##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

|           |  |                                                                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|(CHECKBOX) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2002.

or

|           |  |                                                                                                                                
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------
|(CHECKBOX) |  | 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
(State or other jurisdiction of
incorporation or organization)        |  | 94-2976937
(I.R.S. employer
identification no.)
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|1910 Innovation Park Drive
Tucson, AZ
(Address of principal executive offices) |  | 85737
(Zip Code)                               

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  (CHECKBOX)    No  (CHECKBOX)

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  (CHECKBOX)    No  (CHECKBOX)

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 -16,250,808 shares as of April 30, 2002






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TABLE OF CONTENTS



|                              |                                                                                                |                                                                                            |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements (Unaudited)                                                      
|                              |                                                                                                | Condensed Consolidated Balance Sheets March 31, 2002 and December 31, 2001                
|                              |                                                                                                | Condensed Consolidated Statements of Operations Three Months Ended March 31, 2002 and 2001
|                              |                                                                                                | Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001
|                              |                                                                                                | Notes to Condensed Consolidated Financial Statements                                      
|                              | Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations
|PART II  OTHER INFORMATION  
|                              | Item 1. Legal Proceedings                                                                     
|                              | Item 6. Exhibits and reports on Form 8-K                                                      
|SIGNATURE                    



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##### Table of Contents












Ventana Medical Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands except share data)
(Unaudited)

|                                           |                                                                                                                                                                             |   |           |         |              |   |         |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | ------- | ------------ | - | ------- | ------- | -
|                                           |                                                                                                                                                                             |   | March 31, |         | December 31,
|                                           |                                                                                                                                                                             |   | 2002      |         | 2001        
|                                           |                                                                                                                                                                             |   |           |         |             
|ASSETS                                     |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|Current assets:                            |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                                                                                                                                   |   | $         | 10,834  |              |   | $       | 12,280  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net                                                                                                                                                    |   |           | 21,016  |              |   |         | 20,448  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories                                                                                                                                                                 |   |           | 13,842  |              |   |         | 11,763  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses                                                                                                                                                            |   |           | 472     |              |   |         | 520     |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred tax benefit, current portion                                                                                                                                       |   |           | 2,386   |              |   |         | 2,386   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Other current assets                                                                                                                                                        |   |           | 528     |              |   |         | 752     |  
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|Total current assets                       |                                                                                                                                                                             |   | 49,078    |         |              |   | 48,149  |        
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                                                                                                                                                             |   | 42,427    |         |              |   | 41,432  |        
|                                          
|                                          
|                                          
|                                          
|Goodwill                                   |                                                                                                                                                                             |   | 3,068     |         |              |   | 3,068   |        
|                                          
|                                          
|                                          
|                                          
|Intangibles, net                           |                                                                                                                                                                             |   | 9,119     |         |              |   | 9,124   |        
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                                                                                                                                                             |   | 2,997     |         |              |   | 2,796   |        
|                                          
|                                          
|                                          
|                                          
|Deferred tax benefit, long term portion    |                                                                                                                                                                             |   | 6,416     |         |              |   | 6,416   |        
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|Total assets                               |                                                                                                                                                                             | $ | 113,105   |         |              | $ | 110,985 |        
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                                                                                                                            |   | $         | 5,875   |              |   | $       | 4,733   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Other current liabilities                                                                                                                                                   |   |           | 9,502   |              |   |         | 9,578   |  
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|Total current liabilities                  |                                                                                                                                                                             |   | 15,377    |         |              |   | 14,311  |        
|                                          
|                                          
|                                          
|                                          
|Long term debt                             |                                                                                                                                                                             |   | 2,266     |         |              |   | 2,521   |        
|                                          
|                                          
|                                          
|                                          
|Commitments and Contingencies              |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|Stockholders equity:                      |                                                                                                                                                                             |   |           |         |              |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock  $.001 par value; 50,000,000 shares
authorized; 16,241,069 and 16,110,466 shares
issued and outstanding at March 31, 2002 and
December 31, 2001, respectively |   |           | 16      |              |   |         | 16      |  
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                                                                                                                                  |   |           | 142,741 |              |   |         | 140,587 |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated deficit                                                                                                                                                         |   |           | (45,749 | )            |   |         | (45,194 | )
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive loss                                                                                                                                        |   |           | (946    | )            |   |         | (656    | )
|                                          
|                                          
|                                          
|                                          
|                                           | Treasury stock - 40,000 shares, at cost                                                                                                                                     |   |           | (600    | )            |   |         | (600    | )
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|Total stockholders equity                 |                                                                                                                                                                             |   | 95,462    |         |              |   | 94,153  |        
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        
|Total liabilities and stockholders equity |                                                                                                                                                                             | $ | 113,105   |         |              | $ | 110,985 |        
|                                           |                                                                                                                                                                             |   |           |         |              |   |         |        

