<PAGE>   1
                                 United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended March 31, 1998,

                                       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 Center Drive
     Tucson, Arizona                                        85705
     (Address of principal executive offices)             (Zip Code)

                                 (520) 887-2155
              (Registrant's telephone number, including area code)

                                 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 periods 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
                  Proceedings During the Preceding Five Years

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--13,264,325 shares as of May 11, 1998.
<PAGE>   2
                          VENTANA MEDICAL SYSTEMS, INC.


                               INDEX TO FORM 10-Q


Part I. Financial Information

        Item 1. Financial Statements

                Condensed Consolidated Balance Sheets
                March 31, 1998 (Unaudited) and December 31, 1997

                Condensed Consolidated Statements of Operations
                Three months ended March 31, 1998 and 1997 (Unaudited)

                Condensed Consolidated Statements of Cash Flows
                Three months ended March 31, 1998 and 1997 (Unaudited)

                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


<PAGE>   3
                          VENTANA MEDICAL SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands except share data)


<TABLE>
<CAPTION>
                                                               March 31,        December 31,
                        ASSETS                                   1998               1997
                                                              -----------       ------------
                                                              (Unaudited)          (Note)
<S>                                                           <C>               <C>     
Current assets:
   Cash and cash equivalents                                   $ 20,350           $ 18,902
   Accounts receivable                                            8,249              8,047
   Inventories (Note 2)                                           5,971              5,134
   Other current assets                                           1,416              2,109
                                                               --------           --------
Total current assets                                             35,986             34,192
Property and equipment, net (Note 3)                              6,328              6,105
Intangibles, net (Note 4)                                         7,916              8,055
                                                               --------           --------
Total assets                                                   $ 50,230           $ 48,352
                                                               ========           ========


         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Accounts payable                                            $  2,188           $  2,584
   Other current liabilities (Note 5)                             3,196              2,894
                                                               --------           --------
Total current liabilities                                         5,384              5,478
Long term debt                                                      697                471
Stockholders' equity:
   Preferred stock - $.001 par value; 5,000,000 shares
     authorized (Note 7)                                             --                 --
   Common stock - $.001 par value; 50,000,000 shares
     authorized; 13,263,459 and 13,247,226 shares
     issued and outstanding at March 31, 1998 and
     December 31, 1997, respectively                                 13                 13
   Additional Paid-In Capital                                    77,227             76,313
   Accumulated deficit                                          (32,971)           (33,782)
   Cumulative foreign currency translation adjustment              (120)              (141)
                                                               --------           --------
Total stockholders' equity                                       44,149             42,403
                                                               --------           --------
Total liabilities and stockholders' equity                     $ 50,230           $ 48,352
                                                               ========           ========
</TABLE>


Note:      The condensed consolidated balance sheet at December 31, 1997 has
           been derived from the audited financial statements at that date but
           does not include all of the information and footnotes required by
           generally accepted accounting principles for complete financial
           statements.

See accompanying notes


                                       2


<PAGE>   4
                          VENTANA MEDICAL SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                    March 31
                                                            ------------------------
                                                             1998             1997
                                                            -------          -------
<S>                                                         <C>              <C>      
Sales:
  Instruments                                               $ 3,595          $ 1,971
  Reagents and other                                          6,760            4,987
                                                            -------          -------
    Total net sales                                          10,355            6,958
Cost of goods sold                                            3,453            2,701
                                                            -------          -------
Gross profit                                                  6,902            4,257
Operating expenses:
  Research and development                                    1,200              729
  Selling, general and administrative                         4,974            3,378
  Amortization of acquisition costs                             127              127
                                                            -------          -------
Income from operations                                          601               23
Other income                                                    210              186
                                                            -------          -------
Net income                                                  $   811          $   209
                                                            =======          =======

</TABLE>


See accompanying notes


                                       3


<PAGE>   5
                          VENTANA MEDICAL SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                       March 31
                                                             ---------------------------
                                                               1998               1997
                                                             --------           --------
<S>                                                          <C>                <C>     
OPERATING ACTIVITIES:
Net Income                                                   $    811           $    209
Adjustments to reconcile net income to cash
   provided by operating activities:
   Depreciation and amortization                                  545                422
   Changes in operating assets and liabilities, net              (488)               692
                                                             --------           --------
Net cash provided by operating activities                         868              1,323

INVESTING ACTIVITIES:
Purchase of property and equipment, net                          (342)              (876)
Purchase of intangible assets (Note 4)                             (1)               (37)
                                                             --------           --------
Net cash used in investing activities                            (343)              (913)

FINANCING ACTIVITIES:
Issuance (repayment) of debt (including amounts
   from related parties) and stock                                902            (10,408)
Net proceeds from public offering                                  --             26,134
                                                             --------           --------
Net cash provided by financing activities                         902             15,726

Effect of exchange rate change on cash                             21               (251)
                                                             --------           --------

Net increase in cash and cash equivalents                       1,448             15,885

Cash and cash equivalents, beginning of period                 18,902             11,067
                                                             --------           --------
Cash and cash equivalents, end of period                     $ 20,350           $ 26,952
                                                             ========           ========
</TABLE>


See accompanying notes


                                       4


<PAGE>   6
                          VENTANA MEDICAL SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   SIGNIFICANT ACCOUNTING POLICIES:

The accompanying condensed consolidated financial statements are unaudited. They
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and are subject to year-end audit by
independent auditors. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that the consolidated financial statements be read
in conjunction with the financial statements and notes included in the Company's
Annual Report and Form 10-K for the year ended December 31, 1997.

The information furnished reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods. Such adjustments consisted only of normal recurring items. It should
also be noted that results for the interim periods are not necessarily
indicative of the results expected for the full year or any future period.

