $9.9 million). 10 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Gross Profit Gross profit for the three and six months ended June 30, 2001 increased to $14.3 million and $27.4 million, respectively, from $(59,000) and $11.1 million for the same periods in 2000. The Company's gross margin for the three and six months ended June 30, 2001 increased to 67% from (0.3%) and 31% for the same periods in 2000. The increase in gross margin is primarily attributable to $11.8 million of charges taken in the second quarter of 2000. Research and Development Research and development expenses for the three and six months ended June 30, 2001 increased to $3.9 million and $7.2 million, respectively, from $3.5 million and $5.4 million for the same periods in 2000. The increase results primarily from substantial investment in new products, including development of chemistry applications for both DNA microarrays and mRNA tissue testing. Selling, General and Administrative ("SG&A") Presented below are a summary of SG&A expense for the three and six months ended June 30, 2001 and 2000 (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---- ---- ---- ---- % % % % $ Sales $ Sales $ Sales $ Sales ------------ ------------ ----------- ----------- Sales and marketing $ 8,540 40% $10,904 58% $17,453 43% $17,272 48% Administration 1,681 8% 4,026 22% 3,527 9% 5,618 16% ------------ ------------ ----------- ----------- Total SG&A $10,221 48% $14,930 80% $20,980 52% $22,890 64% ============ ============ =========== ===========
SG&A expense for the three and six months ended June 30, 2001 decreased to $10.2 million and $21.0 million, respectively, from $14.9 million and $22.9 million for the same periods in 2000. The primary reason for the decrease is attributable to $5.7 million of charges taken in the second quarter of 2000. Absent these charges, SG&A expense increased due to the hiring of new sales and marketing personnel for the Molecular Discovery business in both North America and Europe together with a significant investment in sales training for our North American clinical histology sales force. 11 Ventana Medical Systems, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Amortization of Intangibles Intangible assets consist primarily of goodwill, customer base, and supply agreements resulting from acquisitions and patents. Such assets are amortized on a straight-line basis over estimated useful lives ranging from 5 to 20 years, resulting in quarterly costs approximating $0.4 million. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The company is currently reviewing the impact of SFAS Nos. 141 and 142. At the present time, the company reviews, on a quarterly basis, the utility of these assets and recognizes any impairment should the condition exist. Liquidity and Capital Resources As of June 30, 2001, the Company's principal source of liquidity consisted of cash and cash equivalents of $25.9 million. The Company also had an unused $10.0 million revolving bank credit facility. Any borrowings under the Company's bank credit facility are secured by a pledge of substantially all of the Company's assets and bear interest at the bank's prime rate. During the six months ended June 30, 2001, net cash used in operations and investing activities increased to $15.5 million, versus $10.8 million in the six months ended June 30, 2000. Net cash used in investing activities was primarily associated with $9.2 million used on the construction of our corporate headquarters and manufacturing facility in suburban Tucson, Arizona. Additional spending on the corporate headquarters is expected to be approximately $6.0 million. The Company believes that its existing capital resources, together with cash generated from product sales and available borrowing capacity under its bank credit facilities will be sufficient to satisfy its working capital requirements for the foreseeable future. Foreign Currency Risk The Company does not currently hedge against foreign currency fluctuations, because the Company does not believe it runs a serious risk of experiencing permanent impairment to any material assets denominated in foreign currency. The Company re-evaluates this situation from time to time. As a result, to the extent local currency revenues and expenses in foreign subsidiaries are translated into U.S. dollars at differing rates over time, the Company may experience fluctuations in operating results. The Company conducts a relatively small but growing portion of its business in the Euro, the Japanese Yen and the Australian Dollar. 