See accompanying notes

2



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Ventana Medical Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)

|                                         |                                     |                 |          |        |                    |        |        |        |        |        |  
|---------------------------------------- | ----------------------------------- | --------------- | -------- | ------ | ------------------ | ------ | ------ | ------ | ------ | ------ | -
|                                         |                                     |                 |          |        | Three Months Ended
|                                         |                                     |                 |          |        | March 31          
|                                         |                                     |                 |          |        |                   
|                                         |                                     |                 |          |        | 2002               |        | 2001  
|                                         |                                     |                 |          |        |                    |        |       
|Sales:                                   |                                     |                 |          |        |                    |        |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Reagents and other                  |                 | $        | 17,835 |                    |        | $      | 13,764 |       
|                                        
|                                        
|                                        
|                                        
|                                         | Instruments                         |                 |          | 4,347  |                    |        |        | 5,516  |       
|                                         |                                     |                 |          |        |                    |        |        |       
|                                         |                                     | Total net sales |          |        | 22,182             |        |        |        | 19,280 |       
|                                        
|                                        
|                                        
|                                        
|Cost of goods sold                       |                                     |                 | 6,810    |        |                    |        | 6,175  |       
|                                         |                                     |                 |          |        |                    |        |        |       
|Gross profit                             |                                     |                 | 15,372   |        |                    |        | 13,105 |       
|                                        
|                                        
|                                        
|                                        
|Operating expenses:                      |                                     |                 |          |        |                    |        |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Research and development            |                 |          | 3,622  |                    |        |        | 3,306  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Selling, general and administrative |                 |          | 11,708 |                    |        |        | 10,759 |       
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of acquisition costs   |                 |          | 412    |                    |        |        | 372    |       
|                                         |                                     |                 |          |        |                    |        |        |       
|Income (loss) from operations            |                                     |                 | (370     | )      |                    |        | (1,332 | )     
|                                        
|                                        
|                                        
|                                        
|Interest and other income                |                                     |                 | 3        |        |                    |        | 339    |       
|                                         |                                     |                 |          |        |                    |        |        |       
|Income (loss) before taxes               |                                     |                 | (367     | )      |                    |        | (993   | )     
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                                     |                 | (188     | )      |                    |        | (134   | )     
|                                         |                                     |                 |          |        |                    |        |        |       
|Net income (loss)                        |                                     | $               | (555     | )      |                    | $      | (1,127 | )     
|                                         |                                     |                 |          |        |                    |        |        |       
|Per share data:                          |                                     |                 |          |        |                    |        |        |       
|                                        
|                                        
|                                        
|                                        
|Net income (loss)                        |                                     |                 |          |        |                    |        |        |       
|                                        
|                                        
|                                        
|                                        
|                                         |                                     |                 | Basic   |        | $                  | (0.03  | )      |        | $      | (0.07  | )
|                                         |                                     |                 |          |        |                    |        |        |       
|                                         |                                     |                 | Diluted |        | $                  | (0.03  | )      |        | $      | (0.07  | )
|                                         |                                     |                 |          |        |                    |        |        |       
|Shares used in computing per
share data: |                                     |                 |          |        |                    |        |        |       
|                                        
|                                        
|                                        
|                                        
|                                         |                                     |                 | Basic   |        |                    | 16,187 |        |        |        | 15,575 |  
|                                         |                                     |                 |          |        |                    |        |        |       
|                                         |                                     |                 | Diluted |        |                    | 16,187 |        |        |        | 15,575 |  
|                                         |                                     |                 |          |        |                    |        |        |       