The presentation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


2.  INVENTORIES

Inventories consist of the following:


<TABLE>
<CAPTION>
                                                March 31     December 31
                                                  1998           1997
                                                --------     -----------
                                                    (in thousands)
<S>                                              <C>           <C>   
Raw material and work-in-process                 $4,755          $4,033
Finished goods                                    1,216           1,101
                                                 ------          ------
                                                 $5,971          $5,134
                                                 ======          ======
</TABLE>


                                       5


<PAGE>   7
3.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


<TABLE>
<CAPTION>
                                                        March 31     December 31
                                                          1998          1997
                                                        --------     -----------
                                                            (in thousands)
<S>                                                     <C>          <C>    
Diagnostic instruments                                  $ 4,952        $ 4,830
Machinery and equipment                                   3,697          3,464
Computers and related equipment                           1,421          1,190
Leasehold improvements                                      480            472
Furniture and fixtures                                      181            177
                                                        -------        -------
                                                         10,730         10,133
Less accumulated depreciation and amortization            4,402          4,028
                                                        -------        -------
                                                        $ 6,328        $ 6,105
                                                        =======        =======
</TABLE>


4.   INTANGIBLES

Intangibles consist of the following:


<TABLE>
<CAPTION>
                                                        March 31     December 31
                                                          1998          1997
                                                        --------     -----------
                                                            (in thousands)
<S>                                                     <C>           <C>    
Customer base                                            $4,100         $4,100
Developed technology                                      2,800          2,800
Goodwill, patents and other                               2,244          2,244
                                                         ------         ------
                                                          9,144          9,144
Less accumulated amortization                             1,228          1,089
                                                         ------         ------
                                                         $7,916         $8,055
                                                         ======         ======
</TABLE>

5.  OTHER CURRENT LIABILITIES:

Other current liabilities consist of the following:


<TABLE>
<CAPTION>
                                                        March 31     December 31
                                                          1998          1997
                                                        --------     -----------
                                                            (in thousands)
<S>                                                     <C>          <C>    
Accrued payroll and payroll taxes                        $  698         $  421
Accrued commissions                                         252            146
Deferred revenue                                            446            334
Accrued legal reserves                                      884            946
Sales tax payable                                           187            410
Other accrued liabilities                                   729            637
                                                         ------         ------
                                                         $3,196         $2,894
                                                         ======         ======
</TABLE>


6.   EARNINGS PER SHARE:

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share, which is required to be adopted by the Company on December
31, 1997. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share and is
computed using the weighted average number of shares of common stock outstanding
in the period presented, adjusted for the effect of dilutive securities on the
balance sheet date. Net income per share for both periods has been presented in
conformance with the requirements of SFAS No. 128 as well as Staff Accounting
Bulletin No. 98 issued by the Securities and Exchange Commission in February
1998.


                                       6


<PAGE>   8
         Statement of Computation of Weighted Average Shares Outstanding
                      (in thousands except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                    March 31,
                                                             ------------------------
                                                              1998             1997
                                                             -------          -------
<S>                                                          <C>              <C>    
Net income                                                   $   811          $   209
Weighted average common shares outstanding, basic             13,255           11,931
Add: dilutive stock options and warrants                       1,302              993
                                                             -------          -------
Weighted average common shares outstanding, diluted           14,557           12,924

Net income per share, basic                                  $  0.06          $  0.02
                                                             =======          =======
Net income per share, diluted                                $  0.06          $  0.02
                                                             =======          =======
</TABLE>


7.  PREFERRED SHARES PURCHASE RIGHTS DIVIDEND:

On March 9, 1998, the Company's Board of Directors approved the establishment of
a rights plan. Pursuant to this plan, the Board of Directors declared a dividend
distribution of one Preferred Shares Purchase Right on each outstanding share of
the Company's Common Stock for shareholders of record on May 8, 1998. Each right
entitles stockholders to buy 1/1000th of a share of the Company's Series A
Participating Preferred Stock at an exercise price of eighty-five dollars
($85.00). The Rights become exercisable following the tenth day after a person
or group announces an acquisition of 20% or more of the Company's Common Stock
or announces commencement of a tender offer the consummation of which would
result in ownership by the person or group of 20% or more of the Common Stock.
The Company is entitled to redeem the Rights at $0.01 per Right at any time on
or before the tenth day following acquisition by a person or group of 20% or
more of the Company's Common Stock.

If, prior to redemption of the Rights, a person or group acquires 20% or more of
the Company's Common Stock, each Right not owned by a holder of 20% or more of
the Common Stock will entitle its holder to purchase, at the Right's then
current exercise price, that number of shares of Common Stock of the Company
(or, in certain circumstances as determined by the Board of Directors, cash,
other property or other securities) having a market value at that time of twice
the Right's exercise price. If, after the tenth day following acquisition by a
person or group of 20% or more of the Company's Common Stock, the Company sells
more than 50% of its assets or earning power or is acquired in a merger or other
business combination transaction, the acquiring person must assume the
obligation under the Rights and the Right will become exercisable to acquire
Common Stock of the acquiring person at the discounted price. At any time after
an event triggering exercisability of the Rights at a discounted price and prior
to the acquisition by the acquiring person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than those owned by the acquiring person or its affiliates) for Common
Stock of the Company at an exchange ratio of one share of Common Stock per
Right.

                                       7


<PAGE>   9
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 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. Actual events or results may differ materially
from those anticipated by such forward-looking statements as a result of the
factors described herein and in the documents incorporated herein by reference.
Such forward-looking statements include, but are not limited to, statements
concerning risks associated with the incidence of cancer and cancer screening,
improvements in automated IHC; the ability of the Company to implement its
business strategy; development and introduction of new products by the Company
or other parties; research and development; marketing, sales and distribution;
manufacturing; competition; third-party reimbursement; government regulation;
and operating and capital requirements.

OVERVIEW:

Ventana Medical Systems, Inc. ("Ventana or the Company") develops, manufactures
and markets proprietary instrument/reagent systems that automate
immunohistochemistry ("IHC") and in situ hybridization ("ISH") tests for the
analysis of cells and tissues on microscope slides. Each Ventana proprietary
system placed typically provides a recurring revenue stream as customers consume
reagents and supplies sold by the Company for each test conducted. Reagents
consist of two principal components: a primary antibody and a detection
chemistry which is used to visualize the primary antibody. Therefore, the
principal economic drivers for the Company are the number, type and method of
placement of instruments, and the amount of reagents and consumables used by the
customer. The Company's strategy is to maximize the number of instruments placed
with customers and thereby increase its ongoing, higher margin reagent revenue
stream. The Company expects that reagents will comprise a greater proportion of
total revenues in the future as its installed base of instruments increases.
There can be no assurance that the Company's market expansion strategy will
produce the level of revenues expected, that the Company will achieve
profitability or that these revenues and profitability, if achieved, will be
sustainable.

