SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 1999


Commission File No. 000-20931


VENTANA MEDICAL SYSTEMS, INC.

(Exact name of small business issuer as
specified in its charter)


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|-------------------------------------------- |  | ---------------------------------
|                                            
|                                            
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|                                            
|Delaware                                     |  | 94-2976937                       
|(State of Incorporation)                     |  | (IRS Employer Identification No.)
|                                            
|3865 North Business Center Drive
	Tucson, AZ |  | 85705                            
|(Address of principal executive offices)     |  | (Zip Code)                       

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

Securities registered pursuant to Section 12(b) of the
Act: None

Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $.001 par value

Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject
 to such filing requirements for the past 90 days. Yes [X]
No [ ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
 herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or other
information statements incorporated by reference in Part III
 of this Form 10-K or any amendment to this Form 10-K.
[X]

The aggregate value of voting stock held by non-affiliates of the
 Registrant was approximately $225,268,299 based upon the average
 of the high and low prices of the Registrants Common Stock
 reported for such date on the Nasdaq National Market. Shares of
Common Stock have been excluded in that such persons may be
deemed to be affiliates. The determination of affiliate status is
 not necessarily a conclusive determination for other purposes.
As of December 31, 1999, the Registrant had outstanding
13,593,640 shares of Common Stock.

Documents Incorporated by Reference


Not applicable



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PART I

Item 1.  DESCRIPTION OF BUSINESS

This report on Form 10-K may contain projections, estimates
and other forward-looking statements that involve a number of
risks and uncertainties. For a discussion of factors which may
affect the outcome projected in such statements, see
Cautionary Factors That May Affect Future Results,
beginning on page 14. While this outlook represents our
current judgement on the future direction of our business, such
risks could cause actual results to differ materially from our
future performance listed below. We undertake no obligation to
release publicly the results of any revisions to these
forward-looking statements to reflect events and circumstances
arising after the date of this report on Form 10-K.

For our current and historical financial positions, see
Selected Financial Data, beginning on page 25.

Summary of Our Business

Unless the context requires otherwise, all references to
we, our or us refer to
Ventana Medical Systems, Inc., a corporation originally
incorporated in the state of Delaware in 1991, and its five
subsidiaries:

  Ventana Medical Systems, S.A.

  Ventana Medical Systems GmbH

  Ventana Medical Systems Japan K.K.

  BioTek Solutions, Inc.

  BioTechnology Tools, Inc.

We develop, manufacture and market instruments and consumables
that are used to automate diagnostic and drug discovery
procedures in clinical histology laboratories and drug discovery
laboratories worldwide. Our instrument-reagent systems are
designed to prepare and stain patient tissue or cells mounted on
a microscope slide for examination by a pathologist. The
consumable products we market that are required to operate our
instruments include reagents slides and other accessories. Our
systems are designed to provide users with high-quality and
consistent results, high throughput and significant labor
savings. Our clinical products are used by histology labs, which
are labs that focus on the analysis of human tissue, to assist
anatomical pathologists in the diagnosis of cancer and infectious
 diseases. Our research products are used by research labs at
large pharmaceutical, biotechnology and genomics companies and
medical research centers to assist in the discovery of new drugs.
 Our instruments have been placed in forty of the top fifty U.S.
cancer centers, which are recognized as leaders in cancer
research and treatment as reported in the July 1999 issue of
 U.S. News and World Reports, including Johns Hopkins
Hospital, the Mayo Clinic, Memorial Sloan-Kettering Cancer Center
 and M.D. Anderson Medical Center.

According to the National Cancer Institute, cancer is the second
leading cause of death in the United States. Currently 8.4
million people in the U.S. have a history of invasive cancer.
Mortality rates are improved by early detection and the selection
 of appropriate therapies. Histology tests performed on our
instruments are used by pathologists and oncologists to assist in
 diagnosis of cancer and to select an appropriate therapy. Based
upon our modeling of the market, we estimate that histology labs
worldwide could potentially purchase in excess of $1.3 billion in
 instruments and consumables on an annual basis. In addition, the
 pharmaceutical, biotechnology and the genomic companies who are
analyzing the human genome to accelerate new drug discovery also
benefit from automation of analysis of genes and human cell
structure.

Industry Overview

We target our instrument-reagent systems at two markets: the
histology lab and the drug discovery lab. We currently derive the
 majority of our revenues and profits from the sale of instrument
 systems and

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Histology

Based upon a sampling of hospitals, we estimate that there are
about 7,000 histology labs worldwide. Of this total we estimate
about 3,500 are in North America, 2,500 in Europe and 1,000 in
Japan and the remainder of the world. Most histology labs are
hospital based; however, a small number of regional reference
labs are found in North America and Japan.

Histology is the study of the microscopic structure of tissues.
In an histology lab, an anatomical pathologist attempts to
identify the causes and consequences of disease in a specific
part of the body. An anatomical pathologist uses tools ranging
from the naked eye to powerful microscopes and even molecular
analysis of cell proteins and genes. This is done by examining
tissue samples obtained during surgery or through biopsy
procedures to identify structural and other changes in cells,
tissues and organs. Anatomical pathology examinations are among
the most reliable ways to establish a diagnosis or, if not a
diagnosis, definitive information on the type of disease suffered
 by the patient.

All patient samples entering the histology lab move through seven
 basic processing steps or work cells:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accessioning  Tissue is entered into the
	hospital information system for medical records and billing
	purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Grossing  Following accessioning, the gross
	patient tissue specimen is examined by a pathologist. Several
	tissue samples are then cut from the gross specimen for further
	examination and placed in small plastic cassettes.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Tissue Processing  Cassettes from gross
	specimens are generated throughout the day and placed at the end
	of the day in an instrument called a tissue processor for
	overnight batch processing. Tissue processors preserve the tissue
	 by setting it in a fixative, usually formalin, and infusing the
	tissue with paraffin so it can be more readily sectioned or cut.
	An alternative to using a fixative is to freeze tissue and handle
	 it in a frozen state although, we estimate that less than 5% of
	patient specimens entering histology labs are frozen.                                                           
|
| |  | Embedding  The first activity that usually
	occurs in a histology laboratory each morning is to remove the
	processed tissue from each cassette and embed it in a paraffin
	block. This work is performed manually and is undertaken to
	produce a specimen of uniform size that can be cut on a
	microtome.                                                                                                                                                                                                                                                                                                                      
|
| |  | Sectioning  Each tissue block is next
	transferred to the sectioning area of the lab where very thin
	sections are cut on a microtome or ultramicrotome, depending on
	the test to be performed, and mounted on a microscope slide. The
	number of slides that are cut from each block varies according to
	 the case and is usually determined by the pathologist who is
	performing the gross analysis.                                                                                                                                                                                                                         
|
| |  | Hemotoxlyn and Eosin, or H&E, Staining 
	Each microscope slide is then stained with two basic stains,
	Hemotoxlyn and Eosin, that help the pathologist identify each
	cells nucleus, cytoplasm and membrane.                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Microscopic Examination  Finally, each H&E
	stained slide is examined by a pathologist using a microscope to
	determine if the tissue or cells are healthy or diseased. In
	particular, the pathologist is looking for the presence of
	microorganisms that could indicate an infectious disease or
	deformed cells that could indicate the presence of cancer. In
	cases where an H&E stained slide appears to have
	abnormalities, the pathologist performing the initial examination
	 of a patient specimen will request that the slide undergo
	additional testing. We estimate this happens in approximately 15%
	 of cases.

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Additional tests which may be requested by the pathologist
include immunohistochemistry, special stains or in situ
hybridization tests. These tests are significantly more complex
than the H&E stains and may require special reagents.



| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Immunohistochemistry, or IHC, stains are used primarily by
	pathologists to assist in the diagnosis of cancer and by
	oncologists to determine different treatment options.
	Pathologists use IHC stains to test for the presence or
	overexpression of the proteins involved in cancer.
|
| |  | Special stains are used primarily to assist in the diagnosis of
	infectious diseases, although they can also be used to assist in
	cancer diagnosis. Special stains are chemical dye stains that
	localize to microorganisms located in tissue and to specific
	tissue types.           
|
| |  | In situ hybridization, or ISH, stains can be used to assist in
	the diagnosis of infectious diseases or genetic mutations that
	are usually associated with the presence of cancer.                                                                                                     

We do not currently participate in all histology lab work cells.
We currently offer products that are used in tissue processing,
sectioning, IHC staining, special stains and ISH staining.

Tissue Processing.In developed nations, all histology
labs have at least one automated tissue processor instrument and
most labs have two or more. In less developed countries, tissue
processing is still performed manually in most labs. We estimate
that the worldwide installed base of tissue processing
instruments is greater than 10,000 and, based upon our field
experience, we estimate annual shipments to be between 1,000 and
1,500 instruments. The size of the annual shipment market is
driven primarily by replacements, although some shipments reflect
 growth driven by an increase in surgical procedures. Tissue
processors consume a substantial quantity of reagents (fixatives,
 alcohol, xylene, paraffin), however we do not participate in
this reagent market.

Microtomes.Microtomes are used to cut thin sections of
tissue following embedding. Ultramicrotomes cut tissue and other
samples for use in electron microscope and other sophisticated
analytic devices. They cut much thinner sections than traditional
 microtomes. Every histology lab utilizes several microtomes.
Only sophisticated labs, usually located in medical teaching
institutions, have access to ultramicrotomes.

IHC Staining.We estimate that there are in excess of 20
million slides stained with IHC annually on a worldwide basis.
The majority of these slides are stained in the approximately
7,000 hospital-based histology labs. However, in North America
and Japan some hospitals send their IHC slides to regional
reference labs for staining rather than performing the work
themselves. Based upon our growth, we estimate that the number of
 IHC slides processed by labs in the U.S. on an annual basis is
growing at about 6%-8% rate due to:

  increasing acceptance of the value of the technology
 by pathologists and oncologists;



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | the increasing incidence of cancer as the population ages;                
|
| |  | the emergence of new stains that may influence therapy choices;
	and      
|
| |  | the shifting of the market from manual to automated IHC slide
	processing.

We estimate that in excess of 50% of the IHC slides processed in
North America, and in excess of 25% of the IHC slides processed
in Europe, are stained in automated instruments. Most of the rest
 of the world is using manual staining, which we believe
represents a substantial growth opportunity as a portion of these
 users are converted to automated systems.

IHC instruments require reagents and accessories to operate. We
supply a full line of these consumables for use with our
instruments. Our experience in the industry suggests that we are
the worldwide market leader in supplying automated IHC staining
systems.

Special Stains.We estimate that the special stains market
 is larger than the IHC market in terms of slides processed on a
worldwide basis. There is an opportunity to place instruments
with virtually every hospital-based histology lab as special
stains slides are rarely sent to reference labs. Currently,
nearly all

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ISH Staining.The clinical market for ISH staining is
currently very small due to the difficulty of performing ISH
stains manually and the small number of stains accepted for
clinical use. We expect automation to grow the clinical market.
Currently, the principal clinical tests are used to detect
infectious diseases, primarily viruses, in tissue. However, ISH
tests for genetic mutations may eventually become important
clinical tests. The only ISH genetic mutation test performed in
the histology lab today is the test for Her-2/neu gene
over-amplification in cancerous breast tissue. This is currently
a small market as most laboratories prefer to measure Her-2/neu
status using an IHC stain.

Pharmaceutical Research

The pharmaceutical research market consists of over 2,000 labs
worldwide. The labs are located in large pharmaceutical
companies, smaller biopharmaceutical companies and medical
research centers. In these labs, research is being conducted to
determine the causes of disease and the discovery of drugs to
treat disease. Genomics, or the study of genes and their
function, is seeking to accelerate the drug discovery process by
understanding the molecular mechanisms of disease. The genomics
revolution is providing pharmaceutical researchers with a
dramatic increase in the number of potential drug targets, such
as a specific protein involved in a disease process, against
which to conduct screens of compound collections, or compound
libraries. In addition, pharmaceutical researchers are vastly
expanding the size of compound libraries they use to screen
against new drug targets. As a result, researchers require new
lab technologies capable of screening increasingly large compound
 libraries against an increasing number of drug targets in a
cost-effective, automated and rapid manner.

Genomics is the analysis of nucleic acids, which are the
fundamental regulatory molecules of life. Nucleic acids take two
forms, DNA or RNA. These molecules contain and convey the
instructions that govern all cellular activities, including
protein manufacture and cell reproduction. DNA and RNA consist of
 linear strands of nucleotide bases, the specific sequences of
which constitute the genetic information in the cell. The unique
genetic blueprint for all living organisms is encoded in the DNA.
 The entire DNA content of an organism is known as its genome,
which is organized into functional units called genes. Any defect
 or mutation in the sequence of nucleotide bases in the DNA or
RNA can disrupt cell or protein function and lead to disease.

Genomics has created opportunities to fundamentally alter the
field of human medicine through the discovery and development of
novel drugs and an improved ability to diagnose and manage
disease. Interest in understanding the relationships between
genes and disease has generated a worldwide effort to identify
and sequence the genes of many organisms, including the
approximately three billion nucleotide pairs and the estimated
100,000 genes within the human genome. Once researchers identify
the genes and their nucleotide sequences, we anticipate that an
understanding of the specific function of each of these genes and
 the role that different genes play in disease will require many
years of additional research.

Business Strategy

Our objectives are to expand our worldwide leadership position in
 histology lab automation and to penetrate the drug discovery
market with technology perfected for the histology market. Our
strategy is to:

Provide high-quality, innovative and flexible automation
systems for tissue analysis.Our position as a leader in the
histology lab automation market has been built on innovative
automated instrument-reagent systems. Our systems have been
designed as broad enabling platforms that permit customers to
easily expand their test menu. These automated systems allow for
superior patient care by providing anatomical pathologists with
higher quality, more consistent and more timely staining than
through manual methods. Further, labs benefit by increasing
output and reducing labor costs through automation and walk-away
convenience.

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Provide high throughput, value-added testing systems for
various genomics applications. We intend to pursue the same
broad strategies in the pharmaceutical research market as we are
pursuing in the histology market. We also intend to consider
developing relationships with other organizations with
complementary skills or technologies, which should allow us to
quickly acquire capabilities we need in a rapidly changing
market.

Maximize placement of our automated systems in histology and
drug discovery laboratories both domestically and worldwide.
Rapidly automating manual work cells permits us to strengthen our
 competitive position by establishing a large base of instruments
 that current or future market entrants must overcome. We
estimate that our worldwide installed base of IHC and special
stains instruments is significantly larger than the combined
installed bases of instruments of all of our current competitors.
 We believe that the size and quality of our direct sales
coverage will permit us to maximize instrument placements and
maximize revenue stream per placement.

Ensure a steady stream of consumables sales for use in these
instruments. Each IHC, special stain and ISH instrument
placed typically provides us with a recurring revenue stream
through the sale of reagents and other consumable supplies. Our
strategy is to increase this revenue stream by converting all
existing manual tests performed by the customer to full
automation and by selling the customer all the required reagents
for the automated tests. We intend to expand our menu of
automated tests over time, which should increase the consumable
revenue we receive from each instrument placement, as typically
our systems are closed systems which can only be operated with
consumables produced by us.

Continue ongoing technological development and improvement of
our instruments and reagents. We design all of our own
products, unlike most of our competitors, who rely on outside
design firms to create their instruments. We are developing new
instruments and enhancing existing instruments and developing
reagants for our installed base of instruments as well as for new
 products. Both our engineering and reagent research and
development organizations work closely with their manufacturing
counterparts on all new products to ensure they can be produced
cost effectively. We protect our designs with an aggressive
intellectual property strategy.

History of the Company

We were incorporated in California in 1985 by a pathologist
practicing at the University of Arizona Medical Center who was
interested in automating IHC staining. In 1993 we were
reincorported in Delaware. In 1989 we procured venture capital
funding and launched our first instrument-reagent system in 1991.
 We have launched multiple new systems since then, some of which
were developed internally and some of which were acquired.

Our Products

We market five product lines: tissue processors, microtomes, IHC
staining instruments, special stains instruments and ISH staining
 instruments. Some of these instruments use consumables such as
slides,

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Product Offerings

|                             |  |                                                    |  |                                                                                                                        |  |                                                                  |    | 
|---------------------------- |  | -------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------- | -- | 
|Instrument                   |  | Targeted Customers                                 |  | Uses                                                                                                                   |  | Consumables                                                     
|                             |  |                                                    |  |                                                                                                                        |  |                                                                 
|Renaissance Tissue Processor |  | Histology Labs                                     |  | Fix tissue and embed sample in paraffin                                                                                |  |                                                                  | No | 
|Series 100 Microtome         |  | Histology Labs                                     |  | Section paraffin/tissue blocks                                                                                         |  |                                                                  | No | 
|Ultramicrotomes              |  | Medical Research Labs Pharmaceutical Research Labs |  | Section sample prior to evaluation by electron microscope                                                              |  |                                                                  | No | 
|TechMate 250 & 500 Systems   |  | Histology Labs Pharmaceutical Research Labs        |  | Stain tissue with antibodies and detection chemistry to help
	identify proteins                                        |  | 10 accessory products 2 detection systems 30 primary antibodies 
|NexES IHC System             |  | Histology Labs Pharmaceutical Research Labs        |  | Stain tissue with antibodies and detection chemistry to help
	identify proteins                                        |  | 16 accessory products 6 detection systems 214 primary antibodies
|NexES Special Stain System   |  | Histology Labs                                     |  | Stain tissue to help identify infectious diseases and cancers                                                          |  | 9 accessory products 15 special stains                          
|Discovery ISH System         |  | Biotechnology, Genomic, Medical Research Labs      |  | Stain tissue with molecular probes and detection chemistry to
	help identify infectious diseases and genetic mutations |  | 13 accessory products 2 detection systems                       

Tissue Processors

We entered the tissue processing work cell when we acquired
BioTechnology Tools. BioTechnology Tools designed, manufactured
and marketed through distributors a tissue processor known as the
 PTP-1530 which we have subsequently modified and now market as
the Renaissance.

Our Renaissance tissue processor is a batch instrument that can
accommodate up to 350 specimens at a time. This completely
enclosed system can be configured as a floor or bench top unit.
It has easy-to-use software with flexible programmability and a
pulse magnetic stirrer that significantly improves the quality of
 prepared tissue. The Renaissance quality control system allows
the customer to monitor the quality of the reagents being used,
and to extend the life of their reagents using a paraffin
cleaning system. We do not market a complementary line of
consumables with the Renaissance.

Microtomes

We also entered the sectioning work cell through the acquisition
of BioTechnology Tools. BioTechnology Tools designed,
manufactured and sold through distributors two product lines of
sectioning equipment. Our first product line, the Series 100
 Microtome, is designed to section tissue in the histology lab
and is our lead product.

Our second product line, ultramicrotomes, is marketed under the
BioTechnology Tools RMC trade name. Ultramicrotomes cut much
thinner specimens than the histology product line and are used to
 prepare specimens for examination under an electron microscope
or other sophisticated analytic device. Our ultramicrotomes are
used for clinical analysis of patient tissue, medical research
and by the electronics and automotive industry for incoming
quality inspection of raw materials.

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We are a small competitor in the histology microtome market.
Microtomes consume a large number of specialty blades; however,
we do not participate in the specialty blade market.

Staining Systems and Associated Reagents

The principal benefits of automated cellular and tissue analysis
using our integrated systems as compared with manual methods are:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | improved reliability, reproducibility and consistency of test
	results;            
|
| |  | faster turnaround time for test results;                                           
|
| |  | increased test throughput for the testing;                                         
|
| |  | reduced dependence on skilled technicians;                                         
|
| |  | ability to obtain maximum clinical information from
	minimally-sized biopsies;     
|
| |  | ability to document processing protocols (patient priority
	instruments);          
|
| |  | enhanced cellular differentiation through multiple staining on a
	single slide; and
|
| |  | standardization of slide preparation among institutions.                           

In addition to these critical clinical and operational
advantages, we have determined that our automated approach has
cost advantages as well.

IHC Staining.Our first product launch in 1991 was an
instrument-reagent system to automate IHC staining. Prior to the
introduction of this system, all IHC staining was performed
manually or using low-level automation. In early 1996, we
acquired our principal competitor in the IHC market, BioTek
Solutions, Inc. We now enjoy a leading market share position in
automated IHC staining worldwide.

We currently market two IHC instrument systems with a full line
of complementary reagents and accessories. Our line of IHC
products includes batch-processing systems targeted to large
hospital clinical labs and reference and research labs and
patient priority systems targeted to hospital clinical labs.
Although our existing batch processing systems are
open, providing the customer with the ability to
purchase reagents from either us or other sources, the majority
of our United States customers with batch processing systems
regularly purchase reagents from us. Our patient priority systems
 are closed in that customers must purchase detection
 chemistries from us in order to operate the instruments.

Our line of TechMate batch processing instruments is designed for
 large volume testing using a single antibody on multiple patient
 biopsies and research applications in which long incubation
times and unique detection chemistries are required. Our batch
processing instruments employ capillary action to perform IHC
tests. Patient biopsies are placed on capillary gap slides, which
 maintain a space of predetermined width between adjacent slides
when loaded into TechMate systems. Reagents are loaded into
disposable reagent trays and programmable software directs the
instrument to apply the reagents in the proper sequence. The
instrument immerses the bottoms of the slides in the reagents as
programmed and the reagents are drawn up the slide and over the
tissue specimen by capillary action. After each reagent
application and incubation, the instrument removes the reagent
from the specimen by placing the slides onto disposable blotting
pads. In North America, we directly manufacture and market
reagents for use in our TechMate systems.

The TechMate 500, has a 120-slide capacity, which is applicable
to both large and moderately-sized reference labs and large
research labs. The TechMate 250, which has a 40-slide capacity,
is targeted primarily for the European and other international
markets. We distribute this product through a collaborative
marketing relationship with another company. The products are
manufactured on a contract basis by a third party and we receive
a royalty on the sale.

The NexES system provides an automated approach for applying
primary antibodies and detection chemistries. The NexES system is
 barcode driven and is designed for multiple tests on a single
patient

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The NexES is based upon a modular design and an external personal
 computer operating under a Windows 98 environment for software
control. Each module holds up to 20 slides in the reaction
chamber and 25 reagents on its reagent carousel. The modular
design of the NexES and external personal computer permits the
linkage of up to eight NexES IHC or special stains modules
together, creating the capacity to process up to 160 slides. The
NexES therefore offers users a significant degree of flexibility
as users can purchase from one to eight modules depending upon
their test volume requirements.

Reagent products are composed of primary antibodies and detection
 chemistries, each of which is required for an IHC test.
Customers that have patient priority systems must use our
detection chemistries on all tests. They have the option of
purchasing primary antibodies from us or other sources. Customers
 who have our batch processing systems have the option of
purchasing both antibodies and detection chemistries from us or
other sources. Users of a majority of our United States installed
 batch processing systems regularly purchase reagents from the
us.

We sell a line of over 215 primary antibodies used to detect
antigens in combination with detection chemistry kits on our
instruments. We market all of the antibodies used to perform the
IHC tests that currently account for more than 90% of total IHC
test volume.

We estimate that detection chemistries typically account for
approximately 60% of the total expenditures for reagents required
 to perform IHC tests using our instruments. We produce a line of
 detection chemistries for use on both patient priority and batch
 processing systems which provide the user with standardized
reagents, thereby giving the user convenient and rapid results.
The detection chemistries have been developed by us using
proprietary formulations which, when combined with our primary
antibodies and other reagents, optimize the results of tests
performed on our instruments. These kits generate the visual
signal in an IHC reaction at the site where a primary antibody is
 bound to a specific antigen or molecule in the cell or tissue.
The patient priority system utilizes detection kits which include
 (i) a DAB Kit which generates a brown color; (ii) an
AEC Kit which generates a deep red color; (iii) an Alkaline
Phosphatase Red Kit which generates a bright red color; and
(iv) an Alkaline Phosphatase Blue Kit which generates a deep
 blue color. We currently sell DAB and Alkaline Phosphatase Red
for use with our batch processing instruments. The detection kits
 are designed to perform tests on a wide variety of specimens, so
 a lab can, for example, perform tests on tissue preserved in
paraffin and on frozen tissue simultaneously. Our detection
chemistries have been formulated to provide long term stability
for reproducibility and ease of use as well as a high signal to
noise ratio for optimal sensitivity.

We offer a line of consumable ancillary products that are
necessary for processing slides on our instruments. These include
 buffers for optimizing the IHC reaction and counterstains for
staining cell nuclei, which are used with both patient priority
and batch processing instruments. The buffers ensure good
morphology, low backgrounds and high signals. The counterstains
provide additional convenience for the customer by eliminating
the need for additional processing of the slides after staining
on the instrument. For use with patient priority instruments, we
also supply a proprietary liquid coverslip used to inhibit
evaporation during processing in the instrument, fixatives for
maintaining the morphology of cells or tissues, enzymes for
unmasking antigens and slide barcodes for use in identifying the
slide and its specific IHC reaction steps. For use with batch
processing instruments, we also provide disposable reagent trays
which are used to hold the reagents during IHC reactions,
capillary gap slides and wicking pads used for reagent removal
between applications.