See accompanying notes

3



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Ventana Medical Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

|                                                                                               |                                             |   |                    |        |      |   |        |        |  
|---------------------------------------------------------------------------------------------- | ------------------------------------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | -
|                                                                                               |                                             |   | Three Months Ended
|                                                                                               |                                             |   | March 31          
|                                                                                               |                                             |   |                   
|                                                                                               |                                             |   | 2002               |        | 2001
|                                                                                               |                                             |   |                    |        |     
|Operating activities:                                                                          |                                             |   |                    |        |      |   |        |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net income (loss)                                                                              |                                             | $ | (555               | )      |      | $ | (1,127 | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities: |                                             |   |                    |        |      |   |        |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Depreciation and amortization               |   |                    | 2,113  |      |   |        | 1,124  |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Changes in operating assets and liabilities |   |                    | (1,981 | )    |   |        | (2,503 | )
|                                                                                               |                                             |   |                    |        |      |   |        |       
|Net cash provided by (used in) operating activities                                            |                                             |   | (423               | )      |      |   | (2,506 | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Investing activities:                                                                          |                                             |   |                    |        |      |   |        |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Purchase of property and equipment                                                             |                                             |   | (2,539             | )      |      |   | (4,007 | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Purchase of intangible assets, net                                                             |                                             |   | (93                | )      |      |   |       |       
|                                                                                               |                                             |   |                    |        |      |   |        |       
|Net cash provided by (used in) investing activities                                            |                                             |   | (2,632             | )      |      |   | (4,007 | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Financing activities:                                                                          |                                             |   |                    |        |      |   |        |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Payments of debt                                                                               |                                             |   | (255               | )      |      |   | (406   | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock                                                                       |                                             |   | 2,154              |        |      |   | 3,167  |       
|                                                                                               |                                             |   |                    |        |      |   |        |       
|Net cash provided by (used in) by financing
activities                                         |                                             |   | 1,899              |        |      |   | 2,761  |       
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Effect of exchange rate change on cash                                                         |                                             |   | (290               | )      |      |   | (317   | )     
|                                                                                               |                                             |   |                    |        |      |   |        |       
|Net increase (decrease) in cash and cash equivalents                                           |                                             |   | (1,446             | )      |      |   | (4,069 | )     
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Cash and cash equivalents, beginning of period                                                 |                                             |   | 12,280             |        |      |   | 38,512 |       
|                                                                                               |                                             |   |                    |        |      |   |        |       
|Cash and cash equivalents, end of period                                                       |                                             | $ | 10,834             |        |      | $ | 34,443 |       
|                                                                                               |                                             |   |                    |        |      |   |        |       

See accompanying notes

4



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Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.   Organization and Significant Accounting Policies

Organization:Ventana Medical Systems, Inc. (the Company) develops,
manufactures and markets proprietary instruments and reagents that automate
diagnostic procedures used for molecular analysis of cells. At present, the
Companys principal markets are North America, Europe, Japan and Australia.

Basis of Presentation:The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. 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, 2001.

Goodwill and Intangible Assets:In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141
(SFAS 141), Business Combinations, and No. 142 (SFAS 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 adopted the standard effective January 1, 2002. In accordance
with SFAS 142, the Company ceased amortizing goodwill totaling $3.1 million
as of that date.

Intangible assets consist primarily of developed technology and customer
base, supply, and license agreements resulting from acquisitions. Intangible
assets are carried at cost less accumulated amortization. Amortization is
computed over the estimated useful lives of the respective assets, generally
four to twelve years. Estimated amortization expense for intangible assets as
of March 31, 2002 for each of the five succeeding fiscal years is as follows
(all amounts are in millions): 2002  2004: $1.3, 2005: $1.0, 2006: $0.8.

5



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Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.   Organization and Significant Accounting Policies (continued)

The following table presents the impact of SFAS 142 on net income (loss)
and net income (loss) per share had the standard been in effect for the three
months ended March 31, 2001 (in thousands, except per-share amounts):