Ventana is a medical device company and, as such, is regulated by the United
States Food and Drug Administration ("FDA"). As a result, the majority of the
Company's products are regulated by FDA regulations which include the 510(k)
pre-market notification ("510(k)") process, pre-market approval ("PMA") process,
good manufacturing procedures ("GMP") and the Clinical Laboratory Improvement
Amendments of 1988 ("CLIA"). See "Certain Factors Which May Affect Future
Results" elsewhere in this report.

In February 1996, Ventana acquired BioTek Solutions, Inc. ("BioTek"), for an
aggregate consideration of $19.1 million, consisting of cash, promissory notes,
and the assumption of liabilities. The transaction was accounted for as a
purchase. The purchase price was allocated between tangible net assets and
intangible assets consisting of developed technology, customer list, goodwill
and in-process research and development.


                                       8


<PAGE>   10
As a result of the merger, the Company assumed certain contractual obligations
and contingent liabilities including contractual arrangements with DAKO A/S
("DAKO"), Curtin Matheson Scientific, Inc. (a subsidiary of Fisher Scientific,
Inc.) ("CMS"), Kollsman Manufacturing Company, Inc. ("Kollsman") and LJL
BioSystems, Inc. ("LJL"). BioTek used CMS and DAKO as third-party distributors
in the United States and international markets, respectively, and supported its
United States sales efforts with field sales and technical support personnel. As
a result, BioTek experienced lower gross margins on United States sales than if
it had sold its products directly as well as a higher level of selling expense
than typically incurred in conjunction with third-party distribution
arrangements. BioTek's instruments also use a detection chemistry and batch
processing approach which differ from the Company's proprietary system and which
also contribute to those products' lower margins. Ventana's strategy regarding
BioTek is to continue to integrate the operations of BioTek into the Ventana
business model, in which most manufacturing, sales and marketing activities are
performed by the Company. The United States distribution agreement between
BioTek and CMS was terminated by mutual agreement in October 1997. The
international distribution agreement with DAKO expires in December 1999.

The Company places instruments through direct sales, including nonrecourse
leases, instrument rentals and the Company's qualified reagent installed base
program ("QRIB"). In a QRIB, the Company provides the customer with the use of
an instrument for a period of up to six months provided the customer purchases a
minimum amount of reagents and consumables. At the end of the six month period,
the customer must elect to purchase, rent or return the system. For QRIB
placements, the Company incurs the cost of manufacturing or procuring
instruments and recognizes revenues only at the time the instrument is either
sold or rented rather than at the time of instrument placement. The
manufacturing cost of instruments placed through QRIBs and rentals is charged to
cost of goods sold by depreciating standard costs over a period of four years.

The Company's future results of operations may fluctuate significantly from
period to period due to a variety of factors. The initial placement of an
instrument is subject to a longer, less consistent sales cycle than the sales of
reagents, which begin and typically are recurring once an instrument is placed.
The Company's operating results in the future are likely to fluctuate
substantially from period to period because instrument sales are likely to
remain an important part of revenues in the near future. The degree of
fluctuation will depend on the timing, level and mix of instruments placed
through direct sales and instruments placed through QRIBs or rentals. In
addition, average daily reagent use by customers may also fluctuate from period
to period, which may contribute to future fluctuations in revenues. Sales of
instruments may also fluctuate from period to period because sales to the
Company's international distributors typically provide such distributors with
several months of instrument inventory, which the distributors will subsequently
seek to place with end-users. The Company's instrument installed base includes
instruments shipped to DAKO and recognized as sales. Furthermore, due both to
the Company's increased sales focus on smaller hospitals and laboratories and
the relatively high reagent sales growth rates in recent fiscal periods, the
rate of growth in reagent sales in future periods is likely to be below that
experienced during the past several fiscal periods. Other factors that may
result in fluctuations in operating results include the timing of new product
announcements and the introduction of new products and new technologies by the
Company and its competitors, market acceptance of the Company's current or new
products, developments with respect to regulatory matters, availability and cost
of raw materials purchased from 


                                       9


<PAGE>   11
suppliers, competitive pricing pressures, increased sales and marketing expenses
associated with the implementation of the Company's market expansion strategies
for its instruments and reagent products, and increased research and development
expenditures. Future instrument and reagent sales could also be adversely
affected by the configuration of the Company's patient priority systems, which
require the use of the Company's detection chemistries, particularly if and to
the extent that competitors are successful in developing and introducing new IHC
instruments or if competitors offer reagent supply arrangements having pricing
or other terms more favorable than those offered by the Company. Such increased
competition in reagent supply could also adversely affect sales of reagents to
batch processing instrument customers since those instruments do not require the
use of the Company's reagents. In connection with future introductions of new
products, the Company may be required to incur charges for inventory
obsolescence in connection with unsold inventory of older generation products.
To date, however, the Company has not incurred material charges or expenses
associated with inventory obsolescence in connection with new product
introductions. In addition, a significant portion of the Company's expense
levels is based on its expectation of higher levels of revenues in the future
and is relatively fixed in nature. Therefore, if revenue levels are below
expectations, operating results in a given period are likely to be adversely
affected.


RESULTS OF OPERATIONS:

THREE MONTHS ENDED MARCH 31, 1998 AND 1997:

Net Sales:

Net sales for the three months ended March 31, 1998 as compared to the same
period in 1997 increased 49% to $10.4 million from $7.0 million. The increase in
net sales was attributable to an 82% increase in instrument sales and a 36%
increase in reagent and other sales. Instrument sales increased primarily due to
large numbers of prior period QRIB placements being converted to direct sale
placements in 1998 and an increase in placements to DAKO, the Company's European
distributor. Reagent and other sales increased due to sales of reagents to new
customers and increased shipments to existing customers.