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Special Stains.In late 1998, we launched our second
instrument-reagent system which handles special stains testing.
It was the first automated special stains system offered to
histology labs. We believe that we have established ourselves as
the clear market leader in this product segment. We supply both
an automated instrument for special staining and all the reagents
 needed to operate the instrument. Two competitors have entered
the automated special staining market since we launched our
system.

The special stains module can be operated by the same control
computer that operates our NexES IHC modules. Any combination of
up to eight special stains and IHC modules may be operated by a
single control computer. This flexibility enables customers to
design a combination special stains/ IHC system that meets the
specific needs of their lab. It also provides future flexibility
for handling lab growth.

The special stains module uses a different approach for
dispensing reagents than the IHC system. The special stains
aspiration and dispense system permits us to use a low cost
container for our reagents.

We currently market eleven different special stains kits that we
estimate account for about 85% of all types of special stains
performed in histology labs. We plan to expand this test menu in
the future so that our special stain system can meet more than of
 95% of most laboratories special staining needs. All of our
special stain kits were developed using proprietary protocols.

ISH Staining.We entered the ISH staining market with the
launch of our GenII system in 1995. The GenII was primarily sold
into the drug discovery market although some instruments were
placed in histology labs for clinical use. We have not
aggressively marketed the GenII in recent years due to high field
 support requirements and low consumption of reagents and
accessories.

We launched our second ISH staining system in December 1999
called the Discovery. The Discovery system can function as a high
 throughput processor of DNA and RNA microarrays. It can also be
used as a high throughput processor of tissue arrays used to
validate gene drug leads. We anticipate that this system will
primarily be sold to companies involved in pharmaceutical
research but also intend to market to histology labs for clinical
 use.

The Discovery staining system consists of a staining module and a
 full line of complementary reagents and accessories. The
front-end of the system is open, permitting
researchers to use their own molecular probes in searching for
genetic mutations. The back-end of the system
consisting of detection chemistry that attaches to the molecular
probe and permits the researcher to visualize the target, is
closed and must be purchased from us. The only exception to this
is where the detection chemistry is mounted on the target probe.
This is the case when a flourescent in situ hybridization, or
FISH, stain is performed.

The Discovery instrument can currently only perform ISH stains
tests. A future software release will permit the Discovery to
perform both ISH and IHC stains tests. This dual staining
capability will permit researchers to stain tissue for both
genetic mutations and for the proteins produced by those
mutations.

The Discovery system incorporates a number of important
technological advances over our earlier NexES IHC and special
staining systems. The principal advance is the ability to
accurately control the reaction temperature. In contrast the
NexES IHC and special stain modules heat the entire reaction
chamber to a pre-set temperature and maintain that temperature
during the entire processing cycle. Individual slide heaters in
the Discovery permit an optimal protocol to be developed for each
 test. It also permits the unwinding or denaturing step that is
critical to detecting DNA abnormalities to be tightly controlled.
 We have filed a number of patents to protect inventions
incorporated into the Discovery system.

In November of 1998, we acquired all of the oncology assets of
Oncor, Inc. These assets consisted primarily of gene-based tests
used in drug discovery. Some of these tests have clinical
potential.

Our ISH systems are currently being used, or tested for use, in
the following drug discovery applications:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Processing DNA and RNA Assays. These assays are used to
	identify genes that are possible targets for drug therapy and
	pinpoint the mutation in these genes. Our Discovery instrument
	can be used to process DNA and RNA assays.

9



---





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Processing Tissue Assays. Tissue assays are an emerging
	drug discovery tool that validate the value of target genes and
	proteins in human tissue. Our instruments can be used to automate
	 the processing of these assays.                                                                                                                                                                                                            
|
| |  | Processing Individual Tissue Samples. Instead of using
	tissue assays, many companies engaged in pharmaceutical drug
	discovery are testing genes and proteins in traditional tissue
	slides. Our Discovery instrument can be used to identify genetic
	mutations in the tissue. In addition, our IHC systems can be used
	 in conjunction with our Discovery system to identify abnormal
	proteins or abnormal protein levels in tissue.

Research & Development

Our research and development group is divided into two teams: one
 that is responsible for instrument development and a second
which develops staining protocol and reagents. We have focused
our efforts on the development of innovative combined
instrument-reagent systems. We are developing new instruments and
 enhancing existing instruments. In addition, we are developing
reagents for our installed base of instruments as well as for new
 products.

As of December 31, 1999, our research and development
organization consisted of 57 persons, many of whom have graduate
degrees. Our research and development activities are performed
primarily in-house by our own employees. These efforts are
supplemented by consulting services and assistance from
scientific advisors. We spent $7.1 million in 1999, $5.1 million
in 1998 and $3.1 million in 1997 on research and development.

Instrumentation Development Projects

Our instrumentation development is focused on continuous product
improvement and new product development. We believe that the
modular platform used by our NexES IHC system has enabled us to
develop new products more rapidly. We implemented this strategy
with the launch of the NexES Special Stains system in 1998 and
our new Discovery System launched in late 1999. We expect to
continue this modular development strategy in the future. We
continue to explore new opportunities in instrument systems that
add value to the customer, including automating other manual
processes in the histology lab.

Reagent Development Projects

Our reagent development is divided into four principal areas:



| |   |                               
| | - | ------------------------------
| |  | new antibody development;     
|
| |  | detection chemistries;        
|
| |  | special stain chemistries; and
|
| |  | ISH chemistries.              

We continue to monitor third-party development of new primary
antibodies and will license or purchase these as appropriate.
Primary antibodies are used to assist pathologists in
recommending treatment protocols for cancer patients. We also
continue to improve the sensitivity and specificity of our
detection chemistries. New detection chemistries with higher
signal strength and lower background noise were introduced in
early 1999.

Reagent development also supports the development of new
instrument systems. A complete reagent product line was
introduced in conjunction with the October 1998 launch of
the special stain module. Development of reagents to support our
Discovery ISH instrument is ongoing. We are also developing
reagents for our clinical ISH instrument which we plan to launch
in late 2000. We are currently in discussion with various
universities, hospitals, and commercial organizations regarding
other potential areas of opportunities for the ISH system.

10



---



Customers

Our customers consist of clinical histology labs and the drug
discovery labs of large pharmaceutical companies, biotechnology
and genomic companies and medical research centers. Our
instruments have been placed in forty of the top fifty
U.S. cancer centers, which are recognized as leaders in
cancer research and treatment as reported in the July 1999
issue of U.S. News and World Reports, including Johns
Hopkins Hospital, the Mayo Clinic, Memorial Sloan-Kettering
Cancer Center and M.D. Anderson Medical Center. We have also
 placed our instruments in more than 1,500 hospital-based
clinical histology labs worldwide. None of our customers accounts
 for more than 5% of our consolidated revenues in 1999 or 1998;
in 1997, sales to a European distributor accounted for
approximately 20% of consolidated net sales.

Patents and Proprietary Rights

We have pursued a strategy of patenting key technologies that
relate to both the automation and chemistry of analyzing cells
and tissues on microscope slides. We presently own 32 United
States patents and numerous corresponding foreign patents. We
have also filed patent applications in the U.S. and abroad that
cover research and development as it relates to existing and
future products. In 1999, three of our U.S. patents issued.
We also have access to some key technology through exclusive and
nonexclusive licenses, such as patented Human Papilloma Virus
sequences.

Our patent portfolio is divided roughly into two segments:
instruments and reagents. Patents and applications related to
instruments include:



| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | three U.S. patents directed to the Liquid Cover Slip
	technology;                                                                                                 
|
| |  | the suite of patents related to the TechMate instrument that
	covers all aspects of the instrument including the algorithm for
	the interleaving of steps of a run;
|
| |  | two separate U.S. patents on reagent dispenser designs;                                                                                                            
|
| |  | apparatus for automated IHC tissue staining; and                                                                                                                   
|
| |  | independently heatable slide staining apparatus.                                                                                                                   

Reagent patents and applications include:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | tissue fixatives;                                                                                                       
|
| |  | hybridization methods and compositions;                                                                                 
|
| |  | IHC staining methods and reagents;                                                                                      
|
| |  | biotin/avidin formulations and methods; and                                                                             
|
| |  | compositions for manual and automated assessment of various types
	 of cancer, including, breast, leukemia and prostate.

Sales and Marketing

Our histology lab strategy involves providing customers with
superior levels of customer service. We believe this can only be
achieved by selling our products directly to customers, rather
than through distributors, in our major markets and by
controlling our own telephone and field service forces.

Based on our experience in the industry, we believe we have the
worlds largest direct sales force covering histology labs.
We believe that the size and quality of our direct sales coverage
 will permit us to maximize instrument placements and maximize
revenue stream per placement. This sales force is organized
geographically by region in North America and by country
internationally. In North America we also have a separate sales
organization focused solely on national and key accounts. In
North America, Japan and in most major European markets we sell
all of our products (except our ultramicrotomes) on a direct
basis. In most other countries, we rely on distributors to sell
and service our products.

11



---



In addition to maintaining direct sales organizations in our
major markets, we also maintain direct customer telephone and
field service operations. This permits us to maintain a close
relationship with our customers which we hope to exploit from
instrument placement, through reagent and consumable sales to
instrument replacement. This relationship will also allow us to
provide high quality and rapid service in response to customer
instrument or reagent problems.

We also have a comprehensive customer education program, which
includes on-site technical training in instrument use, user group
 meetings and sponsored national teleconferences with leading
medical experts who regularly update our customers on diagnostic
and testing developments.

Competition

We face a wide array of different competitors in the histology
lab and drug discovery markets. In many product segments our
competitors have substantially greater experience than us and far
 greater name recognition by our customers. In most product
segments competition is intense and is based on product
performance and price, the breadth of a companys product
line, and after-sales service.

Histology

Our competitors in histology vary by product category. Our
principal competitor in tissue processing is Sakura Fine
Technical Co., Ltd., a privately held Japanese company with far
greater market share, experience and name recognition than we
have. Additional competitors in tissue processing include Leica
Microsystems Group, a German based competitor, and Thermo
BioAnalysis Group, a U.S. public company that owns Shandon
Lipshaw, a formidable competitor worldwide in histology lab
equipment. Despite the strong entrenched competition in this
segment we believe we are increasing our market share through
strong sales increases of our Renaissance tissue processor.

Our competitors in tissue sectioning include Leica and Micron,
the German based subsidiary of U.S. based and publicly
traded Sybron International Corp. In addition to these two
competitors, who combined hold around 80% of the worldwide
microtome market, a large number of additional competitors are
trying to establish themselves in the market. Sakura and Shandon
Lipshaw also market a line of microtomes. We have a small share
of the microtome market and do not expect this share to increase
significantly in the near term due to fierce competition and low
gross product margin.

We are the market share leader in automated IHC staining. We have
 a worldwide installed base of instruments that exceeds all of
our competitors combined. Historically, we have also placed more
new instruments each year than all of our competitors combined.
Nevertheless, we face strong competition on two fronts. Indirect
competition comes from the manual method of performing IHC tests.
 A number of histology labs in the U.S. and the majority of
histology labs outside the U.S. still perform their IHC slide
staining manually. Significant barriers to automation of this
process exists in some countries where reimbursement for IHC
tests by insurance companies and government health care plans is
low. Further, significant barriers to automation exist in a
number of labs where pathologists prefer manually stained slides
which were created using their own staining protocols.

Direct competition currently comes from four competitors who
market instrument-reagent IHC staining systems. The competitors
are DAKO, a privately held Danish company that dominates the
market for manual IHC reagents; BioGenex Laboratories, Inc., a
privately held U.S. company that markets its own instrument and
line of reagents; Labvision Corporation, another privately held
U.S. company that supplies DAKO with instruments and also
markets its own instruments both on a direct basis and through
distributors in most major markets; and Diagnostics Products
Corp., which markets a high volume IHC slide stainer, principally
 in Europe.

Two automated special staining systems compete with our special
staining module. CytoLogix Corp., a venture-backed, U.S.-based,
early-stage company markets the Artisan Staining System. The
CytoLogix system will reportedly be expanding its menu of
reagents to include IHC stains and potentially ISH stains.
BioGenex also markets a line of special stains instruments called
 Optimax which was originally designed

12



---





Pharmaceutical Drug Discovery

Our Discovery ISH staining system launched in late 1999 is
primarily used by organizations engaged in drug discovery and
other related research. Virtually all ISH staining is currently
performed manually. We currently do not face a direct competitor
in this market. A Japanese company markets an ISH staining system
 in Japan only, but we believe its performance is not comparable
with the Discovery. We also anticipate that our Discovery system
will face competition in the future.

Manufacturing

We manufacture all of our own products except the Techmate 500
and Techmate 250 instruments. Both of these products are produced
 by third-party manufacturers and account for only a small
portion of our total sales. We maintain three manufacturing
facilities  an instrument manufacturing facility
located in Tucson, Arizona, a separate reagent manufacturing
facility also located in Tucson, Arizona and a second reagent
manufacturing facility located in Gaithersburg, Maryland.

Our instrument manufacturing facility in Tucson is operated under
 the leadership of a single instrument manufacturing manager who
is responsible for component purchasing, product scheduling,
production, materials management and shipping.

Our reagent manufacturing facility located in Tucson, Arizona
produces the majority of the reagent and accessory consumables
that we sell. This facility is also a focused facility under the
leadership of a manufacturing manager who is responsible for
purchasing, scheduling, production, materials management and
shipping.

Our second reagent manufacturing facility is located in
Gaithersburg, Maryland, and was acquired with the acquisition of
the oncology assets of Oncor. This facility has been approved by
the FDA for the production of our pre-market approval, or PMA,
approved Inform® test for measuring Her-2/neu gene
overamplification in breast tumors. We use this facility to
produce the products we acquired from Oncor. We also plan to use
it in the future to produce additional products that receive FDA
PMA approval.

Our manufacturing operations are required to follow the FDA
Quality Systems Regulations. These regulations require us to
maintain documentation and process control in a prescribed manner
 with respect to manufacturing, testing and quality control. We
are also subject to FDA inspections to verify compliance with FDA
 requirements. We also intend to implement manufacturing policies
 and procedures that will enable us to receive ISO 9001
certification. ISO 9001 standards are global standards for
design and manufacturing process control and quality assurance.
Finally, we are required to obtain the CE mark for sale of our
products in the countries comprising the European Union. The CE
mark is an international symbol of quality assurance and
compliance with applicable European Union medical device
directives.

Contracts

We place instruments through direct sales, including nonrecourse
leases, instrument rentals and our Performance Evaluation Period
program. The program is intended to permit a customer to use an
instrument, generally for a period of up to three months,
provided that the customer purchases all the consumables needed
to operate the instrument from us. At the end of the three month
period, the customer elects to purchase, rent or return the
system. For placement of instruments under this program, we incur
 the cost of manufacturing instruments and we recognize revenue
only at the time the instrument is either sold or rented rather
than at the time of instrument placement. The cost of
manufacturing the instrument placed through the program or rental
 is charged to cost of goods sold by depreciating the cost of the
 instrument over a period of four years.

13



---



Suppliers

We do not depend upon any single supplier. Because we have
multiple sources of supply, we have not experienced difficulties
in obtaining adequate sources of supply and adequate alternatives
 to satisfy our customers. We do not have formal purchase
contracts for our supplies, but instead we generally purchase
items under individual purchase orders.

Employees

As of December 31, 1999 we had approximately 412 full-time
employees, including our 8 officers.

Warranties

We offer one year parts and labor warranties on all of our
instruments. We have historically not had a large number of
claims made under warranties.

Cautionary Factors That May Affect Future Results



|                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Risks Relating to Availability of Third-Party Reimbursement
	and Potential Adverse Effects of Health Care Reform |  | Our ability to sustain revenue growth and profitability may
	depend on the ability of our customers to obtain adequate levels
	of third-party reimbursement for use of certain diagnostic tests
	in the United States, Europe and other countries. Currently, the
	availability of third-party reimbursement is limited and
	uncertain for some IHC tests.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                
|                                                                                                                 |  | In the United States, our products are purchased primarily by
	medical institutions and labs which bill various third-party
	payors, such as Medicare, Medicaid, other government programs and
	 private insurance plans for the health care services provided to
	 their patients. Third-party payors may deny reimbursement to our
	 customers if they determine that a prescribed device or
	diagnostic test has not received appropriate FDA or other
	governmental regulatory clearances or approvals, is not used in
	accordance with cost-effective treatment methods as determined by
	 the payor, or is experimental, unnecessary or inappropriate. The
	 success of our products may depend on the extent to which
	appropriate reimbursement levels for the costs of such products
	and related treatment are obtained by our customers from
	government authorities, private health insurers and other
	organizations, such as HMOs.
|                                                                                                                
|                                                                                                                 |  | Third-party payors are increasingly challenging the prices
	charged for medical products and services. The trend towards
	managed health care in the United States and the concurrent
	growth of organizations such as HMOs could significantly
	influence the purchase of health care services and products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                
|                                                                                                                 |  | In addition, the federal government and certain members of
	Congress have proposed, and various state governments have
	adopted or are considering, programs to reform the health care
	system. These proposals are focused, in large part, on
	controlling the escalation of health care expenditures. The cost
	containment measures that health care payors are instituting and
	the impact of any health care reform could have a material
	adverse effect on the levels of reimbursement our customers
	receive from third-party payors and our ability to market and
	sell our products which could cause our results of operations to
	suffer.                                                                                                                                                                                                                                                                                           

14



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|                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A reduction in government funding to research centers will
	reduce their ability to purchase our products |  | A portion of our 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. Research funding by the
	government could be significantly reduced. Any such reduction may
	 materially affect the ability of many of our research customers
	to purchase our products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                         
|Future operating results may fluctuate depending on:                                                      |  | Our operating results may fluctuate depending on sales of
	instruments and sales of reagents. If our actual earnings in a
	given quarter underperform analyst estimates, our stock price
	could be adversely affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                         
| how many instruments we sell and under
	 what terms they are sold                                       |  | 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 an instrument is placed.
	Instruments are typically sold in the latter part of a quarter
	and in the fourth quarter of the year due to the buying patterns
	of our customers. The degree of fluctuation will depend on the
	timing, level and mix of instruments placed through direct sales
	and instruments placed through Performance Evaluation Period
	programs and rentals. A significant number of instruments
	installed in customers laboratories annually are placed
	through our Performance Evaluation Period program. We generally
	aim to sell products placed in this program within 3 months,
	 but we cannot be certain they will be returned or that they will
	 convert to sales or rentals within this time period, or ever. If
	 the program fails to generate sales, our 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.
|                                                                                                         
| changes in our sales force                                                                              |  | Historically we have experienced attrition in our sales force. A
	portion of our sales force is new and we have recently
	restructured our sales program. If we fail to retain existing or
	replace departing members of our sales force in a timely manner
	or if our sales training programs are not successful, it may
	adversely affect our ability to sell instruments and reagents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                         
|  how much reagent our customers use                                                                     |  | In addition, average daily reagent use by customers may fluctuate
	 from period to period, which may contribute to future
	fluctuations in revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                         
| our operating results may be effected
	by other factors                                                 |  | 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 us
	and our competitors;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                         
|                                                                                                          |  |   our ability to collect receivables and
	maximize payables;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                         
|                                                                                                          |  |   market acceptance of our current or new
	products;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                         
|                                                                                                          |  |   quarter-to-quarter buying patterns of
	our customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                         
|                                                                                                          |  |   developments with respect to regulatory
	matters;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                         
|                                                                                                          |  |   availability and cost of raw materials
	from our suppliers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                         
|                                                                                                          |  |   competitive pricing pressures;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                         
|                                                                                                          |  |   increased research and development
	expenses; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15



---





|                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                    |  |   increased marketing and sales expenses
	associated with the implementation of our market expansion
	strategy for our instrument and reagent products.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                   
|Effectively managing our growth may be difficult                                                                                    |  | We have grown and continue to grow rapidly both by adding new
	products and by hiring new employees. This growth is likely to
	place a significant strain on our on our managerial, accounting,
	receivables collections, operational and financial resources and
	systems. To manage our growth, we must implement systems and
	train and manage our employees. If we are not successful in
	managing our expanding operations effectively, we may experience
	operating problems such as customer service issues, reduced
	sales, and internal operating issues.
|                                                                                                                                   
|                                                                                                                                    |  | Some of our senior management, including our CEO and CFO, have
	only recently joined us. Of the nine employees listed in the
	management section of this prospectus, three have worked for us
	less than one year. We cannot assure you that our management will
	 be able to effectively or successfully manage our growth.                                                                                                                                                                                                                                      
|                                                                                                                                   
| Our ability to develop new products
	will be important to our success                                                             |  | Our future growth and profitability will be dependent, in large
	part, on our ability to develop, introduce and market new
	instruments and reagents used in diagnosing and selecting
	appropriate treatment for cancer and additional disease states.
	Our products could also be rendered obsolete or noncompetitive by
	 virtue of technological innovations in the fields of cellular or
	 molecular diagnostics.                                                                                                                                             
|                                                                                                                                   
| our ability to develop new products is
	 partly dependent on the work of others and our ability to
	license their work            |  | We depend in part on the success of medical research done by
	others in developing new antibodies, nucleic acid probes and
	clinical diagnostic procedures that can be adapted for use in the
	 our systems. We need to license certain of these technologies.
	We may not be able to get these licenses on terms that would
	allow us to economically develop and market new instruments. If
	this were to occur our operating results would suffer.                                                                                                             
|                                                                                                                                   
| if any of our products under
	development or those planned for development are not successful
	our operating results would suffer |  | We have products that are currently under development, initial
	testing or preclinical or clinical evaluation and we have other
	products that are scheduled for future development. These
	products:                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                   
|                                                                                                                                    |  |   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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                   
|                                                                                                                                    |  | If any of these things were to occur our operating results would
	suffer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                   
|A large portion of our expenses are fixed so if our revenues
	are below expectations we may not perform as expected                 |  | A significant portion of our expense levels are based on our
	expectation of a higher level of revenues in the future and are
	relatively fixed in nature. Therefore, if revenue levels are
	below expectations, operating results in a given period are
	likely to be adversely affected because we will not be able to
	spread these expenses over a larger revenue base.                                                                                                                                                                                       

16



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|                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|We need to persuade the medical community of the benefits of
	our products in order to be successful        |  | The use of automated systems to perform diagnostic tests is
	relatively new. Historically, the diagnostic tests performed by
	our systems have been performed manually by lab personnel. Our
	ability to sell our products will be largely dependent on our
	ability to persuade the medical community of the benefits of
	automated diagnostic testing using our products. The quality and
	price of our products as compared to manual testing and as to our
	 competitors products will affect acceptance and sales of our
	products.                                                                                                                                                                                                                                                                                                                                                
|                                                                                                           
|Our products are subject to extensive government regulation in
	 the U.S. and abroad                        |  | The manufacturing, marketing and sale of our products are subject
	 to extensive government regulation in the U.S. and in other
	countries. The process of obtaining and maintaining regulatory
	approval can be lengthy, expensive and uncertain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                           
| in the U.S. our products are regulated
	 as medical devices by the FDA                                    |  | In the U.S., the FDA regulates, as medical devices, instruments,
	diagnostic tests and reagents that are traditionally manufactured
	 and commercially marketed as finished test kits or equipment.
	Some clinical labs, however, choose to purchase individual
	reagents intended for specific analyses and develop and prepare
	their own finished diagnostic tests. The FDA has recently
	promulgated a rule that regulates the reagents sold to clinical
	labs as analyte specific reagents. The rule restricts sales of
	these reagents to clinical labs certified under the Clinical
	Laboratory Improvement Amendments of 1988, or CLIA, as high
	complexity testing labs. We intend to market some diagnostic
	products as finished test kits or equipment and others as
	individual reagents; consequently, some of these products are
	regulated as analyte specific reagents.
|                                                                                                           
| the specific requirements that we must
	 follow are contained in the Federal Food, Drug, and Cosmetic Act |  | The Federal Food, Drug, and Cosmetic Act governs the design,
	testing, manufacture, safety, efficacy, labeling, storage, record
	 keeping, approval, advertising and promotion of our products.
	There are two principal FDA regulatory review paths for medical
	devices: the 510(k) pre-market notification process and the
	pre-market approval, or 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.                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                           
| Medical devices require FDA approval
	prior to being marketed in the U.S.                                 |  | Medical devices generally require FDA approval or clearance prior
	 to being marketed in the United States. The process of obtaining
	 FDA clearances or approvals necessary to market medical devices
	can be time-consuming, expensive and uncertain, and we cannot
	assure you that any clearance or approval we seek will be granted
	 or that FDA review will not involve delays which would harm our
	ability to market and sell our products.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                           
|                                                                                                            |  | Further, clearances or approvals may be conditional, in that they
	 may place substantial restrictions on the indications for which
	the product may be marketed or to whom it may be marketed. We can
	 also not assure you that the FDA will not require additional
	data, require us to conduct further clinical studies or require
	us to obtain a PMA causing us to incur further cost and delay.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