|                                                  |                          |   |                    |   |      |   |        |     |  
|------------------------------------------------- | ------------------------ | - | ------------------ | - | ---- | - | ------ | --- | -
|                                                  |                          |   | Three Months Ended
|                                                  |                          |   | March 31          
|                                                  |                          |   |                   
|                                                  |                          |   | 2002               |   | 2001
|                                                  |                          |   |                    |   |     
|Net income (loss)  as reported                   |                          | $ | (555               | ) |      | $ | (1,127 | )  
|                                                 
|                                                 
|                                                 
|                                                 
|Adjustments:                                      |                          |   |                    |   |      |   |        |    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Amortization of goodwill |   |                    |  |      |   |        | 81  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Income tax effect        |   |                    |  |      |   |        | (14 | )
|                                                  |                          |   |                    |   |      |   |        |    
|Net income (loss)  adjusted                      |                          | $ | (555               | ) |      | $ | (1,060 | )  
|                                                  |                          |   |                    |   |      |   |        |    
|Basic net income (loss) per
share  as reported   |                          | $ | (0.03              | ) |      | $ | (0.07  | )  
|                                                 
|                                                 
|                                                 
|                                                 
|Basic net income (loss) per
share  adjusted      |                          | $ | (0.03              | ) |      | $ | (0.07  | )  
|                                                 
|                                                 
|                                                 
|                                                 
|Diluted net income (loss) per
share  as reported |                          | $ | (0.03              | ) |      | $ | (0.07  | )  
|                                                 
|                                                 
|                                                 
|                                                 
|Diluted net income (loss) per
share  adjusted    |                          | $ | (0.03              | ) |      | $ | (0.07  | )  

The Company is required to perform goodwill impairment tests on an annual
basis at a minimum and more frequently under certain circumstances. As of
March 31, 2002, no impairment of goodwill has been recognized. There can be no
assurance that future goodwill impairment tests will not result in a charge to
earnings.

Recent Accounting Pronouncements:The FASB also recently issued SFAS No. 144
(SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets,
that is applicable to financial statements issued for fiscal years beginning
after December 15, 2001. The FASBs new rules on asset impairment supersede
SFAS No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and portions of APB Opinion 30,
Reporting the Results of Operations.This Standard provides a single
accounting model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. Classification as held-for-sale is an important distinction
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. This Standard also requires expected future operating
losses from discontinued operations to be displayed in the period(s) in which
the losses are incurred, rather than as of the
measurement date as presently required. The Company adopted SFAS 144 in the
first quarter of fiscal 2002 with no effect to the Companys financial position
or results of operations.

6



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##### Table of Contents



Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.   Organization and Significant Accounting Policies (continued)

Reclassification:Certain prior year amounts have been reclassified to
conform to the current period presentation.

2.   Inventories

Inventories consist of the following (in thousands):

|                                 |  |           |        |              |  |   |        |  
|-------------------------------- |  | --------- | ------ | ------------ |  | - | ------ | -
|                                 |  | March 31, |        | December 31,
|                                 |  | 2002      |        | 2001        
|                                 |  |           |        |             
|Raw material and work-in-process |  | $         | 5,779  |              |  | $ | 5,611  |  
|                                
|                                
|                                
|                                
|Finished goods                   |  |           | 8,697  |              |  |   | 6,763  |  
|                                
|                                
|                                
|                                
|Valuation reserve                |  |           | (634   | )            |  |   | (611   | )
|                                 |  |           |        |              |  |   |        |  
|                                 |  | $         | 13,842 |              |  | $ | 11,763 |  
|                                 |  |           |        |              |  |   |        |  

3.   Comprehensive Income (Loss)

The components of comprehensive income (loss) for the three months ending
March 31, 2002 and 2001 are as follows (in thousands):

|                             |  |                    |      |      |  |   |        |  
|---------------------------- |  | ------------------ | ---- | ---- |  | - | ------ | -
|                             |  | Three Months Ended
|                             |  | March 31,         
|                             |  |                   
|                             |  | 2002               |      | 2001
|                             |  |                    |      |     
|Net income (loss)            |  | $                  | (555 | )    |  | $ | (1,127 | )
|                            
|                            
|                            
|                            
|Foreign currency translation |  |                    | (290 | )    |  |   | (317   | )
|                             |  |                    |      |      |  |   |        |  
|Comprehensive income (loss)  |  | $                  | (845 | )    |  | $ | (1,444 | )
|                             |  |                    |      |      |  |   |        |  

Accumulated comprehensive income (loss) consists exclusively of foreign
currency translation adjustments.

4.   Provision for Income Taxes

The Company did not recognize benefit for U.S. taxes for the three month
period ending March 31, 2002 as the deferred tax asset has not been assessed by
management as being more likely than not of being recovered in the foreseeable
future. The tax expense reported consists of certain state franchise and
international taxes.