Gross Margin:

Gross profit for the three months ended March 31, 1998 increased to $6.9 million
from $4.3 million for the same period in 1997, whereas the Company's gross
margin increased to 67% from 61% for the respective periods. Gross margins on
instruments increased during the 1998 period as a result of sales of the
Company's new NexES instrument, which was introduced in late 1997 and which has
a lower manufacturing cost than its predecessor. Gross margins on reagent and
other sales increased primarily due to a higher mix of proprietary reagent
products, which carry a higher margin than batch processing reagents, which have
increased at a slower rate. In addition, higher pricing for reagents and
increased service profitability contributed to the margin improvements.

Research and Development:

Research and development expenses were $1.2 million for the three months ended
March 31, 1998, a 65% increase over the $0.7 million spent in the corresponding
period in 1997. This 


                                       10


<PAGE>   12
increase resulted primarily from accelerated development work on new special
stains and in situ hybridization instrumentation, but also reflected a general
increase in research activity and headcount investment. Research and development
expenses also increased as a percent of sales to approximately 12% for the three
months ended March 31, 1998 compared to approximately 10% for the same period
during 1997, for the same reasons noted above. Research and development expenses
for the three months ended March 31, 1997 related primarily to the development
of new prognostic markers.

Selling, General and Administrative ("SG&A"):

Presented below is a summary of SG&A expense for the three months ended March
31, 1998 and 1997.

 SG&A SUMMARY:


<TABLE>
<CAPTION>
                                         Three Months Ended
                                              March 31,
                             ------------------------------------------
                                   1998                     1997
                             ----------------         -----------------
                                          %                         %
                               $        Sales           $         Sales
                             ------     -----         ------      -----
                                          ($ in thousands)
<S>                          <C>         <C>          <C>         <C>
Sales and marketing          $3,851      37%          $2,450       36%
Administration                1,123      11%             928       13%
                             ------      --           ------       --   
Total SG&A                   $4,974      48%          $3,378       49%
                             ======      ==           ======       ==
</TABLE>


SG&A expense for the three month ended March 31, 1998 increased to $5.0 million
from $3.4 for the three months ended March 31, 1996. SG&A expense as a
percentage of net sales decreased slightly to 48% as compared to 49% for the
same period in 1997. The fluctuation in SG&A expenses from period to period
reflects the growth of Ventana's sales and marketing organization to facilitate
its market expansion strategy and a corresponding increase in infrastructure
expenses to support a larger business base. The growth in sales and marketing
expense as a percentage of sales is the result of the Company's decision to
service the market through its own sales and marketing staff and expenses
necessary to support the growth of the Company. The decline in administrative
expenses as percentage of sales in the 1998 period was due to a relative decline
in litigation-related expenses. However, administrative expenses did increase in
absolute terms due primarily to the Company's expanding business base in Europe
and Japan.

Amortization of Intangibles:

Intangible assets consist primarily of goodwill, customer base and developed
technology acquired in the BioTek acquisition, and patents. Such assets are
amortized to expense over estimated useful lives of 15 to 20 years. As a result,
the Company will charge to expense each quarter approximately $0.1 million for
the amortization of these intangible assets. Additionally, the Company will
review the utility of these assets each quarter to assess their continued value.
Should the Company determine that any of these assets are impaired, it will
write them down to their estimated fair market value.


                                       11


<PAGE>   13
LIQUIDITY AND CAPITAL RESOURCES:

As of March 31, 1998 the Company's principal source of liquidity consisted of
cash and cash equivalents of $20.4 million. In addition, as of March 31, 1998,
letters of credit were issued to facilitate certain contract manufacturing
arrangements for the production of TechMate instruments ($0.5 million) and to
secure a legal judgment in favor of BioGenex Laboratories ($0.9 million). The
Company is currently negotiating an increase to $5.0 million in its revolving
bank credit facility. 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.

On February 18, 1997, the Company completed a public offering of its Common
Stock resulting in net proceeds of $26.1 million to the Company. During February
1997, the Company repaid the $10.3 million of outstanding notes issued in
connection with the acquisition of BioTek. Such repayment was made in accordance
with the provisions of the Notes which provided that no interest would be due
and payable thereon if full repayment was made prior to February 26, 1997.
Accrued interest of $0.6 million was reversed into income in February 1997.

The Company expects to use approximately $2.5 million of its available capital
resources during the next twelve months for capital expenditures for
manufacturing capacity expansion and enhancements to its business application
computer hardware and software resources. The Company anticipates that its
remaining capital resources will be used for working capital and general
corporate purposes. Pending such uses, the Company intends to invest its cash
resources in short-term, interest bearing, investment grade securities.

During the three months ended March 31, 1998 the Company generated from
operations and investing activities approximately $0.5 million in cash versus
$0.4 million for the three months ended March 31, 1997.

In connection with BioTek's agreement with DAKO, DAKO made two loans to BioTek
secured by a pledge of substantially all of BioTek's assets. DAKO also made
prepayments on future instrument sales and reagent royalties to BioTek. These
loans and prepayments were used to fund TechMate 250 instrument development and
working capital requirements. In September 1996, BioTek and DAKO entered in to
the Amendment Agreement for the purpose of addressing several matters, including
repayment of the secured loans and prepayments. The prepayments do not bear
interest. The secured loans and prepayments are recorded as long term debt in
the Company's Condensed Consolidated Financial Statements. Pursuant to the
Amendment Agreement, DAKO paid the Company a royalty of $0.5 million and the
Company paid DAKO $0.5 million as a reduction of the balance of the prepayments.
Under the Amendment Agreement, the remaining secured loans and prepayments will
be repaid through discounts on DAKO purchases of TechMate instruments from
BioTek at recoupment rates specified in the Amendment Agreement. At March 31,
1998, the total outstanding balance of the secured loans and prepayments was
$0.4 million. Upon termination of the distribution agreement or in the 


                                       12


<PAGE>   14
event of a default by BioTek under the distribution agreement, these loans may
be converted to fixed term loans that will be due and payable in 12 equal
quarterly installments commencing upon such event.

