-----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, UhiLeLB7jQjYEK+EpeHtxOwIyyZrV7g+6CcIunppqq8awfMQzuye7W2csg3YQ1nZ iBIxe+S6P9TpSBqIaCNNig== 0001019687-01-500179.txt : 20010515 0001019687-01-500179.hdr.sgml : 20010515 ACCESSION NUMBER: 0001019687-01-500179 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: SEC FILE NUMBER: 000-20931 FILM NUMBER: 1634070 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 ventana_10q-033101.txt VENTANA MEDICAL SYSTEMS, INC. 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 March 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 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 --- 15,950,615 shares as of April 30, 2001 VENTANA MEDICAL SYSTEMS, INC. INDEX TO FORM 10-Q ------------------ Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets March 31, 2001 and December 31, 2000 Condensed Consolidated Statements of Operations Three months ended March 31, 2001 and 2000 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 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 6. Exhibits and Reports on Form 8-K Signature 2 VENTANA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands except share data) (Unaudited) March 31, December 31, ASSETS 2001 2000 ---------- ---------- Current assets: Cash and cash equivalents $ 34,443 $ 38,512 Accounts receivable 13,855 16,682 Inventories (Note 4) 8,723 8,100 Prepaid expenses 294 460 Deferred tax benefit, current portion 4,817 4,817 Other current assets 525 492 ---------- ---------- Total current assets 62,657 69,063 Property and equipment, net 25,618 22,329 Intangibles, net 11,491 11,887 Other assets 2,561 2,318 Deferred tax benefit, long term portion 3,985 3,985 ---------- ---------- Total assets $ 106,312 $ 109,582 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,139 $ 5,943 Other current liabilities 9,360 13,143 ---------- ---------- Total current liabilities 14,499 19,086 Long term debt 3,002 3,408 Stockholders' equity: Common stock - $.001 par value; 50,000,000 shares authorized; 15,945,142 and 15,444,122 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 16 15 Additional paid-in capital 138,028 134,862 Accumulated deficit (47,763) (46,636) Accumulated other comprehensive loss (870) (553) Treasury stock - 40,000 shares, at cost (600) (600) ---------- ---------- Total stockholders' equity 88,811 87,088 ---------- ---------- Total liabilities and stockholders' equity $ 106,312 $ 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 March 31 -------- 2001 2000 --------- --------- Sales: Reagents and other $ 13,764 $ 12,001 Instruments 5,516 5,125 --------- --------- Total net sales 19,280 17,126 Cost of goods sold 6,175 5,970 --------- --------- Gross profit 13,105 11,156 Operating expenses: Research and development 3,306 1,984 Selling, general and administrative 10,759 7,960 Amortization of intangibles 372 278 --------- --------- (Loss) income from operations (1,332) 934 Other income (expense) 339 (48) --------- --------- (Loss) income before taxes and cumulative effect of accounting change (993) 886 Provision for income taxes 134 350 --------- --------- Net (loss) income before cumulative effect of accounting change (1,127) 536 Cumulative effect of accounting change, net of applicable income tax benefit of $1,436 -- (2,154) --------- --------- Net loss $ (1,127) $ (1,618) ========= ========= Per share data: (Loss) income before cumulative effect of accounting change: --Basic $ (0.07) $ 0.04 ========= ========= --Diluted $ (0.07) $ 0.03 ========= ========= Net loss --Basic $ (0.07) $ (0.11) ========= ========= --Diluted $ (0.07) $ (0.11) ========= ========= Shares used in computing earnings per common share: --Basic 15,575 14,305 ========= ========= --Diluted 15,575 16,467 ========= ========= See accompanying notes 4 VENTANA MEDICAL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31 -------- 2001 2000 --------- --------- OPERATING ACTIVITIES: Net loss $ (1,127) $ (1,618) Adjustments to reconcile net loss to cash used in operating activities: Cumulative effect of accounting change -- 2,154 Change in deferred tax benefit -- (1,255) Depreciation and amortization 1,124 1,286 Changes in operating assets and liabilities (2,503) (2,759) --------- --------- Net cash used in operating activities (2,506) (2,192) INVESTING ACTIVITIES: Purchase of property and equipment (4,007) (1,024) Purchase of intangible assets, net -- (1,250) --------- --------- Net cash used in investing activities (4,007) (2,274) FINANCING ACTIVITIES: Repayment of debt (406) (256) Net proceeds from private placement -- 46,847 Issuance of common stock 3,167 2,627 --------- --------- Net cash provided by financing activities 2,761 49,218 Effect of exchange rate change on cash (317) 30 --------- --------- Net (decrease) increase in cash and cash equivalents (4,069) 44,782 Cash and cash equivalents, beginning of period 38,512 1,787 --------- --------- Cash and cash equivalents, end of period $ 34,443 $ 46,569 ========= ========= 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-month period ended March 31, 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 months ended March 31, 2001, the Company recognized $2,760 from instruments shipped in prior periods and installed in the first quarter. The effect of that revenue was to increase gross margin by $2,243 during the first quarter. 3. RECENT ACCOUNTING PRONOUNCEMENTS 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 recognize all derivatives as either assets or liabilities in the balance sheet and measure 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. 6 VENTANA MEDICAL SYSTEMS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 4. INVENTORIES Inventories consist of the following (in thousands): March 31, December 31, 2001 2000 ------- ------- Raw material and work-in-process $3,925 $3,603 Finished goods 4,798 4,497 ------- ------- $8,723 $8,100 ======= ======= 5. COMPREHENSIVE LOSS The components of comprehensive loss for the three months ending March 31, 2001 and 2000 are as follows (in thousands): Three Months Ended March 31, 2001 2000 -------- -------- Net loss $(1,127) $(1,618) Foreign currency translation (317) 30 -------- -------- Comprehensive loss $(1,444) $(1,588) ======== ======== Accumulated comprehensive loss consists exclusively of foreign currency translation adjustments. 