7



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Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

5.   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 March 31, 2002. In addition, borrowings are limited
based on outstanding accounts receivables of the Company, which as of March 31,
2002 resulted in available borrowing of $10.0 million, of which, $2.2 million
has been committed in support of various standby letters of credit.

6.   Operating Segment and Enterprise Data

The Company has two reportable segments: North America (the United States
and Canada) and International (primarily France, Germany, Japan and Australia).
Segment information for the three months ended March 31, 2002 and 2001 are as
follows (in thousands):

|                            |  |                                   |         |               |  |       |        |        |  |          |         |   |  |   |         |  
|--------------------------- |  | --------------------------------- | ------- | ------------- |  | ----- | ------ | ------ |  | -------- | ------- | - |  | - | ------- | -
|                            |  | Three months ended March 31, 2002
|                            |  |                                  
|                            |  |                                   |         |               |  |       |        |        |  | Elimina- |         |   |  |  
|                            |  | U.S.                              |         | International |  | tions |        | Totals
|                            |  |                                   |         |               |  |       |        |       
|Sales to external customers |  | $                                 | 16,974  |               |  | $     | 5,208  |        |  | $        |        |   |  | $ | 22,182  |  
|                           
|                           
|                           
|                           
|Segment (loss) profit       |  |                                   | (637    | )             |  |       | 82     |        |  |          |        |   |  |   | (555    | )
|                           
|                           
|                           
|                           
|Segment assets              |  |                                   | 110,664 |               |  |       | 22,991 |        |  |          | (20,550 | ) |  |   | 113,105 |  

|                            |  |                                   |         |               |  |       |        |        |  |          |         |   |  |   |         |  
|--------------------------- |  | --------------------------------- | ------- | ------------- |  | ----- | ------ | ------ |  | -------- | ------- | - |  | - | ------- | -
|                            |  | 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 |  

7.   Commitments and Contingencies

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

8



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##### Table of Contents



Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

7.   Commitments and Contingencies (continued)

conversion of BioTek notes into Ventana notes. Plaintiffs sought 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, the Company filed a
motion to dismiss plaintiffs Amended Complaint. On September 23, 1998, the
Court issued its Order granting in part and denying in part the Companys
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, the Company
filed a motion for summary judgment on all of plaintiffs remaining claims. On
November 22, 2000, the Court issued an Order granting the Companys motion for
summary judgment in its entirety. Plaintiffs subsequently filed a notice of
appeal on December 8, 2000. The appeal was fully briefed as of August 31, 2001
and the hearing of the appeal took place before the Third Circuit on February
4, 2002. No decision has yet been rendered by the Third Circuit.

On June 15, 1999, the Company 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). The Companys claims arise
out of an Asset Purchase Agreement dated November 23, 1998 and related
documents wherein the Company acquired Oncors unincorporated In Situ
Hybridization Technology Division and rights related thereto. In February 2000,
the Company 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 the Company 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 the
Companys claims. However, the Omnibus Objection did not set forth any specific
allegations with respect to the Companys claims. On July 20, 2001, the Company
filed a response to the Omnibus Objection reasserting their original claim. On
December 17, 2001, the Company filed a motion for partial summary judgment on
the issue of liability. Subsequently, the Company agreed to stay all matters
on the bankruptcy court to pursue mediation. The Company continues to believe
its claims are meritorious and will prevail, however, the results of the
proceedings are uncertain and there can be no assurance to that effect.

On December 9, 1999, the Company 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. The Company believes its claims
are meritorious and will prevail, however, results of the proceedings are
uncertain and there can be no assurance to that effect.

9



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Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

7.   Commitments and Contingencies (continued)

CytoLogix
Corp. has filed three separate actions against the Company in various
courts. The first action is CYTOLOGIX v. VENTANA, Case No. 00-12231 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 the Companys Discovery and BenchMark instruments. CytoLogix
seeks assignment of the Companys patent applications relating to individual
slide heating claiming the idea, treble damages (unspecified amount) and an
injunction against the Companys further sales of Discovery and BenchMark
instruments. Cytologix filed a motion to amend their complaint to add the
related claims of attempted monopolization and monopolization under the Sherman
Act, and various Lanham Act violations. The Company believes that it has
meritorious defenses to the claims in this action and that resolution of this
matter will not have a material adverse effect on their business, financial
condition or results of operation; however, the results of the proceeding are
uncertain and there can be no assurance to that effect. Trial is scheduled to
begin on July 15, 2002.