17



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|                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| although our IHC and ISH products have
	 not needed 510(k) approval to date, some of our future products
	may                           |  | With respect to automated IHC testing functions, our instruments
	have been categorized by the FDA as automated cell staining
	devices and have been exempted from the 510(k) notification
	process. To date, ISH tests have not received FDA approval or
	clearance and, therefore, use of the Discovery for ISH tests will
	 be restricted to research applications. New instrument products
	that we may introduce could require future 510(k) clearances.                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                         
| some of our antibody products may
	require PMA approval if we market them in a certain way                                              |  | Antibodies that we may wish to market with labeling indicating
	that they can be used in the diagnosis of particular diseases may
	 require PMA approval. In addition, the FDA has proposed that
	some of the antibody products that we may wish to market be
	subjected to a pre-filing certification process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                         
| if we do not comply with regulatory
	requirements, or we fail to get approval for our products, our
	results of operations would suffer |  | If we do not comply with applicable regulatory requirements, we
	could be subject to, among other consequences, fines,
	injunctions, civil penalties, suspensions or loss of regulatory
	approvals, recalls or seizures of products, operating
	restrictions and criminal prosecutions. In particular, the FDA
	enforces regulations prohibiting the marketing of products for
	non-indicated uses. Additional governmental regulations may be
	established that could prevent or delay regulatory approval of
	our products. Delays in, or failure to receive approval of,
	products we plan to introduce, loss of, or additional
	restrictions or limitations relating to, previously received
	approvals, other regulatory action against us or changes in the
	applicable regulatory climate could cause our results of
	operations to suffer.
|                                                                                                                                         
| we and our customers are inspected for
	 compliance with FDA regulations                                                                |  | We are also required to register as a medical device manufacturer
	 with the FDA and are inspected on a routine basis by the FDA for
	 compliance with their regulations. Our clinical lab customers
	are subject to CLIA, which is intended to ensure the quality and
	reliability of medical testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                         
| other laws and regulations may
	adversely affect our operations                                                                         |  | In addition to these regulations, we are subject to numerous
	federal, state and local laws and regulations relating to such
	matters as safe working conditions and environmental matters. We
	cannot assure you that these laws will not adversely affect our
	results of operations in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                         
|There are risks associated with the acquisition of businesses,
	 products or technologies                                                 |  | We may make additional acquisitions of complementary businesses,
	products or technologies in the future. Acquisitions of
	companies, divisions of companies, or products entail numerous
	risks, including:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                         
|                                                                                                                                          |  |   the potential inability successfully to
	integrate acquired operations and products or to realize
	anticipated synergies, economies of scale or other value;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                         
|                                                                                                                                          |  |   diversion of managements
	attention; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                         
|                                                                                                                                          |  |   loss of key employees of acquired
	operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                         
| acquisitions may not be profitable and
	 returns may not justify the price we paid                                                      |  | We cannot assure you that we will not incur problems in to any
	future acquisitions, or that any future acquisitions will
	increase our profitability. We can also not assure you that we
	will realize value from any acquisitions which would justify the
	amount paid. Any problems like these could cause our results of
	operations to suffer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

18



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|                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| we may issue more stock, borrow more
	money, incur one-time expenses or create goodwill                                                                       |  | Any future acquisitions may also result in the issuance of shares
	 of our equity securities, including our common stock. The
	issuance of additional shares of our common stock could affect
	the market price. We might also borrow more money, have large
	one-time write-offs and create goodwill or other intangible
	assets that could result in amortization expenses. These factors
	may cause our results of operations to suffer.                                                                                                                                                                                            
|                                                                                                                                                               
|We cannot assure you that we will be able to fund our future
	capital requirements through internal sources, our existing line
	of credit or from other sources |  | We anticipate that our existing capital resources and available
	borrowing capacity under our revolving credit line will be
	adequate to satisfy our capital requirements for the next
	12 months. Our future capital requirements will depend on
	many factors including:                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                               
|                                                                                                                                                                |  |   the extent to which our products gain
	market acceptance;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                               
|                                                                                                                                                                |  |   the mix of instruments placed through
	direct sales or through our performance evaluation period
	program;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                               
|                                                                                                                                                                |  |   progress of our product development
	programs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                               
|                                                                                                                                                                |  |   competing technological and market
	developments;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                               
|                                                                                                                                                                |  |   expansion of our sales and marketing
	activities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                               
|                                                                                                                                                                |  |   the cost of manufacturing scale-up
	activities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                               
|                                                                                                                                                                |  |   possible acquisitions of complementary
	businesses, products or technologies; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                               
|                                                                                                                                                                |  |   our ability to sustain profitability and
	 timing of regulatory approvals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                               
|                                                                                                                                                                |  | We may require additional capital resources and we cannot assure
	you that capital will be available to the extent required, on
	terms acceptable to us or at all. Future capital requirements
	could result in the issuance of our equity securities, which may
	affect the market price of our common stock and would dilute our
	existing stockholders.                                                                                                                                                                                                                                                                             
|                                                                                                                                                               
|We might be affected if a competitor develops and markets a
	new instrument that uses cheaper reagents                                                          |  | In the future, our ability to sell instruments and reagents might
	 be affected by the design of our systems, which require that
	customers buy their reagents from us. This would be especially
	true if and to the extent that competitors are successful in
	developing and introducing new IHC instruments, or if they offer
	reagent supply arrangements having pricing or other terms more
	favorable than those offered by us. Increased competition in
	reagent supply could also affect sales of reagents to batch
	processing instrument customers since those instruments do not
	require the use of our reagents.          
|                                                                                                                                                               
|We depend on key personnel with whom we have no employment
	contracts                                                                                           |  | We are dependent upon the retention of principal members of our
	management, Board of Directors, scientific, technical, marketing
	and sales staff and the recruitment of additional personnel. With
	 the exception of Bernard Questier, we do not have employment
	agreements with any of our executive officers and we do not
	maintain key person life insurance on any of our
	personnel. We compete with other companies, academic
	institutions, government entities and other organizations for
	qualified personnel. If we could not hire or retain qualified
	personnel it would cause our results of operations to suffer.

19



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|                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Our inability to protect our patents and other proprietary
	rights could adversely affect our business                                                                                          |  | Our inability to protect our patents and other proprietary rights
	 could adversely affect our business. We currently hold 32 United
	 States patents and numerous corresponding foreign patents and we
	 have filed additional United States and foreign patent
	applications. The expiration dates of our issued United States
	patents range from September  2005 to November 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                               
| we now own a number of U.S. patents
	and we have applied for others, but we cannot assure you that we
	will be issued new patents                                                             |  | We cannot assure you that our patent applications will result in
	patents being issued, or that any issued patents will provide
	adequate protection against competitive technologies or will be
	held valid if challenged. Others may independently develop
	products or processes similar to ours or design around or
	otherwise circumvent our patents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                               
| we cannot be sure that we were the
	first to create any of our inventions because of the way the U.S.
	 patent system works                                                                   |  | We cannot be certain that we were the first creator of inventions
	 covered by our patents or pending patent applications, or that
	we were the first to file patent applications for such
	inventions. Patent applications in the United States are
	maintained in secrecy until patents are issued and publication of
	 discoveries in scientific literature tends to lag behind actual
	discoveries by several months. Therefore, we cannot be certain
	that we were the first creator of inventions covered by our
	patents or pending patent applications or that we were the first
	to file patent applications for such inventions.                                                                                                                                                                                                                                           
|                                                                                                                                                                                               
| if we are using inventions that have
	been patented by others we would have to stop using the
	invention, obtain a license for it or redesign our product to get
	 around the relevant patent |  | We may have to participate in interference
	proceedings declared by the United States Patent and Trademark
	Office to determine the priority of inventions. This could result
	 in substantial costs for us. If any of the claims of third-party
	 patents that purport to interfere with one of our patents or
	patents pending are upheld as valid and enforceable, we could be
	prevented from using the subject matter claimed in those patents.
	 Alternatively, we would be required to obtain licenses from the
	patent owners of each of those patents or to redesign our
	products or processes to avoid infringement. We cannot assure you
	 that we would be able to obtain a license or, if we could, that
	the terms available would be acceptable to us or that we would be
	 successful in any attempt to redesign our products or processes
	to avoid infringement.
|                                                                                                                                                                                               
| if we cannot get a license from the
	owner of a patent and we cannot design around the patent we may
	be subject to litigation                                                                |  | If we do not obtain the necessary licenses, we could be subject
	to litigation and we could encounter delays in product
	introductions while we attempt to design around such patents.
	Alternatively, the development, manufacture or sale of such
	products could be prevented. Litigation would result in
	significant cost to us as well as diversion of management time.
	We cannot predict the outcome of this type of litigation. If
	litigation is decided against us, our results of operations would
	 suffer.                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                               
| we may not be able to protect our
	confidential and proprietary information                                                                                                                   |  | We also rely upon trade secret protection for our confidential
	and proprietary information. We cannot assure you that others
	will not independently develop proprietary information or
	techniques similar to ours, gain access to our trade secrets or
	disclose our technology, or that we can effectively protect our
	trade secrets. If we are forced to litigate to protect our trade
	secrets we would have to absorb significant costs as well as
	diversion of our management. If any of the litigation we
	undertake is unsuccessful and results in the disclosure of our
	trade secrets our results of operations would suffer.                                                                                                                                                                                                                                          

20



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|                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| we cannot assure you that
	confidentiality agreements with our employees, consultants and
	collaborators will serve their intended purpose                             |  | Our policy is to require our employees, consultants and
	significant scientific collaborators to sign confidentiality
	agreements when they begin work with us. These agreements
	generally provide that all confidential information developed or
	made known to the individual during the course of the
	individuals relationship with us is to be kept confidential
	 and not disclosed to third parties except in specific
	circumstances. Agreements with employees provide that all
	inventions conceived by the individual while working for us are
	our exclusive property. However, we cannot assure you that these
	agreements will not be broken or that they will provide
	meaningful protection or adequate remedies for unauthorized use
	or disclosure of our trade secrets.
|                                                                                                                                                                        
|Manufacturing Risks                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| as we increase production of our products
	 we may experience problems in production                                                                                   |  | We have only manufactured patient priority instruments and
	reagents for commercial sale since late 1991, and manufacturing
	of our Techmate 250 and Techmate 500 instruments is performed by
	third parties. As we continue to increase production of such
	instruments and reagents and develop and introduce new products,
	we may from time to time experience difficulties in
	manufacturing. We must continue to increase production volumes of
	 instruments and reagents in a cost-effective manner in order to
	be profitable.                                                                                                                                                                                                                                                     
|                                                                                                                                                                        
| we must stay in compliance with the
	rules and regulations of various agencies as we increase
	production                                                              |  | To increase production levels, we will need to scale-up our
	manufacturing facilities, increase our automated manufacturing
	capabilities and continue to comply with FDA Quality Systems
	Regulations and other standards prescribed by various federal,
	state and local regulatory agencies in the United States and
	other countries, including the ISO 9000 Series certifications.                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                        
| our operating results would suffer if
	we experienced either production or quality problems                                                                            |  | We cannot assure you that manufacturing and quality problems will
	 not arise as we increase our manufacturing operations or that
	such scale-up can be achieved in a timely manner or at a
	commercially reasonable cost. Manufacturing or quality problems
	or difficulties or delays in manufacturing scale-up would affect
	our operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                        
|We depend on key suppliers to provide some of the components
	and raw materials for our reagents; if that supply is interrupted
	 our results of operations could suffer |  | Our reagent products are formulated from both chemical and
	biological materials using proprietary technology as well as
	standard processing techniques. We currently purchase some
	components and raw materials, primarily antibodies, that we use
	to make our reagent products from single-source vendors. We
	cannot assure you that the materials or reagents we need will be
	available in commercial quantities or at acceptable prices. Any
	supply interruption or yield problems encountered in the use of
	materials from these vendors could have a material adverse effect
	 on our ability to manufacture our products until a new source of
	 supply is obtained. Finding and using alternative or additional
	suppliers could be time consuming and expensive.            
|                                                                                                                                                                        
|We rely on others to make custom parts for our instruments, if
	 these parts were not delivered on time or not at all our results
	 of operations would suffer           |  | A number of the components used to make our instruments are made
	on a custom basis to our specifications and are currently
	available from a limited number of sources. If the supply of
	materials or components from any of these vendors were delayed or
	 interrupted for any reason or if the quality or reliability of
	the materials or components is not adequate for use in our
	instruments, our ability to                                                                                                                                                                                                                                                                                                                                                                      

21



---



|                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                       |  | make instruments in a timely fashion could be impaired and our
	results of operations would suffer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                      
|Some of our manufacturing processes involve the use of
	environmentally hazardous materials                                                            |  | Certain of our manufacturing processes, primarily those involved
	in manufacturing certain of our reagent products, require the use
	 of potentially hazardous and carcinogenic chemicals. We are
	required to comply with applicable federal, state and local laws
	regarding the use, storage and disposal of these materials.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                      
| we could incur substantial liability
	if it is found that either we or the third party disposal service
	 we use has violated any environmental laws |  | We currently use third-party disposal services to remove and
	dispose of the hazardous materials we use. We could in the future
	 encounter claims from individuals, governmental authorities or
	other persons or entities in connection with exposure to or
	disposal or handling of these hazardous materials or violations
	of environmental laws by us or our contractors. We could also be
	required to incur additional expenditures for hazardous materials
	 management or environmental compliance. The costs associated
	with environmental claims, violations of environmental laws or
	regulations, hazardous materials management and compliance with
	environmental laws could cause our results of operations to
	suffer. 
|                                                                                                                                                      
|When we introduce a new product we may incur a charge for
	older instruments that are still in our inventory                                           |  | When we introduce a new instrument, we may incur charges for
	inventory obsolescence in connection with unsold inventory of
	older generations of products. To date, however, we have not
	incurred material charges or expenses associated with inventory
	obsolescence in connection with new product introductions.                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                      
|The price of our common stock may vary significantly in the
	short term due to:                                                                        |  | The securities of medical device and life science companies have
	historically shown a large amount of price volatility. As can be
	seen from the market information on page 24, our common stock has
	 shown this price volatility and it is likely that this
	volatility will occur in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                      
| large fluctuations in the stock market
	 in general                                                                                                  |  | The stock market has also experienced extreme price and volume
	fluctuations that have affected the market price of many
	companies. These fluctuations have often been unrelated to the
	operating performance of particular companies. Our common stock
	price may be affected by these fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                      
| fluctuations in our operating results,
	 new technology, government regulations, or recommendations by
	financial analysts                           |  | Other factors such as fluctuations in our operating results,
	announcements of technological innovations or new products by us
	or our competitors, FDA and other government regulation,
	developments with respect to patents or proprietary rights,
	public concern as to the safety of products developed by us or
	others, changes in financial analysts estimates or
	recommendations regarding us and general market conditions may
	have a material adverse effect on the market price of our common
	stock. Our results of operations may, in future periods, fall
	below the expectations of financial analysts and investors and,
	in such event, the market price of our common stock could be
	materially adversely affected.

Item 2.  PROPERTIES

Currently, our U.S. research laboratories, instrument and reagent
 manufacturing facilities and administrative offices are located
in approximately 90,000 square feet of leased space in Tucson,
Arizona and Gaithersburg, Maryland. The leases for these
facilities expire at various times between January 2001 and
November 2004, subject to renewal terms. We are presently in
 negotiations to purchase a piece of vacant land in Tucson where
we plan to build a 185,000 square foot mixed-use facility to
house all of our operations that are now resident in various
locations around Tucson. Construction of this facility is
expected to begin in 2000

22



---





Currently, our European operations are located in approximately
9,000 square feet of leased office and warehouse space in two
facilities in Strasbourg, France. One facility is approximately
6,500 square feet with a lease which expires on December 31,
 2000. The other facility is approximately 2,500 square feet with
 a lease which expires on June 1, 2000. We are also planning
 to purchase a dedicated facility to house all of our future
European operations. This facility will be purchased in June of
2000 and will be approximately 39,000 square feet in size. We
will not use all of this space immediately. Therefore, we plan to
 lease space to others until we need it.

Our Japanese operations are located in 3,000 square feet of
leased office space in Tokyo. The lease for this space expires on
 May 31, 2001. We intend to renew the lease on this facility
 if we can negotiate acceptable terms.

Once we complete the construction of the Tucson facility and the
purchase of the building in Strasbourg we believe that we will
have sufficient space for the foreseeable future.

Item 3.  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 (Tse
Action), against us and certain of our then current
directors and stockholders in the United States District Court
for the District of Delaware. The complaint alleges, among other
things, that we 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, which were subsequently repaid. Plaintiffs
seek substantial compensatory damages several times in excess of
the principal amount of their BioTek notes, as well as
substantial punitive damages, and 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 of 1997, we made a motion to transfer the action to the
district of Arizona, or alternately to the Central District of
California, which was denied by the court. On December 16,
1997, we filed a motion to dismiss the Amended Complaint. This
motion was partially accepted and partially denied by the Court.
On March 8, 1999, plaintiffs filed a Second Amended
Complaint. The Second Amended Complaint makes the same
allegations as the original and Amended Complaints, deletes the
claim made under North Carolina securities laws and the claim
made under California Blue Sky laws, and adds stockholders as
defendants. Based on the facts known to date, we believe that the
 claims are without merit and we intend 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, we
 believe we have meritorious defenses to the claims and that
resolution of this matter will not have a material adverse effect
 on our business, financial condition and results of operations;
however, the results of the proceedings are uncertain and there
can be no assurance to that effect.

In April 1999, a former BioTek noteholder filed an action,
Leung, et al. v. Jack W. Schuler, et al., No. 17089, against
 us and certain of our then current directors and stockholders in
 the Delaware State Chancery Court, New Castle County. The
complaint, brought individually and on behalf of a purported
class, makes virtually the same allegations made in the Tse
Action and seeks recovery under breach of contract and breach of
fiduciary duty theories. On May 6, 1999 we filed a motion to
dismiss the complaint. On February 29, 2000, the court
issued a memorandum opinion granting our motion and dismissing
the complaint in its entirety.

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
injunction relief in the United States District Court for the
District of Arizona. We believe our claims are meritorious and
that we will prevail, however, because the action is relatively
new, results of the proceedings are uncertain and there can be no
 assurance to that effect.

23



---



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,
enter alia, 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 $7,321,000. We
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.

In February 2000, we settled the lawsuit in the Northern
District of California filed by a former employee.

Item 4.  Submission of Matters to a Vote of
Security Holders.

We did not submit any matter for a vote by our shareholders,
through the solicitation of proxies or otherwise, during the
fourth quarter of the fiscal year covered by this report.

PART II



|        |                                                                        
|------- | -----------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
	Stockholder Matters.

Our common stock is listed on the Nasdaq National Market. The
closing price of our common stock on March 13, 2000 was
$51.50. The following table shows the high and low bid prices in
dollars per share for the last two years as reported by Nasdaq.
These prices may not be the prices that you would pay to purchase
 a share of our common stock during the periods shown. These
prices are what a securities dealer would pay for a share of our
common stock and do not include any commissions you might have to
 pay or any retail mark-ups or mark-downs.

|                                |  |     |       |      |  |   |       | 
|------------------------------- |  | --- | ----- | ---- |  | - | ----- | 
|                                |  | Low |       | High
|                                |  |     |       |     
|Year Ended December 31, 1998    |  |     |       |      |  |   |       | 
|                               
|                               
|                               
|                               
|First Quarter                   |  | $   | 15.25 |      |  | $ | 26.63 | 
|                               
|                               
|                               
|                               
|Second Quarter                  |  | $   | 23.13 |      |  | $ | 28.38 | 
|                               
|                               
|                               
|                               
|Third Quarter                   |  | $   | 13.63 |      |  | $ | 29.63 | 
|                               
|                               
|                               
|                               
|Fourth Quarter                  |  | $   | 14.13 |      |  | $ | 23.63 | 
|                               
|                               
|                               
|                               
|Year Ended December 31, 1999    |  |     |       |      |  |   |       | 
|                               
|                               
|                               
|                               
|First Quarter                   |  | $   | 16.75 |      |  | $ | 23.88 | 
|                               
|                               
|                               
|                               
|Second Quarter                  |  | $   | 17.13 |      |  | $ | 28.63 | 
|                               
|                               
|                               
|                               
|Third Quarter                   |  | $   | 13.75 |      |  | $ | 22.25 | 
|                               
|                               
|                               
|                               
|Fourth Quarter                  |  | $   | 15.69 |      |  | $ | 34.75 | 
|                               
|                               
|                               
|                               
|Year Ended December 31, 2000    |  |     |       |      |  |   |       | 
|                               
|                               
|                               
|                               
|First Quarter to March 13, 2000 |  | $   | 22.50 |      |  | $ | 66.13 | 

As of December 31, 1999, there were approximately 291
beneficial holders of our common stock.

Dividend Policy

Holders of our common stock are entitled to receive dividends
only when declared by our Board of Directors. Our line of credit
with Bank of America forbids us from declaring dividends on any
of our equity securities. To date dividends have never been
declared or paid and we do not plan to make any dividend payments
 in the future. Instead we will reinvest in the expansion and
development of our business. If the Board of Directors decides to
 declare a dividend in the future, the decision will be based on
our earnings, financial condition, cash requirements, and any
other factors they deem relevant.

24



---



Item 6.Selected Financial Data

Selected Consolidated Financial Data

|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ------- | ----- | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                  |                                                                |                                      
|                                                  |                                                                | Year Ended December 31,              
|                                                  |                                                                |                                      
|                                                  |                                                                | 1995                                  |         | 1996  |        | 1997 |         | 1998   |        | 1999
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |     
|                                                  |                                                                |                                      
|                                                  |                                                                | (in thousands, except per share data)
|                                                 
|                                                 
|                                                 
|                                                 
|Statement of Operations Data:(1)                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Sales:                                            |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Reagents and other                                             |                                       | $       | 5,969 |        |      | $       | 15,538 |        |      | $       | 22,905 |        |   | $       | 31,967 |        |   | $       | 45,340 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Instruments                                                    |                                       |         | 4,644 |        |      |         | 8,591  |        |      |         | 9,248  |        |   |         | 15,737 |        |   |         | 24,069 |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                  |                                                                | Total net sales                       |         |       | 10,613 |      |         |        | 24,129 |      |         |        | 32,153 |   |         |        | 47,704 |   |         |        | 69,409 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Cost of goods sold                                |                                                                |                                       | 4,282   |       |        |      | 10,632  |        |        |      | 11,138  |        |        |   | 14,542  |        |        |   | 21,218  |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Gross profit                                      |                                                                |                                       | 6,331   |       |        |      | 13,497  |        |        |      | 21,015  |        |        |   | 33,162  |        |        |   | 48,191  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Operating expenses:                               |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Selling, general and administrative                            |                                       |         | 7,435 |        |      |         | 11,206 |        |      |         | 16,953 |        |   |         | 23,805 |        |   |         | 32,381 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Research and development                                       |                                       |         | 2,239 |        |      |         | 2,749  |        |      |         | 3,050  |        |   |         | 5,057  |        |   |         | 7,078  |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Nonrecurring expenses                                          |                                       |         |      |        |      |         | 10,262 |        |      |         | 1,656  |        |   |         | 3,160  |        |   |         |       |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Amortization of acquisition costs                              |                                       |         |      |        |      |         | 424    |        |      |         | 509    |        |   |         | 599    |        |   |         | 1,051  |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Income (loss) from operations                     |                                                                |                                       | (3,343  | )     |        |      | (11,144 | )      |        |      | (1,153  | )      |        |   | 541     |        |        |   | 7,681   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Other income (expense)                            |                                                                |                                       | 74      |       |        |      | (137    | )      |        |      | 781     |        |        |   | 1,089   |        |        |   | (370    | )     
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Income (loss) before income taxes                 |                                                                |                                       | (3,269  | )     |        |      | (11,281 | )      |        |      | (372    | )      |        |   | 1,630   |        |        |   | 7,311   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Benefit from income taxes                         |                                                                |                                       |        |       |        |      |        |        |        |      |        |        |        |   |        |        |        |   | 5,500   |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net income (loss)                                 |                                                                | $                                     | (3,269  | )     |        | $    | (11,281 | )      |        | $    | (372    | )      |        | $ | 1,630   |        |        | $ | 12,811  |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Per Share Data:                                   |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net income (loss) per share, basic                             |                                       | $       | (.43  | )      |      | $       | (1.22  | )      |      | $       | (.03   | )      |   | $       | .12    |        |   | $       | .95    |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                  | Net income (loss) per share, diluted                           |                                       | $       | (.43  | )      |      | $       | (1.22  | )      |      | $       | (.03   | )      |   | $       | .11    |        |   | $       | .88    |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                  | Shares used in computing net income (loss) per share, basic    |                                       |         | 7,571 |        |      |         | 9,243  |        |      |         | 12,778 |        |   |         | 13,320 |        |   |         | 13,478 |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                  | Shares used in computing net income (loss) per share,
	diluted |                                       |         | 7,571 |        |      |         | 9,243  |        |      |         | 12,778 |        |   |         | 14,627 |        |   |         | 14,636 |       
|                                                  |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|Balance Sheet Data:                               |                                                                |                                       |         |       |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Cash, cash equivalents and short-term investments |                                                                | $                                     | 1,103   |       |        | $    | 11,067  |        |        | $    | 18,902  |        |        | $ | 2,424   |        |        | $ | 1,787   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term debt and redeemable preferred stock     |                                                                |                                       | 35,180  |       |        |      | 12,500  |        |        |      | 471     |        |        |   | 1,907   |        |        |   | 2,044   |       
|                                                 
|                                                 
|                                                 
|                                                 
|Working capital                                   |                                                                |                                       | 2,765   |       |        |      | 15,888  |        |        |      | 28,524  |        |        |   | 22,277  |        |        |   | 28,408  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Total assets                                      |                                                                |                                       | 7,378   |       |        |      | 32,410  |        |        |      | 48,352  |        |        |   | 56,280  |        |        |   | 73,161  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Accumulated deficit                               |                                                                |                                       | (29,980 | )     |        |      | (33,410 | )      |        |      | (33,782 | )      |        |   | (32,152 | )      |        |   | (19,341 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Total stockholders equity (deficit)              |                                                                |                                       | (29,856 | )     |        |      | 15,270  |        |        |      | 42,403  |        |        |   | 45,784  |        |        |   | 60,500  |       




|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Notes 12, 13 and 14 to Consolidated Financial Statements in
	Form 10-K attached for information regarding the
	acquisitions of BioTek Solutions, Inc., Biotechnology Tools, Inc.
	 and certain assets of Oncor, Inc.