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. The Company's future capital requirements will
depend on many factors, including the extent to which the Company's products
gain market acceptance, the mix of instruments placed through direct sales or
rentals, progress of the Company's product development programs, competing
technological and market developments, expansion of the Company's sales and
marketing activities, the cost of manufacturing scale up activities, possible
acquisitions of complementary businesses, products or technologies, the extent
and duration of operating losses and the timing of regulatory approvals. The
Company may be required to raise additional capital in the future through the
issuance of either debt instruments or equity securities, or both. There is no
assurance that such capital will be available to the extent required or on terms
acceptable to the Company, or at all.


CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS:

The following discussion of the Company's risk factors should be read in
conjunction with the foregoing Management Discussion and Analysis of financial
condition and results of operations and the Company's financial statements and
related notes thereto. Because of these and other factors, past financial
performance should not be considered an indication of future performance.

HISTORY OF LOSSES. The Company has incurred substantial losses since inception.
The Company does not expect such losses to continue in the foreseeable future.
However, consistent earnings may be difficult to achieve due to planned product
development efforts, expansion of sales and marketing activities both
domestically and internationally, market acceptance of existing and future
instrument and reagent systems, competitive conditions, FDA regulations and
related product approvals, product development efforts and the integration of
BioTek's operations.

FUTURE FLUCTUATIONS IN OPERATING RESULTS. The Company derives revenues from the
sale of instruments and reagents through its direct sales force and certain
domestic and international distributors. There can be no assurances that these
outside distributors will continue to meet their contractual commitments, or
their historical sales rates or that these distributors contracts will remain in
effect.

The initial placement of an instrument is subject to a longer, less consistent
sales cycle than the sale of reagents, which begin and are typically recurring
once the instrument is placed. Consequently, the Company's future operating
results are likely to fluctuate substantially from period to period because
instrument sales are likely to remain an important part of revenues in the near
future. The degree of fluctuation will depend on the timing, level and mix of
instruments placed through direct sale versus QRIBs and rentals. In addition,
average daily reagent use by customers may fluctuate from period to period,
which may contribute to future fluctuations in revenues. In particular,
customers who have received instruments under rental arrangements do not
necessarily provide for specified reagent purchase commitments and there can be
no assurance regarding the timing or volume of reagent purchases by such
customers. 


                                       13


<PAGE>   15
Furthermore, customers that have entered into agreements may cancel those
agreements. Accordingly, there can be no assurance regarding the level of
revenues that will be generated by customers procuring instruments through
rental arrangements; therefore, the Company's business, financial condition and
results of operations could be materially and adversely affected.

RATE OF MARKET ACCEPTANCE AND TECHNOLOGICAL CHANGE. Use of automated systems to
perform diagnostic tests is relatively new. Historically, the diagnostic tests
performed by the Company's systems have been performed manually by laboratory
personnel. The rate of market acceptance of the Company's products will be
largely dependent on the Company's ability to persuade the medical community of
the benefits of automated diagnostic testing using the Company's products.
Market acceptance and sales of the Company's products may also be affected by
the price and quality of its products. The Company's products could also be
rendered obsolete or noncompetitive by virtue of technological innovations in
the fields of cellular or molecular diagnostics.

RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. The
Company's future growth and profitability will be dependent, in large part, on
its ability to develop, introduce and market new instruments and reagents used
in diagnosing and selecting treatment for cancer and other disease states. In
particular, the Company must timely and successfully introduce its new smaller
instruments to the market place. These instruments are smaller capacity, lower
priced instruments than the Company's current instruments and are necessary to
expand the market opportunity at smaller hospitals and reference laboratories in
the United States and Europe. The Company depends, in part, on the success of
medical research in developing new antibodies, nucleic acid probes and clinical
diagnostic procedures that can be adapted for use in the Company's systems. In
addition, the Company will need to obtain licenses, on satisfactory terms, for
certain technologies, which cannot be assured. Certain of the Company's products
are currently under development, initial testing or preclinical or clinical
evaluation by the Company. Other products are scheduled for future development.
Products under development or scheduled for future development may prove to be
unreliable from a diagnostic standpoint, may be difficult to manufacture in an
efficient manner, may fail to receive necessary regulatory clearances may not
achieve market acceptance or may encounter other unanticipated difficulties.

COMPETITION. Competition in the diagnostic industry is intense and is expected
to increase. Competition in the diagnostic industry is based on, among other
things, product quality, price and the breadth of a company's product offerings.
The Company's systems compete both with products manufactured by competitors and
with traditional manual diagnostic procedures. The Company's competitors may
succeed in developing products that are more reliable or effectively less costly
than those developed by the Company and may be more successful than the Company
in manufacturing and marketing their products.

MANUFACTURING RISKS. The Company has only manufactured patient priority
instruments and reagents for commercial sale since late 1991. Manufacturing of
the Company's batch processing instruments is performed by third parties. As the
Company continues to increase production of such instruments and reagents and
develops and introduces new products, it may, from time to time, experience
difficulties in manufacturing. The Company completed the consolidation of the
former BioTek reagent manufacturing into its Tucson facility during July 1996.
The Company must continue to increase production volumes of instruments and
reagents, in a cost 


                                       14


<PAGE>   16
effective manner, in order to be profitable. To increase production levels, the
Company will need to scale-up its manufacturing facilities, increase its
automated manufacturing capabilities and continue to comply with current GMP
regulations prescribed by the FDA and other standards prescribed by various
federal, state and local regulatory agencies in the United States and other
countries, including the International Standards Organization ("ISO") 9000
Series certifications.

DEPENDENCE ON KEY SUPPLIERS. The Company's instruments and reagent products are
formulated from chemicals, biological materials and parts utilizing proprietary
Ventana technology as well as standard processing techniques. Certain
components, raw materials and primary antibodies, used in the manufacturing of
the Company's reagent products, are currently provided by single source vendors.
There can be no assurance that the materials or parts or needed by the Company
will be available in commercial quantities, at acceptable prices, or at all. Any
supply interruption or related yield problems encountered in the use of
materials from these vendors could have a material adverse effect on the
Company's ability to manufacture its products until, or if, a new source of
supply is obtained.