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. In a decision at the oral hearing March 20, 2002, the German Federal
Patent Court ruled that the Companys German patent no. DE 69117052.5, which
covers various aspects of the Companys previous generation GEN II automated
slide staining system, is invalid. The technology addressed by the German
patent is unrelated to the technologies involved in any of the other patent
litigations, including the individual slide heating technology that is the
subject of the Boston-based patent litigation. The decision affects the
Companys ability to enforce this patent in Germany subject to an appeal and
final decision on validity.

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 the Company 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 the Companys patent applications claiming the independent slide heater
idea, treble damages (unspecified amount) and an injunction against the
Companys further sales of Discovery and BenchMark instruments. Cytologix filed
a motion amending their complaint to add the related claims of attempted
monopolization and monopolization under the Sherman Act, and various Lanham Act
violations. The Company believes that it has meritorious defenses to the claims
in this action; however the results of the proceeding are uncertain and there
can be no assurance to that effect. The trial has been set for July 15, 2002
and is concurrent with Case No. CV12231 REK above.

On November 19, 2001 a patent infringement claim was filed against the
Company titled DIGENE CORPORATION v. VENTANA MEDICAL SYSTEMS, INC., (Case No.
01-752) in Delaware Federal District Court. This complaint alleges that the
Company infringed two US patents held by Digene, U.S. 4,849,331 and 4,849,332
by the Companys INFORM HPV High-

10



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##### Table of Contents



Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

7.   Commitments and Contingencies (continued)

risk and Low-risk probe products. The Company filed an answer denying the
allegations on Feb. 4, 2002. Digene seeks, among other remedies, an injunction
against the sale of the Companys INFORM products. This litigation is in a very
early stage. However, the Company believes that they have meritorious defenses
to the infringement claims of Digene and intend to defend themselves
vigorously, however they cannot assure that they will prevail on either claim.

On March 8, 2002, Ventana filed a new patent infringement action against
Cytologix in Arizona Federal District Court, Case No. (CIV02-117TUCRCC),
alleging infringement of U.S. Patent No. 6,352,861 (Automated Biological
Reaction Apparatus) by the making, using and
selling of the ARTISAN automated staining system. The suit seeks injunctive
relief including a preliminary injunction against the continued making, using
and selling of the instrument. On April 19, 2002, the court issued an Order
that reflects the agreement of Cytologix to stop marketing and selling the
ARTISAN automated staining system in its infringing embodiment until the
matter is decided at the preliminary injunction hearing scheduled for June 27,
2002. The Company believes its claims are meritorious and they will prevail,
however, results of the proceedings are uncertain and there can be no assurance
to that effect.

With respect to each of the matters above, managements estimate of the
potential loss, if any, is set forth therein unless such an estimate is not
possible. It is the opinion of management the ultimate resolution of these
contingencies will not have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.

11



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##### Table of Contents



Ventana Medical Systems, Inc.




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,
adverse determinations in various outstanding litigations, 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 Annual
Report on Form 10-K for the year ended December 31, 2001, filed with the
Securities and Exchange Commission.

Results of Operations

Net Sales

Net sales for the three months ended March 31, 2002 as compared to the
same period in 2001 increased 15% to $22.2 million from $19.3 million,
respectively. Net sales growth was attributable to a 30% increase in reagent
and other sales for the three month period. The increase in reagent sales was
driven by the growth in the underlying installed base. Instrument sales
decreased 21% during the three months ended March 31, 2002, primarily due to
increased instrument revenue in 2001 that was previously deferred with the
adoption of SAB 101 in 2000. Sales were 25% higher in the US ($17.0 million
versus $13.6 million) and 8% lower internationally ($5.2 million versus $5.7
million) for the three months ended March 31, 2002 versus the same period in
2001.

Gross Profit

Gross profit for the three months ended March 31, 2002 increased to $15.4
million from $13.1 million for the same period in 2001. The Companys gross
profit for the three months ended March 31, 2002 increased to 69.3% from 68.1%
for the same period in 2001.