25



---



The Following table contains summary unaudited quarterly
consolidated statements of operations for the four quarters ended
 December 31, 1999 and the four quarters ended
December 31, 1998. We have prepared the quarterly
consolidated statements of operations data on the same basis as
the Consolidated Statements of Operations beginning on
page F-3. Our results of operations have varied and may
continue to fluctuate significantly from quarter to quarter.
Results of operations in any period should not be considered
indicative of the results to be expected for any future period.

Summary Quarterly

Condensed Consolidated Financial Data


|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |        |        | 
|----------------------------------------- | ------------------------------------------------------ | ------------------------------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                          |                                                        |                                      
|                                          |                                                        | 1999                                 
|                                          |                                                        |                                      
|                                          |                                                        | First                                 |        | Second  |        | Third   |        | Fourth 
|                                          |                                                        | Quarter                               |        | Quarter |        | Quarter |        | Quarter
|                                          |                                                        |                                       |        |         |        |         |        |        
|                                          |                                                        |                                      
|                                          |                                                        | (in thousands, except per share data)
|                                         
|                                         
|                                         
|                                         
|Statement of Operations Data:             |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                         
|                                         
|                                         
|                                         
|Sales:                                    |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                         
|                                         
|                                         
|                                         
|                                          | Reagents and other                                     |                                       | $      | 10,512  |        |         | $      | 11,589  |        |   | $      | 11,679 |        |   | $      | 11,560 |       
|                                         
|                                         
|                                         
|                                         
|                                          | Instruments                                            |                                       |        | 5,120   |        |         |        | 4,726   |        |   |        | 4,733  |        |   |        | 9,490  |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                          |                                                        | Total net sales                       |        |         | 15,632 |         |        |         | 16,315 |   |        |        | 16,412 |   |        |        | 21,050 | 
|                                         
|                                         
|                                         
|                                         
|Cost of goods sold                        |                                                        |                                       | 4,988  |         |        |         | 4,765  |         |        |   | 5,148  |        |        |   | 6,317  |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Gross profit                              |                                                        |                                       | 10,644 |         |        |         | 11,550 |         |        |   | 11,264 |        |        |   | 14,733 |       
|                                         
|                                         
|                                         
|                                         
|Operating expenses:                       |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                         
|                                         
|                                         
|                                         
|                                          | Selling, general and administrative                    |                                       |        | 7,399   |        |         |        | 7,875   |        |   |        | 7,829  |        |   |        | 9,278  |       
|                                         
|                                         
|                                         
|                                         
|                                          | Research and development                               |                                       |        | 1,629   |        |         |        | 1,908   |        |   |        | 1,696  |        |   |        | 1,845  |       
|                                         
|                                         
|                                         
|                                         
|                                          | Amortization of acquisition costs                      |                                       |        | 253     |        |         |        | 258     |        |   |        | 256    |        |   |        | 284    |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Income from operations                    |                                                        |                                       | 1,363  |         |        |         | 1,509  |         |        |   | 1,483  |        |        |   | 3,326  |       
|                                         
|                                         
|                                         
|                                         
|Other income (expense)                    |                                                        |                                       | 24     |         |        |         | (22    | )       |        |   | 44     |        |        |   | (416   | )     
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Income before income taxes                |                                                        |                                       | 1,387  |         |        |         | 1,487  |         |        |   | 1,527  |        |        |   | 2,910  |       
|                                         
|                                         
|                                         
|                                         
|Benefit from (provision for) income taxes |                                                        |                                       | (138   | )       |        |         | 138    |         |        |   |       |        |        |   | 5,500  |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Net income                                |                                                        | $                                     | 1,249  |         |        | $       | 1,625  |         |        | $ | 1,527  |        |        | $ | 8,410  |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Per Share Data:                           |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                         
|                                         
|                                         
|                                         
|                                          | Net income per share, basic                            |                                       | $      | .09     |        |         | $      | .12     |        |   | $      | .11    |        |   | $      | .62    |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                          | Net income per share, diluted                          |                                       | $      | .09     |        |         | $      | .11     |        |   | $      | .11    |        |   | $      | .56    |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                          | Shares used in computing net income per share, basic   |                                       |        | 13,404  |        |         |        | 13,462  |        |   |        | 13,520 |        |   |        | 13,551 |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                          | Shares used in computing net income per share, diluted |                                       |        | 14,578  |        |         |        | 14,766  |        |   |        | 14,465 |        |   |        | 14,908 |       
|                                          |                                                        |                                       |        |         |        |         |        |         |        |   |        |        |        |   |        |       

26



---



|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |        |        | 
|----------------------------- | ------------------------------------------------------------- | ------------------------------------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | - | ----- | ------ | ------ | - | ------ | ------ | ------ | 
|                              |                                                               |                                      
|                              |                                                               | 1998                                 
|                              |                                                               |                                      
|                              |                                                               | First                                 |       | Second  |        | Third   |       | Fourth 
|                              |                                                               | Quarter                               |       | Quarter |        | Quarter |       | Quarter
|                              |                                                               |                                       |       |         |        |         |       |        
|                              |                                                               |                                      
|                              |                                                               | (in thousands, except per share data)
|                             
|                             
|                             
|                             
|Statement of Operations Data: |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                             
|                             
|                             
|                             
|Sales:                        |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                             
|                             
|                             
|                             
|                              | Reagents and other                                            |                                       | $     | 6,760   |        |         | $     | 7,755   |        |   | $     | 8,061  |        |   | $      | 9,391  |       
|                             
|                             
|                             
|                             
|                              | Instruments                                                   |                                       |       | 3,595   |        |         |       | 3,827   |        |   |       | 3,047  |        |   |        | 5,268  |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                              |                                                               | Total net sales                       |       |         | 10,355 |         |       |         | 11,582 |   |       |        | 11,108 |   |        |        | 14,659 | 
|                             
|                             
|                             
|                             
|Cost of goods sold            |                                                               |                                       | 3,453 |         |        |         | 3,477 |         |        |   | 3,303 |        |        |   | 4,309  |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|Gross profit                  |                                                               |                                       | 6,902 |         |        |         | 8,105 |         |        |   | 7,805 |        |        |   | 10,350 |       
|                             
|                             
|                             
|                             
|Operating expenses:           |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                             
|                             
|                             
|                             
|                              | Selling, general and administrative                           |                                       |       | 4,974   |        |         |       | 5,547   |        |   |       | 5,699  |        |   |        | 7,585  |       
|                             
|                             
|                             
|                             
|                              | Research and development                                      |                                       |       | 1,200   |        |         |       | 1,391   |        |   |       | 1,435  |        |   |        | 1,031  |       
|                             
|                             
|                             
|                             
|                              | Nonrecurring expenses                                         |                                       |       |        |        |         |       |        |        |   |       |       |        |   |        | 3,160  | (1)   
|                             
|                             
|                             
|                             
|                              | Amortization of acquisition costs                             |                                       |       | 127     |        |         |       | 127     |        |   |       | 128    |        |   |        | 217    |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|Income (loss) from operations |                                                               |                                       | 601   |         |        |         | 1,040 |         |        |   | 543   |        |        |   | (1,643 | )     
|                             
|                             
|                             
|                             
|Other income                  |                                                               |                                       | 210   |         |        |         | 262   |         |        |   | 594   |        |        |   | 23     |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|Net income (loss)             |                                                               | $                                     | 811   |         |        | $       | 1,302 |         |        | $ | 1,137 |        |        | $ | (1,620 | )     
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|Per Share Data:               |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                             
|                             
|                             
|                             
|                              | Net income (loss) per share, basic                            |                                       | $     | .06     |        |         | $     | .10     |        |   | $     | .09    |        |   | $      | (.12   | )     
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                              | Net income (loss) per share, diluted                          |                                       | $     | .06     |        |         | $     | .09     |        |   | $     | .08    |        |   | $      | (.12   | )     
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                              | Shares used in computing net income (loss) per share, basis   |                                       |       | 13,255  |        |         |       | 13,298  |        |   |       | 13,351 |        |   |        | 13,375 |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       
|                              | Shares used in computing net income (loss) per share, diluted |                                       |       | 14,557  |        |         |       | 14,847  |        |   |       | 14,742 |        |   |        | 13,375 |       
|                              |                                                               |                                       |       |         |        |         |       |         |        |   |       |        |        |   |        |       




|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The nonrecurring expenses in the fourth quarter of 1998 related
	to the write-off of in-process research and development costs
	associated with the acquisition of certain assets of Oncor
	($2,900) and the costs of terminating a U.S.-based distributor
	($260).

27



---





|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations.

Introduction

In Managements Discussion and Analysis we explain our
general financial condition and the results of operations
including:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | what factors affect our business,                                                                                        
|
| |  | what our earnings and costs were in 1999 and 1998,                                                                       
|
| |  | why those earnings and costs were different from the year before,                                                        
|
| |  | where our earnings came from,                                                                                            
|
| |  | how all of this affects our overall financial condition, and                                                             
|
| |  | what our research and development expenditures were in 1997
	through 1999 and what we expect to spend in the near future.

Forward-Looking Statements

Some statements contained in this Annual Report, including,
without limitation, statements containing the words
believes, anticipates,
estimates, expects, and words of similar
import, constitute forward-looking statements. You
should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those
 anticipated in these forward-looking statements for many
reasons, including the risks faced by us described in the
Cautionary Factors section beginning on page 14, among
others, and those included in other documents we file with the
SEC. Our revenue growth and our net earnings in the first three
quarters of 2000 may be less than corresponding quarters in the
previous year due to a revamping of our sales force in
January 2000 and the expected launch of new products and
improved products in the second half of the year. Although
we expect revenue and pretax income for the full year to exceed
that of last year, we expect net income for 2000 to be lower than
 1999 due to the tax gain we recognized in 1999.

Results of Operations

Comparison of 1999 and 1998

Net sales increased to $69.4 million in 1999 from $47.7 million
in 1998. This 45% increase was primarily a result of a full
years product availability of our special stains instrument
 system and tissue processor line (both introduced commercially
in late 1998), successful entrance into the genomics market with
the launch of the Discovery ISH system in late 1999 and strong
performance from our core IHC business. Sales in 1999 grew 29% in
 North America and 152% internationally from 1998. The strong
growth in North America is primarily being driven by market
demand as well as the overall economic health within this region.
 The growth in international sales is attributed to strong
commercial operations driving a clear leadership position.

Gross margin in 1999 of 69% was consistent with 1998 performance.
 Improvement in the overall margin structure of our instruments
and reagents was offset by a slight mix shift towards instrument
sales in 1999 as a percent of total revenue (35%) versus 1998
(33%).

Research and development expenses increased by $2 million in 1999
 compared with 1998 expenditures, to 10.2% of net sales from
10.6% in 1998. The spending increase reflects our ongoing
research and development efforts in a variety of areas such as
the introduction of our Discovery ISH instrument, expansion of
our special stains reagent menu and in situ hybridization
prognostic markers. For the near future, research and development
 expenses are expected to increase at a rate similar to or
slightly greater than the sales growth rate, as we continue to
invest in technology to address potential market opportunities.

28



---



Selling, general and administrative expenses increased by $8.6
million in fiscal 1999 over fiscal 1998, but decreased as a
percent of net sales to 47% in 1999 from 50% in fiscal 1998. The
spending increase is due principally to the growth in the size of
 our direct sales force and its commissions, and the expansion of
 our geographic distribution channels. The increase also reflects
 our efforts to invest in key areas such as product strategy and
customer support coverage in order to be positioned to take
advantage of future market opportunities. We anticipate selling,
general and administrative costs increasing at a rate similar to
or slightly less than our sales growth rate in the near future.

Amortization expense increased to $1.1 million in 1999 from $0.6
million in 1998, reflecting a full years amortization of
intangibles acquired in the fourth quarter of 1998.

Interest and other income, net, was an expenditure of $0.4
million in 1999 versus income of $1.1 million in 1998. Interest
income in 1999 was reduced as a result of decreased investment
balances attributed to the acquisitions of the assets of Oncor,
Inc. and the stock of Biotechnology Tools, Inc. in late 1998. The
 Company also settled some litigation in 1999.

In the fourth quarter of 1999, we deemed it more likely
than not that our deferred tax assets would be realized in
the future. This judgement reflects the fact that 1999 marked the
 third consecutive year of profitable North American operations,
and the fact we expect to operate profitably on a worldwide basis
 in 2000. This resulted in an income tax benefit of
$5.5 million.

As a result of the above, our net income increased to a record
$12.8 million, a 686% improvement over 1998 results.

Comparison of 1998 and 1997

Net sales for the year ended December 31, 1998 increased by
48% to $47.7 million from $32.2 million for the year ended
December 31, 1997. Instrument sales increased over the prior
 year by 70% and reagent sales increased over the prior year by
40%. Instrument sales growth in 1998 was attributed to a full
years product availability of our NexES IHC instrument
introduced late in 1997, sales of the NexES special stains
instrument introduced late in 1998, and sales of BTTI instruments
 acquired late in 1998. Reagent and other sales in 1998 increased
 due to new instruments placed during the year, increased sales
to existing customers, and service revenues from the growing
installed base coming off warranty.

Gross profit for the year ended December 31, 1998 increased
to $33.2 million from $21.0 million in the year ended
December 31, 1997. Gross margin was 70% in 1998 as compared
to 65% in 1997. The increase in gross margin from 1997 to 1998
was primarily due to the introduction of the NexES IHC
instrument, which has a lower manufacturing cost than the ES and
due to higher margins on reagents from the implementation of
aggressive cost reduction programs.

Research and development expense in the year ended
December 31, 1998 increased to $5.1 million from $3.1
million in the year ended December 31, 1997. Research and
development expenses for 1998 related primarily to the
development of new reagents and instruments, including the
Special Stains instrument and new prognostic markers. Research
and development expense in 1997 related primarily to the
development of new reagents and instruments, including the NexES
IHC instrument, the Gen II instrument and development of
additional primary antibodies.

Selling, general and administrative (SG&A) expense in the
year ended December 31, 1998 increased to $23.8 million from
 $17.0 million in the year ended December 31, 1997. SG&A
 expense as a percentage of net sales was 50% in 1998, which was
a decrease from 53% of net sales in 1997. The fluctuation in
SG&A expense from period to period reflects the growth of
Ventanas internal sales and marketing organization to
implement its market expansion strategy and a corresponding
increase in infrastructure expenses to support a larger business
base and ongoing clinical practice standardization programs. The
growth in sales and marketing expense is the result of our
decision to service the market through our own sales and
marketing staff and the expenses necessary to support our growth.
 The increase in administrative expense is associated with our
regulatory strategy, costs associated with supporting an
expanding business

29



---





Liquidity and Capital Resources

Cash and equivalents were $1.8 million at December 31, 1999,
 a decrease of $0.6 million from December 31, 1998. The
decrease is primarily a result of our investment in the growth of
 the business, including working capital, property and equipment,
 partially offset by cash generated from operations, financing
activities and the exercise of employee stock options.

Accounts receivable increased 26% during 1999. Days sales
outstanding in receivables improved to 90 days as of
December 31, 1999, from 104 days as of
December 31, 1998. Inventories increased 22% between 1999
and 1998, which reflects new product introductions, continued
growth in our distribution system, and the need to maintain
shorter lead times on certain products. Inventory management
remains an area of focus as we balance the need to maintain
strategic inventory levels to ensure competitive lead times.
Accounts payable increased by 14% during 1999 primarily due to
increasing levels of raw material purchases. At December 31,
 1999, we had a line of credit totaling $10 million. There were
no outstanding borrowings under this agreement as of
December 31, 1999 (see Note 6 to our consolidated
financial statements). We believe that our current cash and
equivalents, line of credit, and cash generated from operations
will satisfy our expected working capital, capital expenditure,
and investment requirements through fiscal 2000.

Foreign Currency Risk

We do not currently hedge against foreign currency fluctuations,
because we do not believe that we run a serious risk of
experiencing permanent impairment to any material assets
denominated in foreign currency, but we intend to re-evaluate
this situation from time to time. As a result, to the extent
local currency revenues and expenses in our foreign subsidiaries
are translated into U.S. dollars at differing rates over time, we
 may experience fluctuations in our operating results. We conduct
 a relatively small but growing portion of our business in the
Euro and Japanese Yen.

Effective January 1999 we changed the functional currency of
 our foreign subsidiaries from the local currency to the
U.S. dollar (see F-7).

Year 2000 Disclosure

We experienced no significant disruptions in mission critical
information technology and non-information technology systems
with respect to the Year 2000 date change. We are not aware of
any material problems resulting from Year 2000 issues, either
with our products, our internal systems or the products and
services of third parties. We will continue to monitor our
mission critical computer applications and those of our suppliers
 and vendors throughout the year 2000 to ensure any latent risks
that may arise are addressed promptly.

Item 7A.  Quantitative and Qualitative
Disclosures about Market Risk.

Our interest rate risk is very limited, as we have only a minimal
 amount of fixed-rate (primarily 7%) long-term debt. Future cash
outflows relating to our long-term debt follow ($000):

|     |  |   |  |   |     | 
|---- |  | - |  | - | --- | 
|2000 |  |  |  | $ | 555 | 
|2001 |  |  |  | $ | 700 | 
|2002 |  |  |  | $ | 687 | 
|2003 |  |  |  | $ | 547 | 
|2004 |  |  |  | $ | 110 | 

30



---



Although we do experience some foreign currency risk due to our
overseas operations, we have not entered into any foreign
currency contracts to limit the exposure that we may have. You
can find more information about this above under the heading
Foreign Currency Risk.

Item 8.  Financial Statement and Supplementary
Data

The Independent Auditors Report, Consolidated Financial
Statements and Notes to Consolidated Financial Statements begin
on Page F-1.



|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With Accountants on Accounting
	 and Financial Disclosure.

Not applicable.

PART III

Item 10.  Directors and Executive Officers

Pursuant to our Certificate of Incorporation, as amended, our
Board of Directors currently consists of eight persons, divided
into three classes serving staggered terms of three years.
Currently there are two Class I directors, three
Class II directors and three Class III directors. The
terms of the Class I directors will expire at the 2000
Annual Meeting of Shareholders. The terms of the Class II
and Class III directors will expire in 2001 and 2002
respectively.



|                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jack W. Schuler 
	 (Age 59) 
	 Class III Director 
	 Member of the Compensation and Nominating Committees |  | Mr. Schuler has served as a director of Ventana since
	April 1991 and as Chairman of the Board of Directors since
	November 1995. Mr. Schuler has been Chairman of the
	Board of Directors of Stericycle, Inc., a specialized medical
	waste management company, since March  1990.
	Mr. Schuler is also a partner in Crabtree Partners, a
	Chicago based venture capital firm. Prior to joining Stericycle,
	Mr. Schuler held various executive positions at Abbott from
	December 1972 through August 1989, serving most
	recently as President and Chief Operating Officer. He is
	currently a director of Medtronic, Inc., Somatogen, Inc. and
	Chiron Corporation. Mr. Schuler received a B.S. in
	mechanical engineering from Tufts University and an M.B.A. from
	Stanford University.
|                                                                                                         
|John Patience 
	 (Age 52) 
	 Class III Director 
	 Member of the Audit Committee                          |  | Mr. Patience has served as a director of Ventana since
	July 1989 and as Vice Chairman since January 1999.
	Mr. Patience was a co-founder and served as a General
	Partner of Marquette Venture Partners, a venture capital
	investment firm, from January 1988 until March 1995.
	Since April 1995, Mr. Patience has been a partner in
	Crabtree Partners, a Chicago-based venture capital firm.
	Mr. Patience was previously a partner in the consulting firm
	 of McKinsey & Co., specializing in health care. He is
	currently a director of TRO Learning, Inc. and Stericycle, Inc.
	Mr. Patience received a B.A. in liberal arts and an L.L.B.
	from the University of Sydney, Australia and an M.B.A. from the
	University of Pennsylvania Wharton School of Business.                
|                                                                                                         
|Christopher M. Gleeson 
	 (Age 50) 
	 Class II Director                                                   |  | Mr. Gleeson became President and Chief Executive Officer and
	 a director in May 1999. He joined Ventana in
	March 1999 as Executive Vice President and Chief Operating
	Officer. Prior to joining the Company, Mr.  Gleeson was
	Senior Vice President of Bayer Diagnostics and General Manager of
	 the U.S. Commercial Operations for Chiron Diagnostics, and prior
	 to that, the founder, owner and Managing Director of Australian
	Diagnostics Corporation, a leading diagnostics distributor in
	Australia. He is a director of Pharmanetics, Inc. Mr. 
	Gleeson attended Monash University in Melbourne, Australia.                                                                                                                                                                 

31



---





|                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Kendall B. Hendrick 
	 (Age 40)      |  | Mr. Hendrick has served as Vice President and General
	Manager of Research & Development since May  1999.
	He joined Ventana as Vice President of Engineering in
	August 1998. From April 1990 to August 1998, Mr. 
	Hendrick held various product development management positions
	with Abbott Laboratories, Diagnostics Division, most recently as
	the Director of the Architect Research &
	Development Program. Mr. Hendrick holds a B.S. in mechanical
	 engineering from Virginia Polytechnic Institute.                                                                                                                        
|                                    
|Kirk Kimler 
	 (Age 37)              |  | Mr. Kimler joined Ventana as Vice President of North
	American Commercial Operations in October 1999. From
	August 1988 to October 1999, Mr. Kimler held various
	sales and marketing positions with Abbott Laboratories,
	Diagnostics Division to include Marketing Manager, Architect and
	South East Commercial Operations. Prior to Abbott,
	Mr. Kimler was an officer in the United States Army.
	Mr. Kimler holds a B.A. in economics from the University of
	Notre Dame and an M.B.A. from the University of Chicago.                                                                                                             
|                                    
|Jay Meridew 
	 (Age 41)              |  | Mr. Meridew joined Ventana as Vice President of Finance in
	June 1999. From 1986 until joining Ventana, Mr. Meridew
	 held various financial management positions with McCulloch
	Corporation, most recently as Vice President and Chief Financial
	Officer. Mr. Meridew is a certified public accountant and
	has a B.A. in accounting from California State University at
	Fullerton.                                                                                                                                                                                                                                                  
|                                    
|Johnny D. Powers, Ph.D 
	 (Age 38)   |  | Dr. Powers has served as Vice President and General Manager
	of Worldwide Marketing since May 1999. He joined Ventana as
	Vice President of Operations in November 1996. From
	June 1990 until joining Ventana, Dr. Powers held
	various management positions with Organon Teknika Corporation, a
	medical diagnostic company, serving most recently as Director of
	Manufacturing Technologies. Dr.  Powers holds a Ph.D. in
	chemical engineering from North Carolina State University, an
	M.S. in chemical engineering from Clemson University, an M.B.A.
	from Duke University and a B.A. in Chemistry from Wake Forest
	University.
|                                    
|Bernard O.C. Questier 
	 (Age 46)    |  | Mr. Questier has served as Vice President and General
	Manager of Europe, Middle East & Africa since May  1999.
	 He joined the Company as Vice President of European Operations
	in February 1996. From October 1990 until joining
	Ventana in October 1995, Mr. Questier held a number of
	management positions in E.I. DuPont de  Nemours, most
	recently as Business Manager for NEN Life Science Products in
	Europe. Mr. Questier received a degree in chemical
	engineering from the Technical Institute in Oostende, Belgium.                                                                                                    
|                                    
|Tamaki Tateiwa 
	 (Age 60)           |  | Mr. Tateiwa has served as President of Ventanas wholly
	 owned subsidiary in Japan. Ventana Medical Systems
	Japan K.K. in Tokyo, since August 1997. From 1977 to
	1997, Mr. Tateiwa held various management positions with
	Dainabot K.K. Mr. Tateiwa received a B.S. in engineering
	from the University of Electro-Communications in Japan.                                                                                                                                                                                                                                                                                          
|                                    
|Stephen A. Tillson, Ph.D 
	 (Age 59) |  | Dr. Tillson has served as Vice President of Scientific
	Affairs and Quality Assurance since August  1995. From the
	time of his joining Ventana in May 1992 until
	July 1995, Dr. Tillson served as Director of Scientific
	 Affairs and Quality Assurance. From January  1990 to May
	1992, Dr. Tillson served as a principal of Ticon Company
	Consulting. He has 25 years experience in the diagnostic and
	 pharmaceutical industry. Dr. Tillson holds a Ph.D. from                                                                                                                                                                  