12 Ventana Medical Systems, Inc. PART II - OTHER INFORMATION Item 1. Legal Proceedings In January 1997, four individuals who are former BioTek noteholders who held in the aggregate approximately $1.1 million in principal amount of BioTek notes filed an action, TSE, ET AL. v. VENTANA MEDICAL SYSTEMS, INC., ET AL. No. 97-37, against the Company and certain of its directors and stockholders in the United States District Court for the District of Delaware. The complaint alleged, among other things, that the company violated federal and California securities laws and engaged in common law fraud in connection with the BioTek shareholders' consent to the February 1996 merger of BioTek into Ventana and the related conversion of BioTek notes into Ventana notes. Plaintiffs seek compensatory damages in excess of the principal amount of their BioTek notes, as well as punitive damages, and fees and costs. On April 25, 1997, plaintiffs filed an Amended Complaint. The Amended Complaint made the same allegations as the original Complaint and added a claim under North Carolina securities laws. On December 16, 1997, we filed a motion to dismiss plaintiffs' Amended Complaint. On September 23, 1998, the Court issued its Order granting in part and denying in part our motion to dismiss. The Court dismissed plaintiffs' claims based upon the North Carolina securities laws and California's insider-trading statute. Plaintiffs' surviving claims included violations of federal and California securities laws, common law fraud and breach of fiduciary duty. On June 5, 2000, we filed a motion for summary judgment on all of plaintiffs' remaining claims. On November 22, 2000, the Court issued an Order granting our motion for summary judgment in its entirety. Plaintiffs filed a notice of appeal on December 8, 2000 and were originally scheduled to file their appellate brief in May 2001. The briefing schedule has been extended and to a deadline of August 16, 2001. Based on the facts known to date, we believe that the claims are without merit and we will vigorously defend this suit. On April 1, 1999, a shareholder derivative and class action suit was filed in the Court of Chancery for the State of Delaware entitled LEUNG v. VENTANA MEDICAL SYSTEMS, INC., ET AL., C.A. No. 17089. Plaintiff, who is related to the plaintiffs in the above federal securities action, alleges breach of fiduciary duty and breach of contract relating to our merger with BioTek and the related conversion of BioTek notes into Ventana notes, as well as our decision to compensate two of our directors by selling Ventana stock to them at a fixed price. On May 6, 1999, we filed a motion to dismiss, or in the alternative, to stay this action in favor of the federal securities action. These motions were heard on October 18, 1999, and on February 29, 2000, the Court granted our motion, dismissing the action in its entirety. Plaintiff filed his notice of appeal on October 24, 2000, and all appellate briefing was completed in March 2001. In late May 2001 we prevailed on our summary judgment motion and this matter has been dismissed with prejudice. On June 15, 1999 we filed a proof of claim against Oncor, Inc. in an action pending in the United States Bankruptcy Court for the District of Delaware titled IN RE ONCOR, INC., No. 9-437 (JJF). Our claims arise out of an Asset Purchase Agreement dated November 23, 1998 and related documents wherein we acquired Oncor's unincorporated In Situ Hybridization Technology Division and rights related thereto. In February 2000, we filed an amended proof of 13 Ventana Medical Systems, Inc. claim alleging, inter alia, that Oncor breached the terms of the Asset Purchase Agreement by purporting to transfer or assign to us Oncor's rights under a license agreement, which were not transferable or assignable under the circumstances then existing. The amended proof of claim seeks damages of no less than approximately $7.3 million. On August 17, 2000, Oncor filed an Omnibus Objection to Claims, which included our claims. However, the Omnibus Objection did not set forth any specific allegations with respect to our claims. On July 20, 2001, we filed our response to the Omnibus Objection reasserting our original claim. We continue to believe our claims are meritorious and that we will prevail, however, the results of the proceedings are uncertain and there can be no assurance to that effect. On December 9, 1999 we filed an action, VENTANA MEDICAL SYSTEMS, INC. v. CYTOLOGIX CORP., No. CIV99-606 TUC FRZ, alleging that sales of CytoLogix Corporation's ARTISAN(TM) special stainer infringe U.S. Patent No. 5,355,439 (Bernstein), and seeking monetary damages and injunctive relief in the United States District Court in Tucson. The original complaint was amended March 21, 2000 by the addition of another patent to the litigation (U.S. 5,232,664 (Krawzak)). The amended complaint sought an injunction against the continued