Research and Development

Research and development spending for the three months ended March 31,
2002 increased to $3.6 million from $3.3 million for the same period in 2001.
The increase results primarily from substantial investment in new products.

12



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Ventana Medical Systems, Inc.

Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations

Selling, General and Administrative (SG&A)

Presented below is a summary of SG&A expense for the three months ended
March 31, 2002 and 2001 (in thousands):

|                    |            |   |                    |        |       |  |       |    |       |   |       |        |      |  |    |    |  
|------------------- | ---------- | - | ------------------ | ------ | ----- |  | ----- | -- | ----- | - | ----- | ------ | ---- |  | -- | -- | -
|                    |            |   | Three Months Ended
|                    |            |   | March 31,         
|                    |            |   |                   
|                    |            |   | 2002               |        | 2001 
|                    |            |   |                    |        |      
|                    |            |   |                    |        |       |  | % Net |    |       |   |       |        | %Net
|                    |            |   | $                  |        | Sales |  | $     |    | Sales
|                    |            |   |                    |        |       |  |       |    |      
|Sales and marketing |            | $ | 8,772              |        |       |  | 40    | %  |       | $ | 8,913 |        |      |  | 46 | % 
|                   
|                   
|                   
|                   
|Administration      |            |   | 2,936              |        |       |  | 13    | %  |       |   | 1,846 |        |      |  | 10 | % 
|                    |            |   |                    |        |       |  |       |    |       |   |       |        |      |  |    |   
|                    | Total SG&A |   | $                  | 11,708 |       |  |       | 53 | %     |   | $     | 10,759 |      |  |    | 56 | %
|                    |            |   |                    |        |       |  |       |    |       |   |       |        |      |  |    |   

SG&A expense for the three months ended March 31, 2002 increased to $11.7
million from $10.8 million for the same period in 2001. The increase is
attributed to higher facility expenses and investment in outside services
including costs associated with various legal matters.

Amortization of Goodwill

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business Combinations, and
No. 142 (SFAS 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 adopted the standard effective January 1, 2002. In accordance
with SFAS 142, the Company ceased amortizing goodwill totaling $3.1 million
as of that date.

Intangible assets are carried at cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the respective
assets, generally four to twelve years. Estimated amortization expense for
intangible assets as of March 31, 2002 for each of the five succeeding fiscal
years is as follows (all amounts are in millions): 2002  2004: $1.3, 2005:
$1.0, 2006: $0.8.

The Company is required to perform goodwill impairment tests on an annual
basis at a minimum and more frequently under certain circumstances. As of
March 31, 2002, no impairment of goodwill has been recognized. There can be no
assurance that future goodwill impairment tests will not result in a charge to
earnings.

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Ventana Medical Systems, Inc.

Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations

Amortization of Intangible Assets

Intangible assets consist primarily of developed technology and customer
base, supply, and license agreements resulting from acquisitions. Such assets
are amortized on a straight-line basis over estimated useful lives ranging from
four to twelve years, resulting in quarterly costs approximating $0.4 million.

Interest and Other Income (Expense)

Interest and other income decreased $0.3 million in the first quarter of
fiscal 2002 compared to the same period in the prior year. The decrease is
primarily due to lower average investment balances in 2002 compared to 2001.
The lower balances are primarily the result of the 2001 investment in the
Companys new facility in Tucson, Arizona.

Liquidity and Capital Resources

As of March 31, 2002, the Companys principal source of liquidity
consisted of cash and cash equivalents of $10.8 million. The Company also had
an unused $10.0 million revolving bank credit facility of which $2.2 million
has been committed in support of various standby letters of credit.
In addition, 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, 2002, net cash used in operations
and investing activities decreased to $3.1 million versus $6.5 million in the
three months ended March 31, 2001. The decrease was primarily associated with
lower spending on property and equipment due to the completion of our new
facility in fiscal 2001.

We believe that our current cash and cash equivalents, line of credit and
cash generated from operations will satisfy funding requirements including
working capital and capital expenditures for the foreseeable future.

Foreign Currency Risk

The value of the U.S. Dollar affects our financial results. Changes in
exchange rates may positively or negatively affect our revenues, gross margins,
operating expenses and shareholders equity as expressed in U.S. Dollars. We
have determined that hedging of non-U.S. Dollar net monetary assets is not cost
effective and instead attempt to minimize currency exposure risk through
working capital management. There can be no assurance that such an approach
will be successful, especially if a significant or sudden decline occurs in the
value of local currencies. We conduct a growing portion of our business in
Euro, the Japanese Yen and the Australian Dollar.