32



---



|                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                         |  | Purdue University and received a B.S. from California State
	Polytechnic University and an M.B.A. from St. Marys College
	 of California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                        
|Rex J. Bates 
	 (Age 76)                                                                                 |  | Mr. Bates has served as a director of Ventana since April of
	 1996. From August 1991 to May 1995, Mr. Bates
	served on the Board of Directors of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                        
|Class II Director 
	 Member of the Audit Committee                                                       |  | Twentieth Century Industries and was a member of its compensation
	 committee. Prior to Twentieth Century Industries, Mr. Bates
	 served as the Vice-Chairman of the Board of Directors of the
	State Farm Mutual Automobile Insurance Company. Mr. Bates
	also served as State Farms Chief Investment Officer. In
	March of 1991, Mr. Bates retired from State Farm. Prior to
	Mr. Bates employment with State Farm, he was a partner
	 in the investment firm of Stein, Roe & Farnham in
	Chicago. Mr. Bates received a B.S. and an M.S. from the
	University of Chicago.                                                                                                                                                                                                                                                                                                     
|                                                                                                        
|Edward M. Giles 
	 (Age 64) 
	 Class II Director 
	 Member of the Compensation and Nominating Committees |  | Mr. Giles has served as a director of Ventana since
	September 1992. Mr. Giles has served as Chairman of The
	 Vertical Group, Inc., a venture capital investment firm, since
	January 1989. Mr. Giles was previously President of
	F. Eberstadt & Co., Inc., a securities firm, and
	Vice Chairman of Peter B. Cannell & Co., Inc., an
	investment management firm. He is currently a director of
	McWhorter Technologies, Inc. and Synthetech, Inc. Mr. Giles
	received a B.S.Ch.E. in chemical engineering from Princeton
	University and an M.S. in industrial management from the
	Massachusetts Institute of Technology.                                                                                                                                                                                                                                                    
|                                                                                                        
|Thomas M. Grogan, M.D 
	 (Age 54) 
	 Class III Director 
	 Member of the Audit 
	 Committee              |  | Dr. Grogan is a founder, a director and Chairman Emeritus of
	 Ventana. He has served as a director since the founding of the
	Company in June 1985 and as Chairman of the Board of Ventana from
	 June 1985 to November 1995. He is currently a professor of
	pathology at the University of Arizona, College of Medicine,
	where he has taught since 1979. He received a B.A. in biology
	from the University of Virginia and an M.D. from George
	Washington School of Medicine. Dr. Grogan completed a
	post-doctorate fellowship at Stanford University.                                                                                                                                                                                                                                                                                                                     
|                                                                                                        
|Henry T. Pietraszek 
	 (Age 53) 
	 Class I Director                                                      |  | Mr. Pietraszek has served as a director of Ventana since
	March 1997. From the time of him joining Ventana in
	March 1997 until May 1999, Mr. Pietraszek served
	as President and Chief Executive Officer of Ventana. Prior to
	joining the Company, Mr. Pietraszek served as President and
	Chief Executive Officer of Biostar, Inc., a medical diagnostic
	company. From 1975 to 1994, Mr. Pietraszek held a variety of
	 executive positions at Abbott Laboratories and Takeda Chemical
	Industries. From 1982 to 1986, he served as President of Dainabot
	 K.K., a joint venture between Abbott and Dainippon
	Pharmaceutical Company of Japan and from 1980 to 1982 he was Vice
	 President of Field Service Operations for Abbotts
	Diagnostic Division. He is a director of Specialty Laboratories.
	Mr. Pietraszek received a B.S. in marketing from Gannon
	University.
|                                                                                                        
|James R. Weersing 
	 (Age 60) 
	 Class I Director 
	 Member of the Audit and 
	 Nominating Committees    |  | Mr. Weersing has served as a director of Ventana since
	October 1994. Since 1984, Mr. Weersing has been a
	Managing Director of MBW Venture Partners, a venture capital
	investment firm. Mr. Weersing has also served as President
	of JRW Technology, Inc., a consulting firm. Mr.  Weersing
	served as a director of Circadian, Inc., an asthma dosage
	management company, from December 1993 until
	January 1996. Circadian filed a petition under
	Chapter 7 of the federal bankruptcy laws in January 
	1996. Mr. Weersing received an B.S.M.E. and an M.B.A. from
	Stanford University.                                                                                                                                                                                                                                                                                   

33



---



Section 16(a) Beneficial Ownership Reporting Compliance

During the last year Mr. Questier failed to file one report
on Form 5 in a timely manner. Such transaction has
subsequently been reported.

Item 11.  Executive Compensation

The following table sets forth all compensation paid by us to the
 chief executive officer and the most highly compensated
executive officers and key employees whose total remuneration
exceeded $100,000 for services rendered in all capacities to us
during the last three completed fiscal years.

|                             |                                                           |      |      |                      |  |            |         |              |  |                 |        |   |  |  |         |         |  |  |        |         |    
|---------------------------- | --------------------------------------------------------- | ---- | ---- | -------------------- |  | ---------- | ------- | ------------ |  | --------------- | ------ | - |  |  | ------- | ------- |  |  | ------ | ------- | ---
|                             |                                                           |      |      |                      |  |            |         | Long Term    |  |                
|                             |                                                           |      |      |                      |  |            |         | Compensation |  |                
|                             |                                                           |      |      |                      |  |            |         | Awards       |  |                
|                             |                                                           |      |      |                      |  |            |         |             
|                             |                                                           |      |      | Annual Compensation/ |  | Securities |         |             
|                             |                                                           |      |      |                      |  | Underlying |         | All Other   
|Name and Principal Positions |                                                           | Year |      | Salary($)            |  | Bonus($)   |         | Options(#)   |  | Compensation($)
|                             |                                                           |      |      |                      |  |            |         |              |  |                
|Christopher M. Gleeson       |                                                           |      | 1999 |                      |  |            | 163,846 |              |  |                 | 10,000 |   |  |  | 200,000 |         |  |  | 20,652 | (1)    
|                             | President, CEO and Director                               |      |      | 1998                 |  |            |         |             |  |                 |        |  |  |  |         |        |  |  |        |        |    
|                             |                                                           |      |      | 1997                 |  |            |         |             |  |                 |        |  |  |  |         |        |  |  |        |        |    
|                            
|                            
|                            
|                            
|Tamaki Tateiwa               |                                                           |      | 1999 |                      |  |            | 170,604 |              |  |                 |       |   |  |  | 10,800  |         |  |  | 4,438  | (2)    
|                             | Vice President, Japanese                                  |      |      | 1998                 |  |            |         | 145,340      |  |                 |        |  |  |  |         | 4,683   |  |  |        | 3,865   | (2)
|                             | Operations                                                |      |      | 1997                 |  |            |         | 56,327       |  |                 |        |  |  |  |         | 45,000  |  |  |        | 347     | (2)
|                            
|                            
|                            
|                            
|Kendall B. Hendrick          |                                                           |      | 1999 |                      |  |            | 156,914 |              |  |                 | 5,000  |   |  |  | 10,502  |         |  |  | 7,212  | (1)    
|                             | Vice President, Research and                              |      |      | 1998                 |  |            |         | 64,503       |  |                 |        |  |  |  |         | 35,000  |  |  |        | 46,932  | (1)
|                             | Development                                               |      |      | 1997                 |  |            |         |             |  |                 |        |  |  |  |         |        |  |  |        |        |    
|                            
|                            
|                            
|                            
|Bernard O.C. Questier(3)     |                                                           |      | 1999 |                      |  |            | 153,375 |              |  |                 |       |   |  |  | 12,670  |         |  |  | 8,800  | (2)    
|                             | Vice President European                                   |      |      | 1998                 |  |            |         | 150,000      |  |                 |        |  |  |  |         | 16,836  |  |  |        | 8,800   | (2)
|                             | Operations                                                |      |      | 1997                 |  |            |         | 150,000      |  |                 |        |  |  |  |         | 10,000  |  |  |        | 8,800   | (2)
|                            
|                            
|                            
|                            
|Henry T. Pietraszek          |                                                           |      | 1999 |                      |  |            | 97,423  |              |  |                 |       |   |  |  |        |         |  |  |       |        
|                             | Former President and CEO.                                 |      |      | 1998                 |  |            |         | 205,000      |  |                 |        |  |  |  |         | 15,738  |  |  |        | 131,758 | (1)
|                             | Current Board Member                                      |      |      | 1997                 |  |            |         | 167,942      |  |                 |        |  |  |  |         | 350,000 |  |  |        | 707     | (1)
|                            
|                            
|                            
|                            
|Pierre Sicé                  |                                                           |      | 1999 |                      |  |            | 157,162 |              |  |                 |       |   |  |  | 8,798   |         |  |  |       |        
|                             | Former Vice President Finance,                            |      |      | 1998                 |  |            |         | 164,041      |  |                 |        |  |  |  |         | 16,968  |  |  |        | 53,927  | (1)
|                             | CFO and Secretary. Current Director of Special Operations |      |      | 1997                 |  |            |         | 122,963      |  |                 |        |  |  |  |         | 55,000  |  |  |        | 8,264   | (1)




|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(1) | Relocation expenses inclusive of tax reimbursement on
	non-deductible portion.                       
|   
|(2) | Automobile allowance.                                                                                
|   
|(3) | Please see Employment Agreements on page 35 for
	information with respect to currency fluctuations.

34



---



Aggregate Option Exercises in the Last Fiscal Year and
Year-End Values. The following table sets forth, for each of
the executives named in the summary compensation table below,
information with respect to each exercise of stock options during
 the fiscal year ended December 31, 1999, and the value of
unexercised options at December 31, 1999.

Aggregate Option Exercises in Fiscal 1999 and Year-End Values

|                       |  |             |   |             |  |                         |   |                         |  |             |         |               |  |  |         |  |  |  |           |  |  |  |           | 
|---------------------- |  | ----------- | - | ----------- |  | ----------------------- | - | ----------------------- |  | ----------- | ------- | ------------- |  |  | ------- |  |  |  | --------- |  |  |  | --------- | 
|                       |  |             |   |             |  |                         |   |                         |  |            
|                       |  |             |   |             |  | Number of Securities    |   |                        
|                       |  |             |   |             |  | Underlying Unexercised  |   | Value of Unexercised   
|                       |  |             |   |             |  | Options at December 31, |   | In-the-Money Options   
|                       |  | Shares      |   |             |  | 1999                    |   | at December 31, 1999(1)
|                       |  | Acquired on |   | Value       |  |                         |   |                        
|Name                   |  | Exercise(#) |   | Realized($) |  | Exercisable             |   | Unexercisable           |  | Exercisable |         | Unexercisable
|                       |  |             |   |             |  |                         |   |                         |  |             |         |              
|Henry T. Pietraszek    |  |             |  |             |  |                         |  |                         |  |             | 141,970 |               |  |  | 46,310  |  |  |  | 1,792,371 |  |  |  | 584,664   | 
|                      
|                      
|                      
|                      
|Christopher M. Gleeson |  |             |  |             |  |                         |  |                         |  |             |        |               |  |  | 200,000 |  |  |  |          |  |  |  | 1,437,500 | 
|                      
|                      
|                      
|                      
|Tamaki Tateiwa         |  |             |  |             |  |                         |  |                         |  |             | 36,047  |               |  |  | 20,753  |  |  |  | 482,730   |  |  |  | 271,545   | 
|                      
|                      
|                      
|                      
|Pierre H. Sicé         |  |             |  |             |  |                         |  |                         |  |             | 43,738  |               |  |  | 27,060  |  |  |  | 522,219   |  |  |  | 291,492   | 
|                      
|                      
|                      
|                      
|Kendall B. Hendrick    |  |             |  |             |  |                         |  |                         |  |             | 12,836  |               |  |  | 32,666  |  |  |  | 61,934    |  |  |  | 150,331   | 
|                      
|                      
|                      
|                      
|Bernard O.C. Questier  |  |             |  |             |  |                         |  |                         |  |             | 59,926  |               |  |  | 12,701  |  |  |  | 1,107,290 |  |  |  | 113,050   | 




|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The value of in-the-money stock options represents
	the positive spread between the exercise price of stock options,
	which ranges from $0.84 per share to $21.00 per share, and the
	fair market value for our common stock of $24.875 per share as of
	 December 31, 1999, which was the closing price of the
	Companys Common Stock on December 31, 1999.

Employment Agreements

We have an employment agreement with Pierre Sicé, our
Director of Special Operations. The agreement provides for
employment from July 1, 1999 through September 30, 2000
 with monthly compensation of $7,081 from July 1, 1999
through June 30, 2000 and $3,500 monthly from
July 1, 2000 through September 30, 2000.

We have an employment agreement with Bernard O.C. Questier, our
Vice President of European Operations. The agreement provides for
 annual compensation of $153,000, which is fixed to the French
Franc to protect against currency fluctuations should the United
States Dollar depreciate relative to the French Franc; however,
if the United States dollar appreciates relative to the French
Franc, Mr. Questiers salary shall remain unchanged.
The agreement states that if Mr. Questier is terminated, he
will continue to be paid through the quarter in which notice of
termination is given plus one additional full quarter. The
agreement does not provide for any specified term of employment.
We currently have no employment contracts or agreements with any
other officers named in the Summary Compensation Table or with
any other person.

Compensation Committee Interlocks and Insider Participation in
 Compensation Decisions

The Compensation Committee of the Board of Directors consists of
Jack W. Schuler, James Weersing and Edward M. Giles. The
Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for our
employees and consultants. However, the Compensation Committee
has full power and authority to grant stock options to our
executive officers under the 1996 Stock Option Plan.

35



---



Option Grants in the Last Fiscal Year

The following table sets forth information with respect to each
grant of stock options made during the fiscal year ended
December 31, 1999 to each executive officer named in the
Summary Compensation Table above:

Individual Grants

|                       |  |            |         |            |  |             |     |            |  |                      |        |        |  |  |         |  |  |  |           |  |  |  |           | 
|---------------------- |  | ---------- | ------- | ---------- |  | ----------- | --- | ---------- |  | -------------------- | ------ | ------ |  |  | ------- |  |  |  | --------- |  |  |  | --------- | 
|                       |  |            |         |            |  |             |     |            |  |                     
|                       |  |            |         |            |  |             |     |            |  | Potential Realizable
|                       |  |            |         |            |  |             |     |            |  | Value at Assumed    
|                       |  |            |         |            |  |             |     |            |  | Annual Rates of     
|                       |  | Number of  |         |            |  |             |     |            |  | Stock Price         
|                       |  | Securities |         | % of Total |  |             |     |            |  | Appreciation for    
|                       |  | Underlying |         | Options    |  | Exercise or |     |            |  | Option Term(4)      
|                       |  | Options    |         | Granted in |  | Base Price  |     | Expiration |  |                     
|Name                   |  | Granted(1) |         | 1999(2)    |  | ($/Sh)(3)   |     | Date       |  | 5%($)                |        | 10%($)
|                       |  |            |         |            |  |             |     |            |  |                      |        |       
|Christopher M. Gleeson |  |            | 100,000 | (c)        |  |             | 9.7 | %          |  | $                    | 17.875 |        |  |  | 3/1/09  |  |  |  | 1,124,149 |  |  |  | 2,848,815 | 
|                       |  |            | 100,000 | (c)        |  |             | 9.7 | %          |  | $                    | 17.500 |        |  |  | 5/6/09  |  |  |  | 1,100,566 |  |  |  | 2,789,049 | 
|                      
|                      
|                      
|                      
|Tamaki Tateiwa         |  |            | 4,200   | (a)        |  |             | 0.4 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 47,214    |  |  |  | 119,650   | 
|                       |  |            | 3,800   | (b)        |  |             | 0.4 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 42,718    |  |  |  | 108,255   | 
|                       |  |            | 2,800   | (b)        |  |             | 0.3 | %          |  | $                    | 17.500 |        |  |  | 5/6/09  |  |  |  | 30,816    |  |  |  | 78,093    | 
|                      
|                      
|                      
|                      
|Pierre H. Sicé         |  |            | 5,557   | (a)        |  |             | 0.5 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 62,469    |  |  |  | 158,309   | 
|                       |  |            | 3,241   | (b)        |  |             | 0.3 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 36,434    |  |  |  | 92,330    | 
|                      
|                      
|                      
|                      
|Kendall B. Hendrick    |  |            | 2,000   | (a)        |  |             | 0.2 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 22,483    |  |  |  | 56,976    | 
|                       |  |            | 2,245   | (b)        |  |             | 0.2 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 25,237    |  |  |  | 63,956    | 
|                       |  |            | 5,000   | (a)        |  |             | 0.5 | %          |  | $                    | 17.500 |        |  |  | 5/6/09  |  |  |  | 55,028    |  |  |  | 139,452   | 
|                       |  |            | 1,257   | (b)        |  |             | 0.1 | %          |  | $                    | 16.880 |        |  |  | 11/3/09 |  |  |  | 13,344    |  |  |  | 33,816    | 
|                      
|                      
|                      
|                      
|Bernard O.C. Questier  |  |            | 5,052   | (a)        |  |             | 0.5 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 56,792    |  |  |  | 143,922   | 
|                       |  |            | 3,368   | (b)        |  |             | 0.3 | %          |  | $                    | 17.875 |        |  |  | 1/26/09 |  |  |  | 37,861    |  |  |  | 95,948    | 
|                       |  |            | 4,250   | (b)        |  |             | 0.4 | %          |  | $                    | 17.500 |        |  |  | 5/6/09  |  |  |  | 46,774    |  |  |  | 118,535   | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The above options were granted under the Companys 1996
	Stock Option Plan. Vesting periods are as follows: (a) five
	years, (b)  immediate, and (c) seven years.                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | Based on an aggregate of 1,034,544 options granted by the Company
	 during the year ended December 31, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | The option exercise price per share was equal to the fair market
	value of the Common Stock on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | The 5% and 10% assumed annual rates of compounded stock price
	appreciation are mandated by rules of the Securities and Exchange
	 Commission. There can be no assurance provided to any executive
	officer or any other holder of the Companys securities that
	 the actual stock price appreciation over the 10-year option term
	 will be at the assumed 5% and 10% levels or at any other defined
	 level. Unless the market price of the Common Stock appreciates
	over the option term, no value will be realized from the option
	grants made to the executive officers.

36



---





|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
	Management

Management

The following table sets forth information, as of
February 29, 2000 with respect to the number of shares of
our common stock beneficially owned by individual directors, by
all of our directors and officers as a group, and by persons
known by us to own more than 5% of our common stock. We have no
other class of voting stock outstanding.

|                                                   |                          |                  |           |                   |  |  |      |  | 
|-------------------------------------------------- | ------------------------ | ---------------- | --------- | ----------------- |  |  | ---- |  | 
|Name and Address                                   |                          |                  |           | Percent of Common
|of Beneficial Owner                                |                          | Number of Shares |           | Stock Owned      
|                                                   |                          |                  |           |                  
|Wellington Management Co. LLP                      |                          |                  | 1,886,800 |                   |  |  | 13.9 | 
|                                                   | 75 State Street          |                  |           |                   |  |  |      |  | 
|                                                   | Boston, MA 02109         |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Kopp Investment Advisors, Inc.                     |                          |                  | 1,410,850 |                   |  |  | 10.4 | 
|                                                   | 7701 France Avenue South |                  |           |                   |  |  |      |  | 
|                                                   | Suite 500                |                  |           |                   |  |  |      |  | 
|                                                   | Edina, MN 55435          |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Chase Manhattan Corp.                              |                          |                  | 1,005,000 |                   |  |  | 7.4  | 
|                                                   | 270 Park Avenue          |                  |           |                   |  |  |      |  | 
|                                                   | New York, NY 10017       |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Putnam Investments Management, Inc.                |                          |                  | 965,600   |                   |  |  | 7.1  | 
|                                                   | One Post Office Square   |                  |           |                   |  |  |      |  | 
|                                                   | Boston, MA 02109         |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|U.S. Trust Company of New York                     |                          |                  | 909,645   |                   |  |  | 6.7  | 
|                                                   | 114 West 47th Street     |                  |           |                   |  |  |      |  | 
|                                                   | New York, NY 10036       |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|James R. Weersing(3)                               |                          |                  | 1,479,357 |                   |  |  | 10.9 | 
|                                                  
|                                                  
|                                                  
|                                                  
|MBW Venture Partners, L.P.(3)                      |                          |                  | 1,442,350 |                   |  |  | 10.6 | 
|James R. Weersing                                  |                          |                  |           |                   |  |  |      | 
|                                                   | 365 South Street         |                  |           |                   |  |  |      |  | 
|                                                   | Morristown, NJ 07960     |                  |           |                   |  |  |      |  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Jack W. Schuler(4)                                 |                          |                  | 1,217,479 |                   |  |  | 8.9  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Edward M. Giles(5)                                 |                          |                  | 594,067   |                   |  |  | 4.4  | 
|                                                  
|                                                  
|                                                  
|                                                  
|John Patience(6)                                   |                          |                  | 528,451   |                   |  |  | 3.8  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Henry T. Pietraszek(7)                             |                          |                  | 233,092   |                   |  |  | 1.7  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Thomas M. Grogan, M.D.(8)                          |                          |                  | 191,509   |                   |  |  | 1.4  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Rex J. Bates(9)                                    |                          |                  | 73,959    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Johnny D. Powers, Ph.D.(10)                        |                          |                  | 67,117    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Bernard O.C. Questier(11)                          |                          |                  | 64,080    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Tamaki Tateiwa(12)                                 |                          |                  | 44,596    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Christopher M. Gleeson(13)                         |                          |                  | 27,767    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|Kendall B. Hendrick(14)                            |                          |                  | 16,152    |                   |  |  | *    | 
|                                                  
|                                                  
|                                                  
|                                                  
|All Directors and Officers as a group (12 persons) |                          |                  | 4,537,626 |                   |  |  | 33.4 | 




|  |              
|- | -------------
|* | Less than 1%.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Except as indicated in the footnotes to this table and pursuant
	to applicable community property laws, the persons named in the
	table have sole voting and investment power with respect to all
	shares of Common Stock.                                                                                                                                                                                                                                                                                      
|
| | 2. | Applicable percentage of ownership is based on 13,593,640 shares
	of common stock outstanding as of December 31, 1999,
	together with shares issuable pursuant to applicable options and
	warrants of such stockholder which may be exercised within
	60 days after February 29, 2000. Shares of common stock
	 subject to options and/or warrants currently exercisable or
	exercisable within 60 days after February 29, 2000, are
	 deemed outstanding for computing the percentage ownership of the
	 person

37



---



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | holding such options and/or warrants, but are not deemed
	outstanding for computing the percentage of any other person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 3. | Includes 162,059 shares issuable upon the exercise of warrants
	held by MBW Venture Partners, L.P. Mr. Weersing, one of our
	directors, is Managing Director of MBW Venture Partners Limited.
	Mr. Weersing disclaims beneficial ownership of the shares
	beneficially owned by MBW Venture Partners, L.P. except to the
	extent of his proportional partnership interest therein. Also
	includes 26,500 shares issuable upon the exercise of options
	exercisable within 60 days of February 29, 2000.
	Includes 6,209 shares beneficially owned by James R. Weersing and
	 Mary H. Weersing, Trustees of the Weersing Family Trust U/D/T
	dated April 24, 1991.      
|
| | 4. | Includes 119,526 shares issuable upon the exercise of warrants
	and 155,875 shares issuable upon the exercise of options
	exercisable within 60 days of February 29, 2000, held
	by Mr. Schuler; 73,512 shares beneficially owned by
	Mr. Schuler, as custodian for Tanya Eva Schuler; 73,512
	shares beneficially owned by Mr. Schuler, as custodian for
	Therese Heidi Schuler; and 73,512 shares beneficially owned by
	Mr. Schuler, as custodian for Tino Hans Schuler; and 10,000
	shares beneficially owned by The Schuler Family Foundation, and
	1,250 shares owned by Mrs. Schuler.                                                                           
|
| | 5. | Includes 270,486 shares beneficially owned by Vertical Fund
	Associates, L.P. Also includes 26,500 shares issuable upon the
	exercise of options exercisable within 60 days of
	February 29, 2000, held by Edward M. Giles. Also
	includes 33,426 shares beneficially owned by Edward M. Giles IRA
	plus 5,156 shares issuable upon the exercise of warrants held by
	Edward M. Giles IRA. Mr. Giles, one of our directors, is
	Chairman of The Vertical Group, Inc. Mr.  Giles disclaims
	beneficial ownership of the shares beneficially owned by such
	entities affiliated with The Vertical Group, Inc., except to the
	extent of his partnership interest therein.
|
| | 6. | Includes 96,689 shares issuable upon the exercise of warrants and
	 168,375 shares issuable upon the exercise of options exercisable
	 within 60 days of February 29, 2000, held by Mr. 
	 Patience as well as 4,800 shares held in the name of
	Mrs. Patience.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 7. | Includes 158,810 shares issuable upon the exercise of options
	exercisable within 60 days of February 29, 2000, held
	by Mr.  Pietraszek.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 8. | Includes 9,612 shares beneficially owned by Andrew Grogan and
	10,612 shares beneficially owned by Emily Grogan including 7,710
	shares beneficially owned by C. Ovens, Inc. (of which 459 shares
	are issuable upon the exercise of warrants held by C. Ovens,
	 Inc.); and 47,454 shares issuable upon exercise of options
	exercisable within 60 days of December 31, 1998, held
	by Dr. Grogan.                                                                                                                                                                                                                                                                    
|
| | 9. | Includes 11,173 shares issuable upon the exercise of warrants and
	 26,500 shares issuable upon the exercise of options exercisable
	within 60 days of February 29, 2000, held by Mr. 
	Bates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|10. | Includes 65,037 shares issuable upon the exercise of options
	exercisable within 60 days of February 29, 2000, held
	by Dr.  Powers.  
|   
|11. | Includes 60,324 shares issuable upon the exercise of options
	exercisable within 60 days of February 29, 2000, held
	by Mr.  Questier.
|   
|12. | Includes 44,596 shares issuable upon exercise of options
	exercisable within 60  days of February 29, 2000, held
	by Mr. Tateiwa.     
|   
|13. | Includes 16,667 shares issuable upon exercise of options
	exercisable within 60  days of February 29, 2000, held
	by Mr. Gleeson.     
|   
|14. | Includes 15,669 shares issuable upon exercise of options
	exercisable within 60  days of February 29, 2000, held
	by Mr. Hendrick.    