DEPENDENCE UPON THIRD PARTY MANUFACTURERS FOR BATCH PROCESSING INSTRUMENTS. The
Company relies on two outside parties to manufacture its batch processing
instruments. There can be no assurance that these manufacturers will be able to
meet the Company's product needs in a satisfactory, cost effective or timely
manner. The Company's reliance on third-party manufacturers involves a number of
risks, including the absence of guaranteed capacity, reduced control over
delivery schedules, quality assurance issues and costs. The amount and timing of
resources to be devoted to these activities by such manufacturers are not within
the control of the Company, and there can be no assurance that manufacturing
problems will not occur in the future.

RISKS ASSOCIATED WITH DISTRIBUTION RELATIONSHIPS. The Company's batch processing
instruments and reagents have been sold under distribution agreements entered
into by BioTek. In the United States, batch processing instruments and reagents
were sold through Curtin Matheson Scientific, Inc. a subsidiary of Fisher
Scientific, Inc. ("CMS"), under an exclusive agreement until it was terminated
by mutual agreement in October 1997. United States sales through CMS were
subject to several operating conditions and risks. In particular, it had been
historically necessary for BioTek to support the efforts of CMS with direct
field sales and support personnel. As a result, the Company generated lower
gross margins on sales through CMS that it would generate were it to sell
directly to end-users and incurs higher selling expenses than typically
associated with third-party distribution arrangements. The Company has been
distributing all batch processing products directly to end-users in the United
States since the termination of this agreement.

In Europe, batch processing instruments are sold through DAKO which also pays
BioTek a fixed dollar royalty for each instrument in service in exchange for the
right to sell its own reagents for use with such systems. The agreement with
DAKO provides DAKO with exclusive distribution rights for batch processing
instruments in Europe and other territories, subject to certain performance
requirements. The agreement expires in December 1999. Accordingly, the Company
is likely to be dependent upon DAKO for international sales of batch processing
instruments through this date.


                                       15


<PAGE>   17
In connection with an amendment (the "Amendment Agreement") entered into between
DAKO and the Company in November 1996, certain minimum purchase and delivery
commitments for TechMate 250 and TechMate 500 instruments, as well as pricing
for certain quantities of TechMate 250 instruments, were established. Pricing
for additional quantities of TechMate 250 instruments was not resolved in the
Amendment Agreement and the parties are currently in disagreement as to such
pricing. Currently, DAKO is purchasing such instruments at the price levels
established by the Company. However, DAKO has initiated binding arbitration
proceedings to resolve such pricing. In the event such arbitration proceedings
are determined adversely to the Company, the pricing of TechMate 250 instruments
to DAKO would be on terms less favorable to the Company than the current pricing
terms and the amount of secured loans and prepayments recouped per instrument
sales would also be reduced.

Additionally, during the course of ongoing discussions with DAKO since the
acquisition of BioTek, DAKO has asserted that BioTek has not fulfilled its
obligations with respect to the development and commercial introduction of the
TechMate 250 instrument. The Company denies this assertion and believes that it
is in substantial compliance with its obligations under these development
milestones and has asserted that DAKO has not met certain obligations under such
agreement. In particular, the Company believes that its contract manufacturing
agreement with LJL will enable it to satisfy DAKO's requirements for TechMate
250 instruments. Nevertheless, the negotiations with DAKO could result in an
attempt by DAKO to exercise contractual remedies available to it under the
distribution agreement and the terms of the secured loans, which remedies
include (i) requiring repayment of the secured loans in 12 equal quarterly
installments commencing upon a default by BioTek and (ii) an irrevocable license
to manufacture TechMate instruments for resale internationally and a related
reduction in the fixed dollar royalty rate paid by DAKO to BioTek for each
instrument included in the royalty base. The Company could also experience an
interruption in the distribution of batch processing instruments outside the
United States or become involved in litigation with DAKO with respect to the
current distribution agreement, which would involve significant costs as well as
diversion of management time. There can be no assurance that the Company would
prevail in any litigation involving the agreement. Furthermore, there can be no
assurance as to the future course or outcome of the Company's negotiations with
DAKO or as to the Company's future relationship with DAKO. If DAKO were
successful in obtaining a manufacturing license for TechMate instruments, the
Company could experience a loss of instrument revenue which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISKS ASSOCIATED WITH ACQUISITIONS. In February 1996 the Company acquired
BioTek. Although the Company has no pending agreements or commitments, the
Company may make additional acquisitions of complementary technologies or
products in the future. Acquisitions of companies, divisions of companies, or
products entail risks, including: (i) the potential inability to successfully
integrate acquired operations and products or to realize anticipated synergies,
economies of scale or other value, (ii) diversion of management's attention,
(iii) loss of key employees of acquired operations and (iv) large one-time
write-off and similar accounting changes including amortization of acquired
goodwill. No assurance can be given that the Company will not incur problems in
integrating BioTek's operations or any future acquisition and there can be no
assurance that the acquisition of BioTek, or any future acquisition, will result
in the Company becoming profitable or, if the Company achieves profitability,
that such acquisition will increase the Company's profitability. Furthermore,
there can be no assurance 


                                       16


<PAGE>   18
that the Company will realize value from any such acquisition which equals or
exceeds the consideration paid.

RISKS RELATING TO PATENTS AND PROPRIETARY RIGHTS. The Company's success depends,
in part, on its ability to obtain patents, maintain trade secret protection and
operate without infringing on the proprietary rights of others. There can be no
assurance that the Company's patent applications will result in patents being
issued or that any issued patents will provide protection against competitive
technologies or will be held valid if challenged. Others may independently
develop products similar to those of the Company or design around or otherwise
circumvent patents issued by the Company. In the event that any relevant claims
of third-party patents are upheld as valid and enforceable, the Company could be
prevented from practicing the subject matter claimed in such patents, or would
be required to obtain licenses from the patent owners of each of such patents or
to redesign its products or processes to avoid infringement. There can be no
assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. If the
Company does not obtain necessary licenses, it could be subject to litigation
and encounter delays in product introductions while it attempts to design around
such patents. Alternatively, the development, manufacture or sale of such
products could be prevented. Litigation which could result would result in
significant cost to the Company as well as diversion of management time.