14



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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 sought
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 subsequently filed a notice of appeal on December 8, 2000. The
appeal was fully briefed as of August 31, 2001 and the hearing of the appeal
took place before the Third Circuit on February 4, 2002. No decision has yet
been rendered by the Third Circuit.

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. On July 20, 2001, we filed our response to the Omnibus Objection
reasserting our original claim. On December 17, 2001, we filed a motion for
partial summary judgment on the issue of liability. Subsequently, we agreed to
stay all matters on the bankruptcy court to pursue mediation. 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.

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Ventana Medical Systems, Inc.

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, 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. 00-12231 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. Cytologix
filed a motion to amend their complaint to add the related claims of attempted
monopolization and monopolization under the Sherman Act, and various Lanham Act
violations. 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,
the results of the proceeding are uncertain and there can be no assurance to
that effect. Trial is scheduled to begin on July 15, 2002.

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. In a decision at the oral hearing March 20, 2002, the German Federal
Patent Court ruled that our German patent no. DE 69117052.5, which covers
various aspects of our previous generation GEN II automated slide staining
system, is invalid. The technology addressed by the German patent is unrelated
to the technologies involved in any of the other patent litigations, including
the individual slide heating technology that is the subject of the Boston-based
patent litigation. The decision affects our ability to enforce this patent in
Germany subject to an appeal and final decision on validity.

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. Cytologix filed a motion amending their complaint to add the
related claims of attempted monopolization and monopolization under the Sherman
Act, and various Lanham Act violations. We believe that we have meritorious
defenses to the claims in this action; however the results of the proceeding
are uncertain and there can be no assurance to that effect. The trial has been
set for July 15, 2002 and is concurrent with Case No. CV12231 REK above.

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##### Table of Contents



Ventana Medical Systems, Inc.

On November 19, 2001 a patent infringement claim was filed against us
titled DIGENE CORPORATION v. VENTANA MEDICAL SYSTEMS, INC., (Case No. 01-752)
in Delaware Federal District Court. This complaint alleges that we infringed
two US patents held by Digene, U.S. 4,849,331 and 4,849,332 by our INFORM HPV
High-risk and Low-risk probe products. We filed an answer denying the
allegations on Feb. 4, 2002. Digene seeks, among other remedies, an injunction
against the sale of our INFORM products. This litigation is in a very early
stage. However, we believe that we have meritorious defenses to the
infringement claims of Digene and we intend to defend ourselves vigorously,
however we cannot assure you that we will prevail on either claim.

On March 8, 2002, Ventana filed a new patent infringement action against
Cytologix in Arizona Federal District Court, Case No. (CIV02-117TUCRCC),
alleging infringement of U.S. Patent No. 6,352,861 (Automated Biological
Reaction Apparatus) by the making, using and selling of the ARTISAN automated
staining system. The suit seeks injunctive relief including a preliminary
injunction against the continued making, using and selling of the instrument.
On April 19, 2002, the court issued an Order that reflects the agreement of
Cytologix to stop marketing and selling the ARTISAN automated staining system
in its infringing embodiment until the matter is decided at the preliminary
injunction hearing scheduled for June 27, 2002. We believe our claims are
meritorious and that we will prevail, however, results of the proceedings are
uncertain and there can be no assurance to that effect.

With respect to each of the matters above, managements estimate of the
potential loss, if any, is set forth therein unless such an estimate is not
possible. It is the opinion of management the ultimate resolution of these
contingencies will not have a material adverse effect on our financial condition,
results of operations or cash flows.




Item 6. Exhibits and reports on Form 8-K



| | (a) |  | Exhibits  No Exhibits                                                    
| | --- |  | --------------------------------------------------------------------------
|
| | (b) |  | Reports on Form 8-K.                                                      
|
| |     |  | No reports were filed on Form 8-K during the quarter ended March 31, 2002.

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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.                                                             | 
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|Date: |  | May 14, 2002 |  | By: |  | /s/ Nicholas MaldenNicholas Malden, Vice President,
Chief Financial Officer and Secretary | 

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