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.
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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
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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.
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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
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