UNCERTAINTY OF FUTURE FUNDING OF CAPITAL REQUIREMENTS. The Company anticipates
that its existing capital resources will be adequate to satisfy its capital
requirements through at least the next 18 months. The Company's future capital
requirements will depend on many factors, including the extent to which the
Company's products gain market acceptance, the mix of instruments placed through
direct sales, QRIBs or rentals, progress of the Company's product development
programs, competing technological and market developments, expansion of the
Company's sales and marketing activities, the cost of manufacturing scale up
activities, possible acquisitions of complementary businesses, products or
technologies, the extent and duration of operating losses and timing of
regulatory approvals. The Company may require additional capital resources and
there is no assurance such capital will be available to the extent required, on
terms acceptable to the Company, or at all. Any such future capital requirements
would result in the issuance of equity securities which could be dilutive to
existing stockholders.

DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the retention of
principal members of its management, scientific, technical, marketing and sales
staff and the recruitment of additional personnel. The Company does not maintain
"key person" life insurance on any of its personnel. The Company competes with
other companies, academic institutions, government entities and other
organizations for qualified personnel in the areas of the Company's activities.
The inability to hire or retain qualified personnel could have material adverse
effect on the Company's business, financial condition and results of operations.

UNCERTAINTY RELATED TO GOVERNMENT FUNDING. A portion of the Company's products
are sold to universities, research laboratories, private foundations and other
institutions where funding is dependent upon grants from government agencies,
such as the National Institutes of Health. However, research funding by the
government may be significantly reduced under several budget proposals under
consideration in the United States Congress, or for other reasons. Any such
reduction may materially affect the ability of the Company's research customers
to purchase the Company's products.


                                       17


<PAGE>   19
FDA AND OTHER GOVERNMENT REGULATIONS. The manufacturing, marketing and sale of
the Company's products are subject to extensive and rigorous government
regulations in the United States and other countries. In the United States, and
certain other countries, the process of obtaining and maintaining required
regulatory approvals is lengthy, expensive and uncertain. In the United States,
the FDA regulates, as medical devices, clinical diagnostic tests and reagents,
as well as instruments used in the diagnosis of adverse conditions. The Federal
Food, Drug and Cosmetic Act governs the design, testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of the Company's products. There are two principal FDA regulatory review paths
for medical devices: 510(k) process and the PMA process. The PMA process
typically requires the submission of more extensive clinical data and is
costlier and more time-consuming to complete than the 510(k) process.
Regulator's of medical devices in foreign countries where the Company operates
have regulations similar to the United States in most cases. Additionally, the
Company is required to comply with the FDA's good manufacturing procedures
regulations. These regulations mandate certain operating, control and
documentation procedures when manufacturing medical products, instruments and
devices.

The Company is also required to comply with the FDA's Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") regulations. These rules restrict the
sale of reagents to clinical laboratories certified under CLIA. The full
implementation of CLIA rules could limit the clinical customers to which the
Company could sell reagents in the future.

In addition to these regulations, the Company is subject to numerous federal,
state and local laws and regulations relating to such matters as safe working
conditions and environmental matters. There can be no assurance that such laws
and regulations will not in the future have a material adverse effect on the
Company's business, financial condition and results of operations.

RISKS RELATING TO AVAILABILITY OF THIRD-PARTY REIMBURSEMENT AND POTENTIAL
ADVERSE EFFECTS OF HEALTH CARE REFORM. The Company's ability to achieve revenue
growth and profitability may depend on the ability of the Company's customers to
obtain adequate levels of third-party reimbursement for the use of certain
diagnostic tests in the United States, Europe and other countries. Currently,
availability of third-party reimbursement is limited and uncertain for some IHC
tests.

PRODUCT LIABILITY AND RECALL; PRODUCT LIABILITY INSURANCE. The marketing and
sales of the Company's diagnostic instruments and reagents entails risk of
product liability claims. The Company has product liability insurance coverage
with a per occurrence maximum of $2.0 million and an aggregate annual maximum of
$5.0 million. There can be no assurance that this level of insurance coverage
will be adequate or that insurance coverage will continue to be available on
acceptable terms, or at all. A product liability claim or recall could have a
material adverse effect on the Company's business, reputation, financial
condition and results of operations.

ENVIRONMENTAL MATTERS. Certain of the Company's manufacturing processes,
primarily processes involved in manufacturing certain of the Company's reagent
products, require the use of potentially hazardous and carcinogenic chemicals.
The Company is required to comply with applicable federal, state and local laws
regarding the use, storage and disposal of such materials.


                                       18


<PAGE>   20
The Company currently uses third-party disposal services to remove and dispose
of the hazardous materials used in the processes. The Company could, in the
future, encounter claims from individuals, governmental authorities or other
persons or entities in connection with exposure to, disposal or handling of such
hazardous materials or violations of environmental laws by the Company or its
contractors and could also be required to incur additional expenditures for
hazardous materials management or environmental compliance. Costs associated
with environmental claims, violations of environmental laws or regulations,
hazardous materials management and compliance with environmental laws could have
a material adverse effect on the business, financial condition and results of
operations of the Company.

POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock, similar to the securities of other medical device and life sciences
companies, is likely to be highly volatile. Factors such as fluctuations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors, FDA and other governmental
regulations, developments with respect to patents or proprietary rights, public
concern as to the safety of products developed by the Company or others, changes
in financial analysts' estimated earnings or recommendations regarding the
Company and general market conditions may have a material adverse effect on the
market price of the Company's Common Stock. The Company's results of operations
may, in future periods, fall below the expectations of public market analysts
and investors and, in such event, the market price of the Company's Common Stock
could be materially and adversely affected.

ABSENCE OF DIVIDENDS. The Company has not declared or paid any cash dividends 
since its inception and does not intend to pay any cash dividends in the 
foreseeable future. In addition, the Company's bank credit agreement currently 
prohibits the Company from paying cash dividends.