sale of the ARTISAN instrument, and damages for lost sales. On July 25, 2001, the parties submitted a joint Stipulation and Order dismissing all claims related to the Krawzak patent. We believe the remaining claims are meritorious and that we will prevail, however, because little discovery has been completed, results of the proceedings are uncertain and there can be no assurance to that effect. CytoLogix Corp. has filed three separate actions against us in various courts. The first action is CYTOLOGIX v. VENTANA, Case No. CV 12231 REK, filed Oct. 27, 2000 in federal district court in Boston. The complaint claims, under state-law based unfair competition law, that Ventana misappropriated CytoLogix's trade secrets related to individual slide heating and incorporated such secrets into our Discovery and BenchMark instruments. CytoLogix seeks assignment of our patent applications relating to individual slide heating claiming the idea, treble damages (unspecified amount) and an injunction against our further sales of Discovery and BenchMark instruments. We believe that we have meritorious defenses to the claims in this action and that resolution of this matter will not have a material adverse effect on our business, financial condition or results of operation; however, this litigation is in an early stage and the results of the proceeding are uncertain and there can be no assurance to that effect. The second is CYTOLOGIX v. VENTANA, Case No. 4 Ni 54/00 (EU) (Nullity suit), filed November 9, 2000 in the German Federal Patent Court, Munich, Germany. CytoLogix seeks to invalidate our German patent (no. DE 69117052.5), which covers various aspects of our automated, slide staining system. We believe we can defend this patent through the Nullity proceeding, however because this action is relatively new, results of the proceeding are uncertain and there can be no assurance to that effect. We have responded to this action and now await further orders from the German Federal Patent Court. 14 Ventana Medical Systems, Inc. The third action is CYTOLOGIX v. VENTANA, Case No. 01-10178 REK, filed January 30, 2001 in the U.S. District Court, Eastern District of Massachusetts. This complaint claims that we infringed on CytoLogix's patent No. 6,180,061, entitled "Moving Platform Slide Stainer with Heating Elements," and was later amended to add U.S. Patent No. 6,183,693, issued Feb. 7, 2001, entitled "Random Access Slide Stainer with Independent Slide Heating Regulation," both assigned to CytoLogix Corporation. CytoLogix seeks assignment of our patent applications claiming the independent slide heater idea, treble damages (unspecified amount) and an injunction against our further sales of Discovery and BenchMark instruments. We believe that we have meritorious defenses to the claims in this action and that resolution of this matter will not have a material adverse effect on our business, financial condition or results of operation; however, this litigation is in an early stage and the results of the proceeding are uncertain and there can be no assurance to that effect. Item 4. Submission of Matters to a Vote of Security Holders We held our 2001 Annual Meeting of Shareholders on May 3, 2001. At the Annual Meeting, Christopher M. Gleeson, Rex J. Bates and Edward M. Giles were elected as directors to serve until the 2004 Annual Meeting of Shareholders. Continuing as directors with terms expiring at the 2003 Annual Meeting of Shareholders were Mark C. Miller and James R. Weersing. Continuing as directors with terms expiring at the 2002 Annual Meeting of Shareholders were Jack W. Schuler, John Patience and Thomas M. Grogan, M.D. The shareholders also approved the adoption of our new 2001 Outside Director Stock Option Plan and ratified the appointment of Ernst & Young, LLP as our independent accountants to examine our financial statements for the fiscal year ending December 31, 2001. The following table shows the votes for, against or withheld and those abstaining from each of such matters at the Annual Meeting:
Votes For Votes Against Abstentions or Withheld ----------------------------------------------------- Adoption of the 2001 Outside 10,675,829 2,025,766 19,535 Director Stock Option Plan Ratification of Ernst & Young, LLP 12,690,396 27,234 3,500
15 Ventana Medical Systems, Inc. Item 6. Exhibits and reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K. No reports were filed on Form 8-K during the quarter ended June 30, 2001. 16 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ventana Medical Systems, Inc. Date: August 14, 2001 By: /s/ Nicholas Malden _______________________________ Nicholas Malden, Vice President, Chief Financial Officer and Secretary 17 -----END PRIVACY-ENHANCED MESSAGE-----