Item 13.  Certain Relationships and Related
Transactions

On January 26, 1999, our Board of Directors unanimously
approved, with Messrs. Patience and Schuler abstaining, the
hiring of Messrs. Patience and Schuler as employees
effective January 1, 1999. For their services, they each
received $2,000 per month and stock options in the amount of
45,000 shares vesting on a monthly basis over 12 months
commencing February 26, 1999. The options carry an exercise

38



---





In August 1999, Messrs. Schuler and Patience ceased to receive
the $2,000 per month compensation although the options granted on
 January 1, 1999 continued to vest. On November 4, 1999
 our Board of Directors unanimously approved, with
Messrs. Schuler and Patience abstaining, an additional
option to purchase 75,000 shares to each of Messrs. Schuler
and Patience. These options carry an exercise price of $22.625
per share, which was equal to the fair market value of our common
 stock on the date of grant. The options vest on a monthly basis
over a 12 month period commencing on February 26, 2000. This
 grant was a renewal of an arrangement that has been in place
since February 26, 1996 by which Messrs. Schuler and
Patience devote a significant portion of their work time to our
business.

PART IV

Item 14.  Exhibits and Reports on
Form 8-K.

1.  Financial Statements

The following consolidated financial statements of Ventana
Medical Systems, Inc. and Report of Ernst & Young, LLP,
Independent Auditors, are in this Form 10-K.

|                                                                                                      |  |  |     | 
|----------------------------------------------------------------------------------------------------- |  |  | --- | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Report of Ernst & Young LLP, Independent Auditors                                                     |  |  | F-1 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Balance Sheets as of December 31, 1999 and 1998                                          |  |  | F-2 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Operations for the Years Ended
	December 31, 1999, 1998 and 1997           |  |  | F-3 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Stockholders Equity for the
	Years Ended December 31, 1999, 1998 and 1997 |  |  | F-4 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Cash Flow for the Years Ended
	December 31, 1999, 1998 and 1997            |  |  | F-5 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Notes to Consolidated Financial Statements                                                            |  |  | F-6 | 

2.  Financial Statement and Schedules for the Years ended
December 31, 1999, 1998 and 1997:

Schedule II  Valuation and Qualifying Accounts
has been provided on page 42. All other schedules are
omitted because the information required to be set forth therein
is not applicable or is shown in the consolidated financial
statements or notes thereto.

3.  Exhibits

The following Exhibits are filed herewith pursuant to
Rule 601 of Regulation S-K:

|        |       |             |  |                                                                                  |  |  |     | 
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |       |             |  |                                                                                 
|Number  |       | Description |  | Notes                                                                           
|        |       |             |  |                                                                                 
|        | 3.1   |             |  | Restated Certificate of Incorporation or Registrant                              |  |  | (1) | 
|        | 3.2   |             |  | Bylaws of Registrant                                                             |  |  | (1) | 
|        | 4.1   |             |  | Specimen Common Stock Certificate                                                |  |  | (1) | 
|        | 10.1  |             |  | Form of Indemnification Agreement for directors and officers                     |  |  | (1) | 
|        | 10.2  |             |  | 1988 Stock Option Plan and forms of agreements thereunder                        |  |  | (1) | 
|        | 10.3  |             |  | 1996 Stock Option Plan and forms of agreements thereunder                        |  |  | (1) | 
|        | 10.4  |             |  | 1991 Employee Stock Purchase Plan                                                |  |  | (1) | 
|        | 10.5  |             |  | 1996 Employee Stock Purchase Plan                                                |  |  | (1) | 
|        | 10.6  |             |  | 1996 Directors Option Plan                                                       |  |  | (1) | 
|        | 10.7  |             |  | 1998 Nonstatutory Stock Option Plan and forms of agreements
	thereunder          |  |  | (2) | 
|        | 10.8  |             |  | Form of Stock Purchase Warrant to Purchase shares of Series 
	 D Preferred Stock |  |  | (1) | 
|        | 10.9  |             |  | Bank of America Business Loan Agreement dated June 9, 1998                       |  |  | (3) | 
|        | 10.10 |             |  | Amendment to Bank of America Business Loan Agreement dated
	October 1, 1998      |  |  | (3) | 
|        | 10.11 |             |  | Amendment to Bank of America Business Loan Agreement dated
	March 17, 1999       |  |  | (3) | 
|        | 21.1  |             |  | Subsidiaries of Registrant                                                       |  |  |     | 
|        | 23.1  |             |  | Consent of Ernst & Young LLP, Independent Auditors                               |  |  |     | 
|        | 27.1  |             |  | Financial Data Schedule                                                          |  |  |     | 




|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed with the Registration Statement on Form S-1
	(Commission File No. 333-4461), declared effective by the
	Commission July  26, 1996.

39



---





|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(2) | Filed with the Registration Statement on Form S-8
	(Commission File No. 333-92883), filed with the Commission on
	December 16, 1999.
|   
|(3) | Filed with the report on Form 10-K filed March 31, 1999
	 (Commission File No.  000-20931).                                         

(b)  Current Reports on Form 8-K

We did not file any reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1999.

40



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
hereunto duly authorized, in the City of Tucson, State of
Arizona, on this 9th day of March, 2000.



| |                              
| | -----------------------------
| | VENTANA MEDICAL SYSTEMS, INC.



| |     |                
| | --- | ---------------
| | By: | /s/ JAY MERIDEW

| |                                       
| | --------------------------------------
| |                                       
| | Jay Meridew, Vice President of Finance

Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

|                                                 |  |                                                                                                     |  |              
|------------------------------------------------ |  | --------------------------------------------------------------------------------------------------- |  | -------------
|Signature                                        |  | Title                                                                                               |  | Date         
|                                                 |  |                                                                                                     |  |              
|/s/ CHRISTOPHER M. GLEESONChristopher M. Gleeson |  | President, Chief Executive Officer and Director (Principal
	Executive Officer)                      |  | March 9, 2000
|                                                
|/s/ JAY MERIDEWJay Meridew                       |  | Vice President, Chief Financial Officer and Secretary (Principal
	Financial and Accounting Officer) |  | March 9, 2000
|                                                
|/s/ EDWARD M. GILESEdward M. Giles               |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ THOMAS M. GROGANThomas M. Grogan             |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ JOHN PATIENCEJohn Patience                   |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ JACK W. SCHULERJack W. Schuler               |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ JAMES R. WEERSINGJames R. Weersing           |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ REX J. BATESRex J. Bates                     |  | Director                                                                                            |  | March 9, 2000
|                                                
|/s/ HENRY T. PIETRASZEKHenry T. Pietraszek       |  | Director                                                                                            |  | March 9, 2000

41



---



Schedule II

VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31, 1999

(in thousands)


|                             |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |   |     | 
|---------------------------- | ----------------------------- | ------------------------------- |  | ------------ | --- | ------------ |  | ---------- | --- | ------------- |  | - | --- | --- |  | - | --- | --- |  | - | --- | 
|                             |                               | Balance at                      |  | Add. Charges |     | Add. Charges |  |            |     |              
|                             |                               | Beginning of                    |  | to Costs and |     | to Other     |  |            |     | Balance at   
|Description                  |                               | Period                          |  | Expenses     |     | Accounts     |  | Deductions |     | End of Period
|                             |                               |                                 |  |              |     |              |  |            |     |              
|Year Ended December 31, 1999 |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted form asset accounts: |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |   |    
|                            
|                            
|                            
|                            
|                             |                               | Allowance for doubtful accounts |  | $            | 694 |              |  | $          | 196 |               |  | $ | 152 | (1) |  | $ | 159 | (2) |  | $ | 883 | 
|                             |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  
|Year Ended December 31, 1998 |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted form asset accounts: |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |   |    
|                            
|                            
|                            
|                            
|                             |                               | Allowance for doubtful accounts |  | $            | 300 |              |  | $          | 392 |               |  | $ | 41  | (1) |  | $ | 39  | (2) |  | $ | 694 | 
|                             |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  
|Year Ended December 31, 1997 |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted form asset accounts: |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |   |    
|                            
|                            
|                            
|                            
|                             |                               | Allowance for doubtful accounts |  | $            | 47  |              |  | $          | 251 |               |  | $ | 11  | (1) |  | $ | 9   | (2) |  | $ | 300 | 
|                             |                               |                                 |  |              |     |              |  |            |     |               |  |   |     |     |  |   |     |     |  |  




|    |                                                      
|--- | -----------------------------------------------------
|(1) | Charged to revenue                                   
|   
|(2) | Uncollectible accounts written off, net of recoveries

42



---



VENTANA MEDICAL SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 1999 and 1998


CONTENTS

|                                                  |  |  |     | 
|------------------------------------------------- |  |  | --- | 
|                                                 
|                                                 
|                                                 
|                                                 
|Report of Ernst & Young LLP, Independent Auditors |  |  | F-1 | 
|                                                 
|Audited Consolidated Financial Statements         |  |  |     | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Consolidated Balance Sheets                       |  |  | F-2 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Consolidated Statements of Operations             |  |  | F-3 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Consolidated Statements of Stockholders Equity   |  |  | F-4 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Consolidated Statements of Cash Flows             |  |  | F-5 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Notes to Consolidated Financial Statements        |  |  | F-6 | 



---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors



We have audited the accompanying consolidated balance sheets of
Ventana Medical Systems, Inc., at December 31, 1999 and
1998, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 1999. These financial
 statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to
 above present fairly, in all material respects, the consolidated
 financial position of Ventana Medical Systems, Inc., at
December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years
 in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

Ernst & Young LLP





F-1



---



VENTANA MEDICAL SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


|                                            |                                                                                                                                                                     |              |        |         |   |   |        |         |  
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------ | ------- | - | - | ------ | ------- | -
|                                            |                                                                                                                                                                     |             
|                                            |                                                                                                                                                                     | December 31,
|                                            |                                                                                                                                                                     |             
|                                            |                                                                                                                                                                     | 1999         |        | 1998   
|                                            |                                                                                                                                                                     |              |        |        
|Assets                                      |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|Current assets:                             |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|                                            | Cash and cash equivalents                                                                                                                                           |              | $      | 1,787   |   |   | $      | 2,424   |  
|                                           
|                                           
|                                           
|                                           
|                                            | Trade accounts receivable, net of allowance for doubtful accounts
	 of $883 and $694, respectively                                                                  |              |        | 20,776  |   |   |        | 16,531  |  
|                                           
|                                           
|                                           
|                                           
|                                            | Inventories                                                                                                                                                         |              |        | 13,474  |   |   |        | 11,009  |  
|                                           
|                                           
|                                           
|                                           
|                                            | Prepaid expenses                                                                                                                                                    |              |        | 574     |   |   |        | 500     |  
|                                           
|                                           
|                                           
|                                           
|                                            | Deferred tax assets                                                                                                                                                 |              |        | 1,692   |   |   |        | 145     |  
|                                           
|                                           
|                                           
|                                           
|                                            | Other current assets                                                                                                                                                |              |        | 722     |   |   |        | 257     |  
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Total current assets                        |                                                                                                                                                                     |              | 39,025 |         |   |   | 30,866 |        
|                                           
|                                           
|                                           
|                                           
|Property and equipment, net                 |                                                                                                                                                                     |              | 14,441 |         |   |   | 9,937  |        
|                                           
|                                           
|                                           
|                                           
|Intangibles, net                            |                                                                                                                                                                     |              | 14,178 |         |   |   | 14,592 |        
|                                           
|                                           
|                                           
|                                           
|Capitalized software development costs, net |                                                                                                                                                                     |              | 1,084  |         |   |   | 885    |        
|                                           
|                                           
|                                           
|                                           
|Deferred tax assets, net of current portion |                                                                                                                                                                     |              | 4,433  |         |   |   |       |        
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Total assets                                |                                                                                                                                                                     | $            | 73,161 |         |   | $ | 56,280 |        
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Liabilities and Stockholders Equity        |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|Current liabilities:                        |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                                                                                                                                    |              | $      | 4,017   |   |   | $      | 3,536   |  
|                                           
|                                           
|                                           
|                                           
|                                            | Other current liabilities                                                                                                                                           |              |        | 6,600   |   |   |        | 5,053   |  
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Total current liabilities                   |                                                                                                                                                                     |              | 10,617 |         |   |   | 8,589  |        
|                                           
|                                           
|                                           
|                                           
|Long-term debt                              |                                                                                                                                                                     |              | 2,044  |         |   |   | 1,907  |        
|Commitments and Contingencies               |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|Stockholders equity:                       |                                                                                                                                                                     |              |        |         |   |   |        |        
|                                           
|                                           
|                                           
|                                           
|                                            | Common stock  $.001 par value; 50,000,000 shares
	authorized, 13,593,640 and 13,421,819 shares issued and
	outstanding at December 31, 1999 and 1998, respectively |              |        | 14      |   |   |        | 13      |  
|                                           
|                                           
|                                           
|                                           
|                                            | Additional paid-in-capital                                                                                                                                          |              |        | 80,542  |   |   |        | 78,716  |  
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated deficit                                                                                                                                                 |              |        | (19,341 | ) |   |        | (32,152 | )
|                                           
|                                           
|                                           
|                                           
|                                            | Accumulated other comprehensive income                                                                                                                              |              |        | (115    | ) |   |        | (193    | )
|                                           
|                                           
|                                           
|                                           
|                                            | Treasury stock  40,000 shares, at cost                                                                                                                             |              |        | (600    | ) |   |        | (600    | )
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Total stockholders equity                  |                                                                                                                                                                     |              | 60,500 |         |   |   | 45,784 |        
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        
|Total liabilities and stockholders equity  |                                                                                                                                                                     | $            | 73,161 |         |   | $ | 56,280 |        
|                                            |                                                                                                                                                                     |              |        |         |   |   |        |        

See accompanying notes.

F-2



---



VENTANA MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |        |  
|----------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | -
|                                                      |                                     |                         
|                                                      |                                     | Years Ended December 31,
|                                                      |                                     |                         
|                                                      |                                     | 1999                     |        | 1998   |  | 1997
|                                                      |                                     |                          |        |        |  |     
|Sales:                                                |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Reagents and other                  |                          | $      | 45,340 |  |      | $      | 31,967 |  |   | $      | 22,905 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Instruments                         |                          |        | 24,069 |  |      |        | 15,737 |  |   |        | 9,248  |  
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                      |                                     |                          | 69,409 |        |  |      | 47,704 |        |  |   | 32,153 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of goods sold                                    |                                     |                          | 21,218 |        |  |      | 14,542 |        |  |   | 11,138 |       
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Gross profit                                          |                                     |                          | 48,191 |        |  |      | 33,162 |        |  |   | 21,015 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses:                                   |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Selling, general and administrative |                          |        | 32,381 |  |      |        | 23,805 |  |   |        | 16,953 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Research and development            |                          |        | 7,078  |  |      |        | 5,057  |  |   |        | 3,050  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Non-recurring expenses              |                          |        |       |  |      |        | 3,160  |  |   |        | 1,656  |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Amortization of acquisition costs   |                          |        | 1,051  |  |      |        | 599    |  |   |        | 509    |  
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Income (loss) from operations                         |                                     |                          | 7,681  |        |  |      | 541    |        |  |   | (1,153 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|Interest and other (expense) income                   |                                     |                          | (370   | )      |  |      | 1,089  |        |  |   | 781    |       
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Income (loss) before income taxes                     |                                     |                          | 7,311  |        |  |      | 1,630  |        |  |   | (372   | )     
|                                                     
|                                                     
|                                                     
|                                                     
|Benefit from income taxes                             |                                     |                          | 5,500  |        |  |      |       |        |  |   |       |       
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Net income (loss)                                     |                                     | $                        | 12,811 |        |  | $    | 1,630  |        |  | $ | (372   | )     
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Net income (loss) per share:                          |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Basic                               |                          | $      | .95    |  |      | $      | .12    |  |   | $      | (.03   | )
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                      | Diluted                             |                          | $      | .88    |  |      | $      | .11    |  |   | $      | (.03   | )
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|Shares used in computing net income (loss) per share: |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Basic                               |                          |        | 13,478 |  |      |        | 13,320 |  |   |        | 12,778 |  
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       
|                                                      | Diluted                             |                          |        | 14,636 |  |      |        | 14,627 |  |   |        | 12,778 |  
|                                                      |                                     |                          |        |        |  |      |        |        |  |   |        |       

See accompanying notes.

F-3



---



VENTANA MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share data)


|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|------------------------------------------------------ |  | -------------------- | ---------- | ---------- |  | ----------- | -- | ------------- |  | -------- | ------ | ----- |  | ----- | ------- | - |  | - | ---- | - |  | - | ---- | - |  | - | ------ | -
|                                                       |  |                     
|                                                       |  | Stockholders Equity
|                                                       |  |                     
|                                                       |  |                      |            |            |  | Accumulated |    |              
|                                                       |  | Common Stock         |            | Additional |  |             |    | Other         |  |         
|                                                       |  |                      |            | Paid-In    |  | Accumulated |    | Comprehensive |  | Treasury |        |      
|                                                       |  | Shares               |            | Amount     |  | Capital     |    | Deficit       |  | Income   |        | Stock |  | Total
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |      
|Balance at January 1, 1997                             |  |                      | 10,978,238 |            |  | $           | 11 |               |  | $        | 48,885 |       |  | $     | (33,410 | ) |  | $ | (216 | ) |  | $ |     |   |  | $ | 15,270 |  
|                                                      
|                                                      
|                                                      
|                                                      
|Net loss                                               |  |                      |           |            |  |             |   |               |  |          |       |       |  |       | (372    | ) |  |   |     |   |  |   |     |   |  |   | (372   | )
|                                                      
|                                                      
|                                                      
|                                                      
|Translation adjustment                                 |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   | 75   |   |  |   |     |   |  |   | 75     |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Comprehensive loss                                     |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | (297   | )
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Proceeds from public offering, net of expenses of $530 |  |                      | 1,881,066  |            |  |             | 2  |               |  |          | 26,132 |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 26,134 |  
|                                                      
|                                                      
|                                                      
|                                                      
|Sale of common stock  other                           |  |                      | 387,922    |            |  |             |   |               |  |          | 1,296  |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 1,296  |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Balance at December 31, 1997                           |  |                      | 13,247,226 |            |  |             | 13 |               |  |          | 76,313 |       |  |       | (33,782 | ) |  |   | (141 | ) |  |   |     |   |  |   | 42,403 |  
|                                                      
|                                                      
|                                                      
|                                                      
|Net income                                             |  |                      |           |            |  |             |   |               |  |          |       |       |  |       | 1,630   |   |  |   |     |   |  |   |     |   |  |   | 1,630  |  
|                                                      
|                                                      
|                                                      
|                                                      
|Translation adjustment                                 |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   | (52  | ) |  |   |     |   |  |   | (52    | )
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Comprehensive income                                   |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 1,578  |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Sale of common stock  other                           |  |                      | 174,593    |            |  |             |   |               |  |          | 1,502  |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 1,502  |  
|                                                      
|                                                      
|                                                      
|                                                      
|Repayment of directors loans                          |  |                      |           |            |  |             |   |               |  |          | 901    |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 901    |  
|                                                      
|                                                      
|                                                      
|                                                      
|Purchase of common stock                               |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   |     |   |  |   | (600 | ) |  |   | (600   | )
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Balance at December 31, 1998                           |  |                      | 13,421,819 |            |  |             | 13 |               |  |          | 78,716 |       |  |       | (32,152 | ) |  |   | (193 | ) |  |   | (600 | ) |  |   | 45,784 |  
|                                                      
|                                                      
|                                                      
|                                                      
|Net income                                             |  |                      |           |            |  |             |   |               |  |          |       |       |  |       | 12,811  |   |  |   |     |   |  |   |     |   |  |   | 12,811 |  
|                                                      
|                                                      
|                                                      
|                                                      
|Translation adjustment                                 |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   | 78   |   |  |   |     |   |  |   | 78     |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Comprehensive income                                   |  |                      |           |            |  |             |   |               |  |          |       |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 12,889 |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Sale of common stock  other                           |  |                      | 171,821    |            |  |             | 1  |               |  |          | 1,826  |       |  |       |        |   |  |   |     |   |  |   |     |   |  |   | 1,827  |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  
|Balance at December 31, 1999                           |  |                      | 13,593,640 |            |  | $           | 14 |               |  | $        | 80,542 |       |  | $     | (19,341 | ) |  | $ | (115 | ) |  | $ | (600 | ) |  | $ | 60,500 |  
|                                                       |  |                      |            |            |  |             |    |               |  |          |        |       |  |       |         |   |  |   |      |   |  |   |      |   |  |   |        |  

See accompanying notes.