                                       19


<PAGE>   21
PART II - OTHER INFORMATION

ITEM 3.   LEGAL PROCEEDINGS.

In March 1995, BioGenex Laboratories sued BioTek in the U.S. District Court for
the Northern District of California for infringement of certain patent rights
held by BioGenex relating to an antigen retrieval method used in IHC tests.
BioGenex's claims include claims of both direct, indirect and contributory
infringement. BioTek denied infringement and asserted several defenses,
including the invalidity of the patent that is the subject of the litigation. In
April 1995, BioTek ceased offering the products that were the subject of the
alleged infringement. In May 1997, a judgment for approximately $850,000 was
rendered against BioTek, which BioTek appealed. In June 1997, the Company
obtained a letter of credit for approximately $900,000 to cover the judgment and
interest. In April 1998, the Court of Appeals denied the appeal and the Company
plans no further action.

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 U.S.
District Court for the District of Delaware. The complaint alleges, 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 substantial compensatory
damages several times in excess of the principal amount of their BioTek notes,
as well as substantial punitive damages, fees and costs. On April 25, 1997,
plaintiffs filed an amended complaint. The amended complaint makes the same
allegations as the original complaint and adds a claim under North Carolina
securities laws. In May 1997, the Company made a motion to transfer the action
to the district of Arizona, or alternatively to the Central District of
California, which was denied by the Court. On December 16, 1997, the Company
filed a motion to dismiss the amended complaint, which is pending in the Court.
There is currently a stay of discovery while the motion to dismiss is pending.
Based on the facts known to date, the Company believes the claims are without
merit and intends to vigorously contest this suit. After consideration of the
nature of the claims and the facts relating to the merger and the BioTek note
exchange, the Company believes that it has meritorious defenses to the claims
and that resolution of this matter will not have a material adverse effect on
the Company's business, financial condition and results of operations; however,
the results of the proceedings are uncertain and there can be no assurance to
that effect.

On July 16, 1997, a shareholder demand to review and copy corporate documents
pursuant to Section 220 of the Delaware General Corporation Law was denied by
the Company. As a result, as action entitled, , CA. Leung v. Ventana Medical
Systems, Inc., No. 15812, was filed in the Court of Chancery for the State of
Delaware. The plaintiff, whi is related to the plaintiffs in the securities
action discussed in the preceding paragraph, seeks inspection of certain books
and records of the Company. The Company believes the plaintiff seeks the
documents for an improper purpose and intends to defend this case vigorously. A
trial on March 3, 1998 resulted in the judge ordering the parties to reach an
agreement without a court order. The agreement provides for the plaintiff's
attorney only to review the corporate documents supplied.

In connection with a disagreement as to which price should be charged by BioTek
to DAKO for the sale of TechMate 250 instruments, DAKO filed an arbitration
request with the International 


                                       20


<PAGE>   22


Chamber of Commerce in July 1997. The arbitration is currently scheduled for
October 1998. The Company believes its position is meritorious; however, the
results of the proceedings are uncertain. An adverse determination would require
the Company to refund to DAKO a portion of the purchase price paid for some or
all TechMate 250s sold to DAKO since its introduction in late 1996.

Other than the foregoing proceedings, the Company is not a party to any material
pending litigation.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of stockholders of the Company was held on April 30, 1998,
for the purpose of electing two Class II directors, Edward M. Giles and Rex J.
Bates, increasing the number of shares reserved for issuance under the 1996
Stock Option Plan, approving the appointment of auditors and transacting any
other business that might be brought forth. Proxies for the meeting were
solicited pursuant to section 14(a) of the Securities and Exchange Act of 1934
and there were no solicitations in opposition to management's solicitations.

Management's nominees for Class II directors, as listed in the proxy statement
were elected with the following vote:


<TABLE>
<CAPTION>
                                      Shares            Shares      Shares
                                    voted "for"       "withheld"   not voted
                                    -----------       ----------   ---------
<S>                                 <C>                <C>         <C>      
Edward M. Giles                     10,814,920         354,230     2,089,631
Rex J. Bates                        10,812,412         356,738     2,089,631
</TABLE>


The amendment to the Company's 1996 Stock Option Plan to increase the number of
shares of common stock reserved for issuance thereunder by 750,000 shares to a
new total of 1,750,000 was approved by the following vote:


<TABLE>
<CAPTION>
                         Shares           Shares           Shares         Shares
                      voted "for"     voted "against"   "abstaining"    not voted
                      -----------     ---------------   ------------    ---------
<S>                                   <C>               <C>             <C>      
                       8,556,119         750,547           12,377       3,939,738
</TABLE>


The appointment of Ernst & Young, LLP as independent auditors was approved by
the following vote:


<TABLE>
<CAPTION>
                         Shares           Shares           Shares         Shares
                      voted "for"     voted "against"   "abstaining"    not voted
                      -----------     ---------------   ------------    ---------
<S>                                   <C>               <C>             <C>      
                      11,162,556            1,800           4,794       2,089,631
</TABLE>


No other matters were submitted for vote.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

             10.20A  Services agreement with John Patience dated February 26,
                     1998

             10.20B  Services agreement with Jack W. Schuler dated April 23,
                     1998

             27.1    Financial Data Schedule.

         (b) Reports on Form 8-K.


                                       21


<PAGE>   23
           No reports were filed on Form 8-K during the quarter ended March 31,
1998.


                                       22


<PAGE>   24
                                    SIGNATURE


Pursuant to the requirements of the securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                        Ventana Medical Systems, Inc.



Date:   May 13, 1998                    By:____________________________________
                                        Pierre Sice
                                        Vice President, Chief Financial Officer,
                                        Treasurer and Secretary.
                                        (Principal Financial and Accounting
                                        Officer)


                                       23


<PAGE>   25
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT 
NUMBER                        DESCRIPTION
------                        -----------
<S>                           <C>
10.20A                        Services agrement with John Patience dated
                              February 26, 1998

10.20B                        Services agreement with Jack W. Schuler dated
                              April 23, 1998

27.1                          Financial Data Schedule
</TABLE>