6. PROVISION FOR INCOME TAXES Management believes no benefit for corporate income taxes is required for U.S. tax jurisdictions for the three month period ending March 31, 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 VENTANA MEDICAL SYSTEMS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 7. LINE OF CREDIT The Company has a $10 million line of credit arrangement with a bank which is subject to renewal May 31, 2001. 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. In addition, borrowings are limited based on outstanding accounts receivable of the Company, which as of March 31, 2001 resulted in available borrowing of $10 million, of which, $6.4 million has been committed in support of various standby letters of credit. 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 months ended March 31, 2001, and 2000 are as follows (in thousands): Three months ended March 31, 2001 ------------------------------------------------- Elimina- U.S. International tions Totals ---------- ------------- ---------- ---------- Sales to external customers $ 13,605 $ 5,675 $ - $ 19,280 Segment (loss) profit (1,684) 557 - (1,127) Segment assets 105,252 16,480 (15,420) 106,312 Three months ended March 31, 2000 ------------------------------------------------- Elimina- U.S. International tions Totals ---------- ------------- ---------- ---------- Sales to external customers $ 12,126 $ 5,000 $ - $ 17,126 Segment (loss) profit (366) (1,252) - (1,618) Segment assets 122,863 15,328 (17,113) 121,078 8 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 months ended March 31, 2001 as compared to the same period in 2000 increased 13% to $19.3 million from $17.1 million. The increase in net sales was attributable to 15% and 8% increases in reagent and instrument sales, respectively. Sales increased in the 2001 three month period compared to the same period in 2000 in both geographic segments: 12% and 13% in the US and internationally, respectively. The higher percentage increase in reagent sales represents the increasing number of instruments deployed by customers using the Company's instruments. 9 VENTANA MEDICAL SYSTEMS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) GROSS PROFIT Gross profit for the three months ended March 31, 2001 as compared to the same period in 2000, increased to $13.1 million from $11.2 million. The Company's gross margin for the three months ended March 31, 2001 increased to 68% from 65% for the same period of 2000. The primary reason for the increase in gross profit margin is the higher mix of reagent sales which have a higher gross margin than instruments. RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended March 31, 2001 increased 67% to $3.3 million from $1.9 million for the same period in 2000. The increase results primarily from substantial development work on new products, including development of chemistry applications for both DNA microarrays and mRNA tissue testing. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") Presented below is a summary of SG&A expense for the three months ended March 31, 2001 and 2000 (in thousands): Three Months Ended March 31, -------------------------------- 2001 2000 ------------- ------------- % Net % Net $ Sales $ Sales ------------- ------------- Sales and Marketing $ 8,913 46% $ 6,368 37% Administration 1,846 10% 1,592 9% ------------- ------------- Total $10,759 56% $ 7,960 46% ============= ============= SG&A expense for the three months ended March 31, 2001 increased to $10.8 million from $8.0 million for the same period of the prior year. This was a direct result of the increased 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. 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. Additionally, the Company will continue to review the utility of these assets and recognize any impairment should the Company determine such a condition exists. 10 VENTANA MEDICAL SYSTEMS, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, the Company's principal source of liquidity consisted of cash and cash equivalents of $34.4 million. The Company also had an unused $10 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 three months ended March 31, 2001, net cash used in operations and investing activities increased to $6.5 million, versus $4.5 million in the three months ended March 31, 2000. The increase was primarily due to $3.5 million spent on the construction of our planned corporate headquarters and manufacturing facility in suburban Tucson, Arizona. Additional spending on the corporate headquarters is expected to be approximately $10 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 near 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. 11 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 will file their appellate brief in May 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. The hearing of this appeal is not specifically scheduled but the Delaware Supreme Court has indicated that the hearing will take place in May 2001. Based on the facts known to date, we believe that the claims are without merit and we intend to vigorously defend this suit. 12 VENTANA MEDICAL SYSTEMS, INC. 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 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. 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 patent infringement 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. We believe our 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. 13 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 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 March 31, 2001. 14 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: May 15, 2001 By: /s/ Nicholas Malden ------------------------------------- Nicholas Malden, Vice President, Chief Financial Officer and Secretary 15 -----END PRIVACY-ENHANCED MESSAGE-----