F-4



---



VENTANA MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |        |  
|--------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------ | ------ | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                    |                                               |                         
|                                                                                                    |                                               | Years Ended December 31,
|                                                                                                    |                                               |                         
|                                                                                                    |                                               | 1999                     |        | 1998   |   | 1997
|                                                                                                    |                                               |                          |        |        |   |     
|Operating activities:                                                                               |                                               |                          |        |        |   |      |         |        |   |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net income (loss)                                                                                   |                                               | $                        | 12,811 |        |   | $    | 1,630   |        |   | $ | (372    | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Adjustments to reconcile net income (loss) to net cash
	provided by (used in) operating activities: |                                               |                          |        |        |   |      |         |        |   |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Depreciation and amortization                 |                          |        | 3,689  |   |      |         | 2,850  |   |   |         | 2,029  |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Purchased in-process research and development |                          |        |       |   |      |         | 2,900  |   |   |         |       |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Benefit from deferred taxes                   |                          |        | (5,980 | ) |      |         | (145   | ) |   |         |       |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Changes in operating assets and liabilities net of effects from
	acquisitions:                      |                                               |                          |        |        |   |      |         |        |   |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Accounts receivable                           |                          |        | (4,245 | ) |      |         | (6,340 | ) |   |         | (4,017 | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Inventories                                   |                          |        | (2,465 | ) |      |         | (4,160 | ) |   |         | (1,862 | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Other assets                                  |                          |        | (1,002 | ) |      |         | 198    |   |   |         | (1,065 | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Accounts payable                              |                          |        | 481    |   |      |         | (63    | ) |   |         | 846    |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Other current liabilities                     |                          |        | 815    |   |      |         | 586    |   |   |         | (643   | )
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       
|Net cash provided by (used in) operating activities                                                 |                                               |                          | 4,104  |        |   |      | (2,544  | )      |   |   | (5,084  | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Investing activities:                                                                               |                                               |                          |        |        |   |      |         |        |   |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Purchase of property and equipment                                                                  |                                               |                          | (6,843 | )      |   |      | (5,377  | )      |   |   | (4,263  | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Purchase of intangible assets                                                                       |                                               |                          | (78    | )      |   |      | (5      | )      |   |   | (44     | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Acquisition of certain Oncor, Inc. assets                                                           |                                               |                          |       |        |   |      | (5,000  | )      |   |   |        |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Acquisition of Biotechnology Tools, Inc.                                                            |                                               |                          | (358   | )      |   |      | (5,257  | )      |   |   |        |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Sales of short-term investments available for sale                                                  |                                               |                          |       |        |   |      |        |        |   |   | 4,877   |       
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       
|Net cash (used in) provided by investing activities                                                 |                                               |                          | (7,279 | )      |   |      | (15,639 | )      |   |   | 570     |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Financing activities:                                                                               |                                               |                          |        |        |   |      |         |        |   |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Repayments of notes payable                                                                         |                                               |                          |       |        |   |      |        |        |   |   | (10,279 | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net proceeds from public offering                                                                   |                                               |                          |       |        |   |      |        |        |   |   | 26,134  |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Issuance of debt (including amounts from related parties)
	and stock                                |                                               |                          | 2,460  |        |   |      | 2,403   |        |   |   | 1,296   |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Purchase of common stock                                                                            |                                               |                          |       |        |   |      | (600    | )      |   |   |        |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Repayment of debt                                                                                   |                                               |                          |       |        |   |      | (46     | )      |   |   |        |       
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       
|Net cash provided by financing activities                                                           |                                               |                          | 2,460  |        |   |      | 1,757   |        |   |   | 17,151  |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Effect of exchange rate changes on cash                                                             |                                               |                          | 78     |        |   |      | (52     | )      |   |   | 75      |       
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       
|Net (decrease) increase in cash and cash equivalents                                                |                                               |                          | (637   | )      |   |      | (16,478 | )      |   |   | 12,712  |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Cash and cash equivalents, beginning of year                                                        |                                               |                          | 2,424  |        |   |      | 18,902  |        |   |   | 6,190   |       
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       
|Cash and cash equivalents, end of year                                                              |                                               | $                        | 1,787  |        |   | $    | 2,424   |        |   | $ | 18,902  |       
|                                                                                                    |                                               |                          |        |        |   |      |         |        |   |   |         |       

See accompanying notes.

F-5



---



VENTANA MEDICAL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)


DECEMBER 31, 1999

1.  Organization and Significant Accounting Policies

Organization: Ventana Medical Systems, Inc. (the
Company) develops, manufactures, and markets
instrument/reagent systems that automate tissue preparation and
slide staining in histology laboratories. At present, the
Companys principal markets are North America, Europe, and
Japan.

Use of Estimates: The preparation of financial statements
in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect
 the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.

Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries, Ventana Medical Systems, S.A., Ventana
 Medical Systems GmbH, Ventana Medical Systems Japan K.K., BioTek
 Solutions, Inc. (BioTek) and BioTechnology Tools, Inc. (BTTI).
All significant intercompany accounts and transactions have been
eliminated.

Cash and Cash Equivalents: Cash equivalents include
investments (primarily money market accounts and overnight
reverse repurchase agreements) with maturities of three months or
 less when purchased.

Inventories: Inventories, principally chemical, biological
 and instrument parts and reagents and finished instruments, are
stated at the lower of cost (first-in first-out basis) or market.

Property and Equipment: Property and equipment are stated
at cost. Depreciation is computed using the straight-line method
over estimated useful lives of three to ten years. Amortization
of leasehold improvements is calculated using a straight-line
method over the term of the lease. Maintenance and repairs are
charged to operations as incurred.

Property and equipment includes diagnostic instruments used for
sales demonstrations or placed with customers under several types
 of arrangements, including cancelable reagent plans (RAPs),
qualified reagent installed bases (QRIBs) and rentals. Although
new instruments are no longer placed into RAP programs, certain
long-standing agreements continue on a month-to-month basis which
 require the customer to purchase a minimum quantity of reagents
in order to keep the instrument. QRIB instruments are placed with
 customers for evaluation periods of up to six months; the
customer is required to purchase a minimum amount of reagents
and, at the end of the evaluation period, purchase, rent or
return the instrument. The manufacturing cost of demonstration,
RAP, QRIB, and rental instruments is amortized over a period of 3
 to 4 years to cost of goods sold (RAPs and rentals) or
selling, general and administrative expense (QRIBs and
demonstrations).

Intangibles: Intangible assets consist primarily of
goodwill, customer base, developed technology, workforce in place
 and supply agreements acquired in the acquisitions of BioTek,
BTTI and of certain assets and technology from Oncor, Inc. (see
Notes 12, 13 and 14) and patents. Such assets are
amortized on a straight-line basis over estimated useful lives
ranging from 5 to 20 years.

Impairment is recognized in operating results if a permanent
decline in value occurs. The Company measures possible impairment
 of its intangible assets periodically by comparing the cash
flows generated by those assets to their carrying values. The
Company periodically evaluates the useful lives assigned to the
various categories of intangible assets considering such factors
as (i) demand, obsolescence, competition, market share, and
other economic factors; (ii) legal and regulatory
provisions; and (iii) the periods expected to be benefited.

F-6



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Capitalized Software Development Costs: The Company
capitalizes certain internal salaries expense related to
developing computer software used in the Companys
instruments. Costs incurred prior to the establishment of
technological feasibility are charged to research and development
 expense. Upon general release to customers of the product in
which the software is included, capitalization ceases and such
costs are amortized using the straight-line method over the
estimated life of 5 years. Capitalized software costs and
accumulated costs are as follows at December 31:

|                              |  |      |       |      |  |   |       | 
|----------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                              |  | 1999 |       | 1998
|                              |  |      |       |     
|Capitalized costs             |  | $    | 1,508 |      |  | $ | 1,045 | 
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |      | 424   |      |  |   | 160   | 
|                              |  |      |       |      |  |   |       | 
|                              |  | $    | 1,084 |      |  | $ | 885   | 
|                              |  |      |       |      |  |   |       | 

Revenue Recognition: Revenues from direct sales of
instruments and reagents are generally recognized upon shipment.
Revenues from sales of instruments converted from rentals, QRIBs
and demonstrations are recognized upon receipt of a noncancelable
 purchase order from the customer. Revenues from reagents sold
under RAPs and similar leasing arrangements are recognized when
reagents are shipped. Service revenue is recognized as service is
 rendered.

No single customer accounted for 10% or more of the
Companys 1999 or 1998 net sales. Sales to DAKO A/S, a
European distributor for the Company, accounted for approximately
 20% of consolidated net sales in 1997.

Concentration of Credit Risk: The Company sells its
instruments and reagent products primarily to hospitals, medical
clinics, reference laboratories, and universities. Credit losses
have been minimal to date. The Company invests its excess cash
primarily in U.S. government securities and bank money market
accounts and has an established policy relating to
diversification and maturities that is designed to maintain
safety and liquidity. The Company has not experienced any
material losses on its cash equivalents or short-term
investments.

Non-recurring Expenses: Non-recurring expense in 1998
relates primarily to the cost of research and development in
process acquired from Oncor, Inc. Non-recurring expense in 1997
relates primarily to a legal judgment against BioTek.

Foreign Currency Translations: Through December 31,
1998, foreign currency financial statements of the Companys
 foreign subsidiaries were converted into United States dollars
by translating balance sheet accounts at the current exchange
rate at year end and statement of operations accounts at the
average exchange rate for the year, with resulting translations
adjustments included in accumulated other comprehensive income.
Due to a significant change in economic facts and circumstances
during 1998, effective January 1, 1999 the Company changed
the functional currencies for its foreign subsidiaries from the
local currencies to the U.S. Dollar. The primary change in the
economic facts and circumstances involved changing the business
model for the subsidiaries from one of essentially serving the
needs of local distributors to a model where the subsidiary is an
 active marketer of the Companys instruments and reagents,
which has resulted in higher pricing and improved gross margins.
The change in model was precipitated by litigation (settled in
1998) with a major European distributor. The effect on the
statements of operations of transaction gains and losses is
insignificant for all years presented.

Income Taxes: The Company accounts for income taxes using
the liability method. Deferred tax assets and liabilities are
determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using
enacted tax rates and laws expected to be in effect when the
differences are expected to reverse. Valuation allowances are
established when necessary to reduce the carrying amount of
deferred tax assets to their estimated net realizable value.

F-7



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fair Value of Financial Instruments: The Companys
cash equivalents, accounts receivable, accounts payable and
long-term debt represent financial instruments as defined by
Statement of Financial Accounting Standards
(SFAS) No. 107, Disclosures About Fair Value of
Financial Instruments. The carrying value of these financial
instruments is a reasonable approximation of fair value, due to
their current maturities. The fair value of the Companys
borrowings is estimated using discounted cash flow analyses,
based upon the current incremental borrowing rates for similar
arrangements.

Stock-Based Compensation: The Company has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees(APB
No. 25) and related Interpretations in accounting for
its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS
No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), requires the use of option valuation models
that were not developed for use in valuing employee stock
options. Under APB No. 25, because the exercise price of the
 Companys stock options equals or exceeds the fair market
value of the underlying stock on the dates of grant, no
compensation expense is recognized.

Accumulated Other Comprehensive Income:As of
January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income(SFAS No. 130). SFAS No.
130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of
 SFAS No. 130 had no impact on the Companys
consolidated results of operations, financial position,
stockholders equity or cash flows. SFAS No. 130
requires the foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders
equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130. Accumulated other comprehensive
income at December 31, 1999, 1998, and 1997, consists
exclusively of foreign currency translation adjustments.

Income (loss) per Share:The following table sets
forth the components of the computation of 1999, 1998 and 1997
basic and diluted earnings per share:

|                               |                   |                         |        |        |        |      |        |       |        |  |        |      |        | 
|------------------------------ | ----------------- | ----------------------- | ------ | ------ | ------ | ---- | ------ | ----- | ------ |  | ------ | ---- | ------ | 
|                               |                   | 1999                    |        | 1998   |        | 1997
|                               |                   |                         |        |        |        |     
|Numerator:                     |                   |                         |        |        |        |      |        |       |        |  |        |     
|                              
|                              
|                              
|                              
|                               | Net income (loss) |                         | $      | 12,811 |        |      | $      | 1,630 |        |  | $      | (372 | )     
|                               |                   |                         |        |        |        |      |        |       |        |  |        |     
|Denominator:                   |                   |                         |        |        |        |      |        |       |        |  |        |     
|                              
|                              
|                              
|                              
|                               | Basic:            |                         |        |        |        |      |        |       |        |  |        |      |       
|                              
|                              
|                              
|                              
|                               |                   | Weighted average shares |        |        | 13,478 |      |        |       | 13,320 |  |        |      | 12,778 | 
|                              
|                              
|                              
|                              
|Effect of dilutive securities: |                   |                         |        |        |        |      |        |       |        |  |        |     
|                              
|                              
|                              
|                              
|                               |                   | Employee stock options  |        |        | 656    |      |        |       | 776    |  |        |      |       | 
|                              
|                              
|                              
|                              
|                               |                   | Warrants                |        |        | 502    |      |        |       | 531    |  |        |      |       | 
|                               |                   |                         |        |        |        |      |        |       |        |  |        |     
|                               |                   |                         | 14,636 |        |        |      | 14,627 |       |        |  | 12,778 |     
|                               |                   |                         |        |        |        |      |        |       |        |  |        |     

Loss per share in 1997 is computed using the weighted average
number of shares of common stock outstanding; common equivalent
shares from stock options and warrants are excluded from the
computation in that year as their effect is antidilutive.

Reclassifications: The prior year financial statements
have been reclassified to conform to the 1999 presentations.

F-8



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2.  Inventories

Inventories consist of the following:

|                                  |  |              |        |      |  |   |        | 
|--------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                  |  |             
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 1999         |        | 1998
|                                  |  |              |        |     
|Raw materials and work-in-process |  | $            | 5,729  |      |  | $ | 5,165  | 
|                                 
|                                 
|                                 
|                                 
|Finished goods                    |  |              | 7,745  |      |  |   | 5,844  | 
|                                  |  |              |        |      |  |   |        | 
|                                  |  | $            | 13,474 |      |  | $ | 11,009 | 
|                                  |  |              |        |      |  |   |        | 

3.  Property and Equipment

Property and equipment consist of the following:

|                                               |  |              |        |      |  |   |        | 
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 1999         |        | 1998
|                                               |  |              |        |     
|Diagnostic instruments                         |  | $            | 10,471 |      |  | $ | 7,267  | 
|                                              
|                                              
|                                              
|                                              
|Machinery and equipment                        |  |              | 5,703  |      |  |   | 4,835  | 
|                                              
|                                              
|                                              
|                                              
|Computers and related equipment                |  |              | 5,215  |      |  |   | 2,021  | 
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |              | 730    |      |  |   | 561    | 
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |              | 295    |      |  |   | 305    | 
|                                               |  |              |        |      |  |   |        | 
|                                               |  |              | 22,414 |      |  |   | 14,989 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |              | 8,098  |      |  |   | 5,759  | 
|                                              
|                                              
|                                              
|                                              
|Projects in progress                           |  |              | 125    |      |  |   | 707    | 
|                                               |  |              |        |      |  |   |        | 
|                                               |  | $            | 14,441 |      |  | $ | 9,937  | 
|                                               |  |              |        |      |  |   |        | 

4.  Intangible Assets

Intangible assets consist of the following:

|                     |  |              |        |      |  |   |        | 
|-------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                     |  |             
|                     |  | December 31,
|                     |  |             
|                     |  | 1999         |        | 1998
|                     |  |              |        |     
|Customer base        |  | $            | 4,100  |      |  | $ | 4,100  | 
|                    
|                    
|                    
|                    
|Developed technology |  |              | 2,800  |      |  |   | 2,800  | 
|                    
|                    
|                    
|                    
|Goodwill             |  |              | 8,231  |      |  |   | 7,637  | 
|                    
|                    
|                    
|                    
|Supply contract      |  |              | 1,200  |      |  |   | 1,200  | 
|                    
|                    
|                    
|                    
|Workforce in place   |  |              | 100    |      |  |   | 100    | 
|                    
|                    
|                    
|                    
|Patents              |  |              | 570    |      |  |   | 492    | 
|                     |  |              |        |      |  |   |        | 
|                     |  |              | 17,001 |      |  |   | 16,329 | 
|                    
|                    
|                    
|                    
|Less amortization    |  |              | 2,823  |      |  |   | 1,737  | 
|                     |  |              |        |      |  |   |        | 
|                     |  | $            | 14,178 |      |  | $ | 14,592 | 
|                     |  |              |        |      |  |   |        | 

F-9



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.  Other Current Liabilities

Other current liabilities consist of the following:

|                                     |  |              |       |      |  |   |       |  
|------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | -
|                                     |  |             
|                                     |  | December 31,
|                                     |  |             
|                                     |  | 1999         |       | 1998
|                                     |  |              |       |     
|Accrued payroll and payroll taxes    |  | $            | 1,367 |      |  | $ | 1,161 |  
|                                    
|                                    
|                                    
|                                    
|Accrued commissions                  |  |              | 368   |      |  |   | 385   |  
|                                    
|                                    
|                                    
|                                    
|Deferred revenue                     |  |              | 1,152 |      |  |   | 1,037 |  
|                                    
|                                    
|                                    
|                                    
|Accrued legal or settlement reserves |  |              | 518   |      |  |   | 338   |  
|                                    
|                                    
|                                    
|                                    
|Contingent purchase consideration    |  |              | 500   |      |  |   | 900   |  
|                                    
|                                    
|                                    
|                                    
|Sales tax (receivable) payable       |  |              | 193   |      |  |   | (95   | )
|                                    
|                                    
|                                    
|                                    
|Long-term debt, current portion      |  |              | 555   |      |  |   | 59    |  
|                                    
|                                    
|                                    
|                                    
|Accrued income tax                   |  |              | 184   |      |  |   |      |  
|                                    
|                                    
|                                    
|                                    
|Other accrued expenses               |  |              | 1,763 |      |  |   | 1,268 |  
|                                     |  |              |       |      |  |   |       |  
|                                     |  | $            | 6,600 |      |  | $ | 5,053 |  
|                                     |  |              |       |      |  |   |       |  

6.  Line of Credit

The Company had up to $10,000 available under a line of credit
arrangement with a bank which is subject to renewal on
March 31, 2000. Borrowings under the line are collateralized
 by the Companys receivables, inventories, machinery and
equipment, and intellectual property. Borrowings under the line
are limited based on outstanding accounts receivable, which as of
 December 31, 1999, resulted in available borrowing of
$7,887. The line 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. No amounts
were outstanding under this agreement at December 31, 1999
or 1998.

7.  Long-term Debt

Long-term debt consists of the following:

|                                                                                                                            |  |              |       |      |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                                                                                                                            |  |             
|                                                                                                                            |  | December 31,
|                                                                                                                            |  |             
|                                                                                                                            |  | 1999         |       | 1998
|                                                                                                                            |  |              |       |     
|Note payable to a customer over 16 quarters beginning
	January 1, 2000, interest accruing at 7% beginning
	January  1, 2000 |  | $            | 1,652 |      |  | $ | 1,588 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Capital lease and other obligations, various terms and interest
	rates                                                      |  |              | 947   |      |  |   | 378   | 
|                                                                                                                            |  |              |       |      |  |   |       | 
|                                                                                                                            |  |              | 2,599 |      |  |   | 1,966 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Less current portion                                                                                                        |  |              | 555   |      |  |   | 59    | 
|                                                                                                                            |  |              |       |      |  |   |       | 
|                                                                                                                            |  | $            | 2,044 |      |  | $ | 1,907 | 
|                                                                                                                            |  |              |       |      |  |   |       | 

Future payments under the above obligations are as follows at
December 31, 1999:

|     |  |   |       | 
|---- |  | - | ----- | 
|    
|    
|    
|    
|2000 |  | $ | 555   | 
|    
|    
|    
|    
|2001 |  |   | 700   | 
|    
|    
|    
|    
|2002 |  |   | 687   | 
|    
|    
|    
|    
|2003 |  |   | 547   | 
|    
|    
|    
|    
|2004 |  |   | 110   | 
|     |  |   |       | 
|     |  | $ | 2,599 | 
|     |  |   |       | 

F-10



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.  Stockholders Equity

On February 26, 1996, the Company sold 647 shares of common
stock to two directors of the Company and a related partnership
at a price of $1.62 per share for their efforts and assistance in
 completing the BioTek acquisition and assisting management with
its integration of the acquired company. Receivables of $901 due
from the directors were netted against common stock at
December 31, 1997 and 1996. These loans, including interest
at the rate of 6%, were repaid on February 26, 1998.

Under the Companys 1988 Stock Option Plan (the 1988
Plan), up to 1,340 shares of common stock have been
reserved for grant to employees and directors. In order to be
incentive stock options (ISOs), options must be granted at not
less than 100% of fair market value of the Companys stock
on the date of grant. Options generally vest over a four year
period and expire five to ten years after the date of grant.
However, the Board of Directors, at its discretion, may decide
the period over which options become exercisable and their
expiration dates.

In April 1996, the Companys Board of Directors
authorized the 1996 Stock Option Plan (the 1996
Plan). A total of 2,475 shares of common stock have been
reserved for issuance under the 1996 Plan. In order to be ISOs,
options must be granted at not less than 100% of the fair market
value of the Companys stock on the dates of grant. Options
generally vest over four years (grants made prior to 1998) or
five years and expire in ten years.

In April 1996, the Board of Directors authorized the 1996
Employee Stock Purchase Plan (the 1996 Purchase
Plan). A total of 200 shares of common stock have been
reserved for issuance under the 1996 Purchase Plan. A total of
148 shares of common stock have been issued under the 1996
Purchase Plan at a prices ranging from $8.18 to $18.38 per share.
 The 1996 Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, subject to certain
limitations. The price at which stock may be purchased under the
1996 Purchase Plan is equal to 85% of the fair market value of
the common stock on the lower of the first day of each
24 month offering period or the last day of each subsequent
purchase period.

In June 1996, the Company adopted the 1996 Director Stock
Option Plan (the Director Plan) and reserved a total
of 250 shares of common stock for issuance thereunder. Commencing
 with the Companys 1997 annual meeting of stockholders,
each nonemployee director was to be granted a nonstatutory option
 to purchase an amount of shares of the Companys common
stock equal to 5 shares multiplied by a fraction, the numerator
of which shall be $15.00 and the denominator of which shall be
the fair market value of one share of the Companys common
stock on the dates of grant. The exercise price of options
granted under the Director Plan are equal to the fair market
value of one share of the Companys common stock on the
dates of grant. A total of 60 shares were issued under the Plan
at $10.125  $26.37 per share. Effective
November 1998, the Director Plan was modified such that
options are granted on a discretionary basis at fair value on the
 date of grant. 99 shares were issued under this version of the
Plan in 1998, bringing the total shares issued under the prior
and current version of the Director Plan to 159. Each option
granted under the Director Plan vests on a cumulative monthly
basis over a one-year period and has a 10-year term. The Director
 Plan will terminate in June 2001, unless terminated
earlier.

During 1997, the Company granted options to purchase a total of
300 shares at $12.625 per share, fair market value on the date of
 the grant, to two Directors of the Company for consulting
services to be performed through February 2000.

In September 1998, the Companys Directors approved the
 repurchase of up to 750 shares of the Companys common
stock. A total of 40 shares were repurchased under this
authorization in 1998.

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 Share

F-11



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

In January 1999, the Companys Board of Directors
authorized the 1998 Nonstatutory Stock Option Plan (the
1998 NSO Plan). Under this plan, a total of 500 shares of
common stock have been reserved for issuance to employees and
consultants of the Company, but under no circumstances to
officers or directors. Options generally vest over five years and
 expire ten years after the date of grant, however, the Board of
Directors, at its discretion, may decide the period over which
options become exercisable and their expiration dates.

Warrants for the purchase of 701 shares of common stock were
outstanding and fully exercisable at December 31, 1999, at
an exercise price of $5.82 per share. These warrants may be
exercised on a net basis and will begin to expire in
February 2001, to the extent not previously exercised.

Pro forma information regarding net income (loss) and
earnings per share is required by SFAS No. 123, and such
information has been determined as if the Company had accounted
for its employee stock options and employee stock purchase plan
under the fair value method of that statement. The fair value for
 these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted
average assumptions for 1999, 1998 and 1997: risk-free interest
rate of 6.0%, dividend yield of 0%, volatility factor of the
expected market price of the Companys common stock of .507
and .619 and .726, respectively, and an expected life of the
options of 5 years.

The Black-Scholes option valuation model was developed for use in
 estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Companys stock options have characteristics
significantly different from those of traded options, and because
 changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion, the
 existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.

F-12



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the related vesting
period. The Companys pro forma information follows:

|                                      |  |                        |        |      |  |      |        |   |  |   |        |  
|------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                      |  |                       
|                                      |  | Year Ended December 31
|                                      |  |                       
|                                      |  | 1999                   |        | 1998 |  | 1997
|                                      |  |                        |        |      |  |     
|Net income (loss) as reported         |  | $                      | 12,811 |      |  | $    | 1,630  |   |  | $ | (372   | )
|                                     
|                                     
|                                     
|                                     
|Pro forma compensation expense        |  |                        | (3,007 | )    |  |      | (3,640 | ) |  |   | (2,188 | )
|                                      |  |                        |        |      |  |      |        |   |  |   |        |  
|Pro forma net income (loss)           |  | $                      | 9,804  |      |  | $    | (2,010 | ) |  | $ | (2,560 | )
|                                      |  |                        |        |      |  |      |        |   |  |   |        |  
|Pro forma net income (loss) per share |  | $                      | .67    |      |  | $    | (.14   | ) |  | $ | (.20   | )
|                                      |  |                        |        |      |  |      |        |   |  |   |        |  

Pro forma compensation expense presented may not be
representative of future pro forma expense, when amortization of
multiple years of awards may be reflected.

A summary of the Companys stock option activity, and
related information is as follows:

|                             |           |                           |       |                  |   |   |       |       | 
|---------------------------- | --------- | ------------------------- | ----- | ---------------- | - | - | ----- | ----- | 
|                             |           |                          
|                             |           | Outstanding Stock Options
|                             |           |                          
|                             |           |                           |       | Weighted Average
|                             |           | Number of                 |       | Exercise        
|                             |           | Options                   |       | Price Per Share 
|                             |           |                           |       |                 
|Balance at January 1, 1997   |           |                           | 715   |                  |   | $ | 3.89  |      
|                            
|                            
|                            
|                            
|                             | Granted   |                           |       | 1,436            |   |   |       | 11.89 | 
|                            
|                            
|                            
|                            
|                             | Exercised |                           |       | (224             | ) |   |       | 1.71  | 
|                            
|                            
|                            
|                            
|                             | Canceled  |                           |       | (300             | ) |   |       | 5.92  | 
|                             |           |                           |       |                  |   |   |       |      
|Balance at December 31, 1997 |           |                           | 1,627 |                  |   |   | 10.88 |      
|                            
|                            
|                            
|                            
|                             | Granted   |                           |       | 540              |   |   |       | 19.68 | 
|                            
|                            
|                            
|                            
|                             | Exercised |                           |       | (121             | ) |   |       | 7.52  | 
|                            
|                            
|                            
|                            
|                             | Canceled  |                           |       | (126             | ) |   |       | 11.76 | 
|                             |           |                           |       |                  |   |   |       |      
|Balance at December 31, 1998 |           |                           | 1,920 |                  |   |   | 13.52 |      
|                            
|                            
|                            
|                            
|                             | Granted   |                           |       | 1,035            |   |   |       | 18.23 | 
|                            
|                            
|                            
|                            
|                             | Exercised |                           |       | (133             | ) |   |       | 10.43 | 
|                            
|                            
|                            
|                            
|                             | Canceled  |                           |       | (343             | ) |   |       | 12.24 | 
|                             |           |                           |       |                  |   |   |       |      
|Balance at December 31, 1999 |           |                           | 2,479 |                  |   | $ | 15.47 |      
|                             |           |                           |       |                  |   |   |       |      

The weighted average fair values of stock options granted during
1999, 1998, and 1997, for which the exercise price was equal to
the fair market value of the stock, were $9.03, $10.12, and $7.55
 per share, respectively.

F-13



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                  |        |                                    |       |                     |  |             |       |             |  |          |     |     |  |  |     |       |  |   |       |       | 
|----------------- | ------ | ---------------------------------- | ----- | ------------------- |  | ----------- | ----- | ----------- |  | -------- | --- | --- |  |  | --- | ----- |  | - | ----- | ----- | 
|                  |        |                                   
|                  |        | Stock Options at December 31, 1999
|                  |        |                                   
|                  |        |                                    |       |                    
|                  |        | Options Outstanding                |       | Options Exercisable
|                  |        |                                    |       |                    
|                  |        |                                    |       | Weighted            |  |            
|                  |        |                                    |       | Weighted            |  | Average     |       |            
|                  |        |                                    |       | Average             |  | Remaining   |       |             |  | Weighted
|                  |        | Number of                          |       | Exercise            |  | Contractual |       |             |  | Average 
|Range of Exercise |        | Options                            |       | Price               |  | Life        |       | Number      |  | Exercise
|Prices            |        | Outstanding                        |       | Outstanding         |  | (Years)     |       | Exercisable |  | Price   
|                  |        |                                    |       |                     |  |             |       |             |  |         
|$0.60  $1.62     |        |                                    | 107   |                     |  | $           | .94   |             |  |          | 5.3 |     |  |  | 107 |       |  | $ | .94   |      
|$10.00  $10.15   |        |                                    | 194   |                     |  | $           | 10.03 |             |  |          | 7.3 |     |  |  | 138 |       |  | $ | 10.04 |      
|$12.25  $14.63   |        |                                    | 740   |                     |  | $           | 12.56 |             |  |          | 7.8 |     |  |  | 413 |       |  | $ | 12.45 |      
|$15.00  $17.88   |        |                                    | 1,043 |                     |  | $           | 17.29 |             |  |          | 8.8 |     |  |  | 209 |       |  | $ | 16.80 |      
|$20.13  $27.38   |        |                                    | 395   |                     |  | $           | 22.69 |             |  |          | 9.2 |     |  |  | 174 |       |  | $ | 22.65 |      
|                  |        |                                    |       |                     |  |             |       |             |  |          |     |     |  |  |     |       |  |   |       |      
|                  | Totals |                                    |       | 2,479               |  |             | $     | 15.47       |  |          |     | 8.3 |  |  |     | 1,041 |  |   | $     | 13.53 | 
|                  |        |                                    |       |                     |  |             |       |             |  |          |     |     |  |  |     |       |  |   |       |      

9.  Income Taxes

Income (loss) before income taxes is comprised as follows:

|         |  |                          |       |      |  |      |        |   |  |   |      |  
|-------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  | - | ---- | -
|         |  |                         
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 1999                     |       | 1998 |  | 1997
|         |  |                          |       |      |  |     
|Domestic |  | $                        | 5,764 |      |  | $    | 3,261  |   |  | $ | 504  |  
|        
|        
|        
|        
|Foreign  |  |                          | 1,547 |      |  |      | (1,631 | ) |  |   | (876 | )
|         |  |                          |       |      |  |      |        |   |  |   |      |  
|         |  | $                        | 7,311 |      |  | $    | 1,630  |   |  | $ | (372 | )
|         |  |                          |       |      |  |      |        |   |  |   |      |  

The components of the (benefit) provision for income taxes
are as follows:

|          |              |                          |        |        |   |      |      |      |   |   |   |   | 
|--------- | ------------ | ------------------------ | ------ | ------ | - | ---- | ---- | ---- | - | - | - | - | 
|          |              |                         
|          |              | Years Ended December 31,
|          |              |                         
|          |              | 1999                     |        | 1998   |   | 1997
|          |              |                          |        |        |   |     
|Current:  |              |                          |        |        |   |      |      |      |   |   |   |  
|         
|         
|         
|         
|          | U.S. Federal |                          | $      | 150    |   |      | $    | 145  |   |   | $ |  | 
|         
|         
|         
|         
|          | State        |                          |        | 250    |   |      |      |     |   |   |   |  | 
|         
|         
|         
|         
|          | Foreign      |                          |        | 80     |   |      |      |     |   |   |   |  | 
|          |              |                          |        |        |   |      |      |      |   |   |   |  
|          |              |                          | 480    |        |   |      | 145  |      |   |   |  |  
|         
|         
|         
|         
|Deferred: |              |                          |        |        |   |      |      |      |   |   |   |  
|         
|         
|         
|         
|          | U.S. Federal |                          |        | (5,083 | ) |      |      | (145 | ) |   |   |  | 
|         
|         
|         
|         
|          | State        |                          |        | (897   | ) |      |      |     |   |   |   |  | 
|         
|         
|         
|         
|          | Foreign      |                          |        |       |   |      |      |     |   |   |   |  | 
|          |              |                          |        |        |   |      |      |      |   |   |   |  
|          |              |                          | (5,980 | )      |   |      | (145 | )    |   |   |  |  
|          |              |                          |        |        |   |      |      |      |   |   |   |  
|          |              | $                        | (5,500 | )      |   | $    |     |      |   | $ |  |  
|          |              |                          |        |        |   |      |      |      |   |   |   |  

F-14



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A reconciliation of the U.S. Federal statutory income tax rate to
 the effective tax rate follows:

|                                              |  |                      |      |      |  |      |     |   |  |  |     |   
|--------------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | --- | - |  |  | --- | --
|                                              |  |                     
|                                              |  | % of Pre-tax Income 
|                                              |  | Years Ended December
|                                              |  | 31,                 
|                                              |  |                     
|                                              |  | 1999                 |      | 1998 |  | 1997
|                                              |  |                      |      |      |  |     
|U.S. Federal Statutory Rate                   |  |                      | 35   | %    |  |      | 35  | % |  |  | (35 | )%
|                                             
|                                             
|                                             
|                                             
|State taxes                                   |  |                      | 8    |      |  |      | 8   |   |  |  | (8  | ) 
|                                             
|                                             
|                                             
|                                             
|Domestic differences not previously benefited |  |                      | (8   | )    |  |      | (34 | ) |  |  |    |   
|                                             
|                                             
|                                             
|                                             
|Change in valuation allowance                 |  |                      | (110 | )    |  |      | (9  | ) |  |  | 43  |   
|                                              |  |                      |      |      |  |      |     |   |  |  |     |   
|Effective tax rate                            |  |                      | (75  | )%   |  |      |    | % |  |  |    | % 
|                                              |  |                      |      |      |  |      |     |   |  |  |     |   

The Companys deferred tax assets consist of the following:

|                          |                                       |              |        |       |  |   |        |       | 
|------------------------- | ------------------------------------- | ------------ | ------ | ----- |  | - | ------ | ----- | 
|                          |                                       |             
|                          |                                       | December 31,
|                          |                                       |             
|                          |                                       | 1999         |        | 1998 
|                          |                                       |              |        |      
|Non-current:              |                                       |              |        |       |  |   |        |      
|                         
|                         
|                         
|                         
|                          | In-process R&D write-off              |              | $      | 1,077 |  |   | $      | 1,154 | 
|                         
|                         
|                         
|                         
|                          | Net operating loss carryforwards      |              |        | 1,336 |  |   |        | 3,379 | 
|                         
|                         
|                         
|                         
|                          | Capitalized research and development  |              |        | 1,264 |  |   |        | 2,346 | 
|                         
|                         
|                         
|                         
|                          | General business credit carryforwards |              |        | 1,033 |  |   |        | 680   | 
|                         
|                         
|                         
|                         
|                          | Depreciation expense                  |              |        | 1,001 |  |   |        | 968   | 
|                         
|                         
|                         
|                         
|                          | Other                                 |              |        |      |  |   |        | 124   | 
|                          |                                       |              |        |       |  |   |        |      
|                          |                                       |              | 5,711  |       |  |   | 8,651  |      
|                         
|                         
|                         
|                         
|Current:                  |                                       |              |        |       |  |   |        |      
|                         
|                         
|                         
|                         
|                          | AMT credit carryforward               |              |        | 237   |  |   |        | 145   | 
|                         
|                         
|                         
|                         
|                          | Miscellaneous                         |              |        | 1,455 |  |   |        | 633   | 
|                          |                                       |              |        |       |  |   |        |      
|                          |                                       |              | 1,692  |       |  |   | 778    |      
|                         
|                         
|                         
|                         
|Total deferred tax assets |                                       |              | 7,403  |       |  |   | 9,429  |      
|                         
|                         
|                         
|                         
|Valuation reserve         |                                       |              | (1,278 | )     |  |   | (9,284 | )    
|                          |                                       |              |        |       |  |   |        |      
|Net deferred tax assets   |                                       | $            | 6,125  |       |  | $ | 145    |      
|                          |                                       |              |        |       |  |   |        |      

During the fourth quarter of 1999, the Company reevaluated the
estimated amount of valuation allowance required in light of the
profitability achieved in 1998 and 1999 as well as the expected
profits in fiscal 2000 to reduce the valuation allowance on
deferred tax assets in accordance with SFAS No. 109, Accounting for Income Taxes(SFAS No. 109)
to an amount the Company believes is more likely than not of
being recovered. Accordingly, a credit to income tax benefit of
$5,980 was reflected in the fourth quarter of 1999s
consolidated statement of operations and the corresponding
deferred tax asset on the Companys consolidated balance
sheet. The amount of net deferred tax assets estimated to be
recoverable was based upon the Companys assessment of the
likelihood of near term operating income coupled with
uncertainties with respect to the impact of future competitive
and market conditions.

The valuation allowance decreased by $1,007 in 1998 and $8,006 in
 1999. The 1999 decrease relates to the assessment described in
the previous paragraph. The 1998 deferred tax benefit of $145
exactly offset the 1998 current expense of $145, and thus no 1998
 tax provision is reflected in the accompanying consolidated
statement of operations.

Temporary differences between the net operating losses for
financial reporting and income tax purposes primarily relate to
the deferral of research and development expenses for tax
purposes.

F-15



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 1999, the Company has net operating loss
carryforwards for federal and state income tax purposes of
approximately $3,600 and $2,000, respectively. These federal and
state carryforwards will begin to expire in 2000 if not
previously utilized. The Company also has research and
development tax credit carryforwards of approximately $1,033
which will begin to expire in 2005, if not previously utilized.
Utilization of the Companys net operating loss
carryforwards will be subject to limitations due to the
change in ownership provisions of the Internal
Revenue Code of 1996, as amended, as a result of the
Companys prior issuances of equity securities. These
carryforwards, therefore, may expire prior to being fully
utilized. Future financings may cause additional changes in
ownership and further limitations on the use of federal net
operating loss carryforwards. In addition, the Company has
certain foreign net operating loss carryforwards approximating
$2,500 which begin to expire in 2001.

10.  Commitments and Contingencies

The Company conducts its corporate operations from leased
facilities. In addition to monthly rental payments, the Company
is responsible for certain monthly operating and maintenance
expenses of such facilities. The lease expires in 2001. The
future minimum rental payments under this and other operating
lease arrangements at December 31, 1999 are as follows:

|     |  |   |       | 
|---- |  | - | ----- | 
|    
|    
|    
|    
|2000 |  | $ | 1,234 | 
|    
|    
|    
|    
|2001 |  |   | 955   | 
|    
|    
|    
|    
|2002 |  |   | 629   | 
|    
|    
|    
|    
|2003 |  |   | 319   | 
|    
|    
|    
|    
|2004 |  |   | 269   | 
|     |  |   |       | 
|     |  | $ | 3,406 | 
|     |  |   |       | 

Rent expense totaled $1,259, $548 and $580 for the years ended
December 31, 1999, 1998 and 1997, respectively.

In July 1997, the U.S. District Court in San Jose,
California awarded a judgment of approximately $850 to a
competitor based on alleged patent infringement by a subsidiary
of the Company. This amount was fully expensed by the second
quarter of 1997. The matter was appealed by the Company, with
such appeals denied in April 1998. Accordingly, a total of
$881 (including interest) was paid by the Company in
May 1998 to extinguish this judgment.

DAKO initiated binding arbitration with the Company in 1997
regarding the pricing of the Companys TechMate 250 product.
 The dispute was settled in 1998 with the Company agreeing to pay
 DAKO, through a note payable arrangement, a total of $1,652
beginning January 2000.

Four former BioTek noteholders have filed an action against the
Company and certain of its directors and stockholders alleging
the Company violated federal and California securities law and
engaged in common law fraud in connection with the BioTek
acquisition and conversion of BioTek notes. The Company filed a
motion to dismiss this action, which was granted in part in
September 1998.

A Ventana shareholder who is related to the plaintiffs in the
securities action discussed in the preceding paragraph filed suit
 against the Company and certain of its former and present
directors and officers arising out of the BioTek acquisition. The
 plaintiff alleges derivative claims for breach of the duty of
good faith and waste and purported class claims for breach of
contract and breach of the fiduciary duty of disclosure. Many of
these claims are similar to those asserted in the action
discussed in the preceding paragraph. The suit seeks class action
 status for the BioTek shareholders. In July 1999, the
Company and the director defendants filed a motion to dismiss and
 an alternative motion to stay the action, which was heard in
October 1999. No ruling has yet been made on those motions.

F-16



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company is also involved in various other actions arising in
the normal course of business. Management, in conjunction with
outside counsel, periodically reviews such matters and makes any
accruals deemed necessary. Management is of the opinion that the
disposition of all claims outstanding will not have a material
effect on the Companys financial position, cash flows or
results of operations.

11.  Operating Segment and Enterprise Data

The Company has two reportable segments: North America (primarily
 the United States) and International (primarily France, Germany
and Japan, formed in 1998). These operating segments are the
segments of the Company for which separate financial information
is available and for which operating profit/ loss amounts are
regularly evaluated by the Companys Chief Operating
Decision Maker (its Board of Directors) in deciding how to
allocate resources and in assessing performance. Prior to 1999,
the Company had three reportable segments: North America, Europe,
 and Japan. The 1998 segment data presented herein has been
restated to conform to the 1999 presentation.

The Companys Chief Operating Decision Maker evaluates
performance and allocates resources based on profit or loss from
operations. The accounting policies of the reportable segments
are the same as those described in the summary of significant
accounting policies. Inventory transfers to foreign subsidiaries
are made at standard cost. The North America operations include
corporate activity (including all interest income) that benefits
the Company as a whole. The following summary includes net sales
only to unaffiliated customers. Net sales are attributed to
segments based on the location from which the shipment to the
customer was made; reagents and instruments are sold in each
segment.

|                                      |  |                              |        |               |  |              |        |        |  |   |         |   |  |   |        | 
|------------------------------------- |  | ---------------------------- | ------ | ------------- |  | ------------ | ------ | ------ |  | - | ------- | - |  | - | ------ | 
|                                      |  |                             
|                                      |  | Year ended December 31, 1999
|                                      |  |                             
|                                      |  | North                        |        |              
|                                      |  | America                      |        | International |  | Eliminations |        | Totals
|                                      |  |                              |        |               |  |              |        |       
|Sales to external customers           |  | $                            | 53,692 |               |  | $            | 15,717 |        |  | $ |        |   |  | $ | 69,409 | 
|                                     
|                                     
|                                     
|                                     
|Depreciation and amortization expense |  |                              | 3,307  |               |  |              | 382    |        |  |   |        |   |  |   | 3,689  | 
|                                     
|                                     
|                                     
|                                     
|Segment profit                        |  |                              | 11,098 |               |  |              | 1,467  |        |  |   | 246     |   |  |   | 12,811 | 
|                                     
|                                     
|                                     
|                                     
|Segment assets                        |  |                              | 80,191 |               |  |              | 15,324 |        |  |   | (22,354 | ) |  |   | 73,161 | 
|                                     
|                                     
|                                     
|                                     
|Expenditures for long-lived assets    |  |                              | 5,439  |               |  |              | 1,840  |        |  |   |        |   |  |   | 7,279  | 

|                                      |  |                              |        |               |  |              |        |        |  |   |         |   |  |   |        | 
|------------------------------------- |  | ---------------------------- | ------ | ------------- |  | ------------ | ------ | ------ |  | - | ------- | - |  | - | ------ | 
|                                      |  |                             
|                                      |  | Year ended December 31, 1998
|                                      |  |                             
|                                      |  | North                        |        |              
|                                      |  | America                      |        | International |  | Eliminations |        | Totals
|                                      |  |                              |        |               |  |              |        |       
|Sales to external customers           |  | $                            | 41,469 |               |  | $            | 6,235  |        |  | $ |        |   |  | $ | 47,704 | 
|                                     
|                                     
|                                     
|                                     
|Non-recurring expenses                |  |                              | 3,160  |               |  |              |       |        |  |   |        |   |  |   | 3,160  | 
|                                     
|                                     
|                                     
|                                     
|Depreciation and amortization expense |  |                              | 2,565  |               |  |              | 285    |        |  |   |        |   |  |   | 2,850  | 
|                                     
|                                     
|                                     
|                                     
|Segment profit (loss)                 |  |                              | 3,147  |               |  |              | (1,631 | )      |  |   | 114     |   |  |   | 1,630  | 
|                                     
|                                     
|                                     
|                                     
|Segment assets                        |  |                              | 74,724 |               |  |              | 8,257  |        |  |   | (26,701 | ) |  |   | 56,280 | 
|                                     
|                                     
|                                     
|                                     
|Expenditures for long-lived assets    |  |                              | 12,154 |               |  |              | 404    |        |  |   |        |   |  |   | 12,558 | 

F-17



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                      |  |                              |        |               |  |              |       |        |  |   |        |   |  |   |        |  
|------------------------------------- |  | ---------------------------- | ------ | ------------- |  | ------------ | ----- | ------ |  | - | ------ | - |  | - | ------ | -
|                                      |  |                             
|                                      |  | Year ended December 31, 1997
|                                      |  |                             
|                                      |  | North                        |        |              
|                                      |  | America                      |        | International |  | Eliminations |       | Totals
|                                      |  |                              |        |               |  |              |       |       
|Sales to external customers           |  | $                            | 28,808 |               |  | $            | 3,345 |        |  | $ |       |   |  | $ | 32,153 |  
|                                     
|                                     
|                                     
|                                     
|Non-recurring expenses                |  |                              | 1,656  |               |  |              |      |        |  |   |       |   |  |   | 1,656  |  
|                                     
|                                     
|                                     
|                                     
|Depreciation and amortization expense |  |                              | 1,934  |               |  |              | 95    |        |  |   |       |   |  |   | 2,029  |  
|                                     
|                                     
|                                     
|                                     
|Segment profit (loss)                 |  |                              | 852    |               |  |              | (876  | )      |  |   | (348   | ) |  |   | (372   | )
|                                     
|                                     
|                                     
|                                     
|Segment assets                        |  |                              | 52,831 |               |  |              | 3,842 |        |  |   | (8,321 | ) |  |   | 48,352 |  
|                                     
|                                     
|                                     
|                                     
|Expenditures for long-lived assets    |  |                              | 4,029  |               |  |              | 278   |        |  |   |       |   |  |   | 4,307  |  

12.  BioTek Acquisition

The Company acquired BioTek for $19,107 on February 26,
1996. The acquisition has been accounted for as a purchase. The
results of BioTek are included in the accompanying consolidated
financial statements from the date of acquisition.

The purchase price for BioTek consisted of:

|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|                                       
|                                       
|                                       
|                                       
|Cash consideration                      |  | $ | 2,500  | 
|                                       
|                                       
|                                       
|                                       
|Stock issued to BioTek noteholders      |  |   | 3,016  | 
|                                       
|                                       
|                                       
|                                       
|Exchange Notes issued                   |  |   | 8,968  | 
|                                       
|                                       
|                                       
|                                       
|Note payable  escrow for contingencies |  |   | 234    | 
|                                       
|                                       
|                                       
|                                       
|Net historical liabilities assumed      |  |   | 4,389  | 
|                                        |  |   |        | 
|                                        |  | $ | 19,107 | 
|                                        |  |   |        | 

The purchase price was allocated as follows:

|                                    |  |   |        | 
|----------------------------------- |  | - | ------ | 
|                                   
|                                   
|                                   
|                                   
|Tangible net assets                 |  | $ | 2,551  | 
|                                   
|                                   
|                                   
|                                   
|In-process research and development |  |   | 7,900  | 
|                                   
|                                   
|                                   
|                                   
|Developed technology                |  |   | 2,800  | 
|                                   
|                                   
|                                   
|                                   
|Customer base                       |  |   | 4,100  | 
|                                   
|                                   
|                                   
|                                   
|Goodwill and other intangibles      |  |   | 1,756  | 
|                                    |  |   |        | 
|Total purchase price                |  | $ | 19,107 | 
|                                    |  |   |        | 

13.  Acquisition of BTTI

The Company acquired BTTI on October 14, 1998 for $6,457.
The acquisition has been accounted for as a purchase. The results
 of operations of BTTI are included in the accompanying
consolidated financial statements from the date of acquisition.
BTTI manufactures and markets a wide range of microtome products,
 tissue processors, cryogenic hardware and peripheral equipment,
primarily for research and educational institutions in the United
 States, Europe and Japan.

The purchase price for BTTI consisted of:

|                                             |  |   |       | 
|-------------------------------------------- |  | - | ----- | 
|                                            
|                                            
|                                            
|                                            
|Cash consideration                           |  | $ | 3,800 | 
|                                            
|                                            
|                                            
|                                            
|Cash to BTTI shareholders, infused into BTTI |  |   | 1,457 | 
|                                            
|                                            
|                                            
|                                            
|Escrow for contingencies                     |  |   | 1,200 | 
|                                             |  |   |       | 
|                                             |  | $ | 6,457 | 
|                                             |  |   |       | 

F-18



---



VENTANA MEDICAL SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The purchase price for BTTI was allocated as follows:

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|                   
|                   
|                   
|                   
|Tangible net assets |  | $ | 261   | 
|                   
|                   
|                   
|                   
|Goodwill            |  |   | 6,196 | 
|                    |  |   |       | 
|                    |  | $ | 6,457 | 
|                    |  |   |       | 

Goodwill recorded in connection with this transaction is being
amortized on a straight-line basis over a 15-year period.

Unaudited pro forma results of operations for the years ended
December 31, 1998 and 1997, assuming consummation of the purchase
 by January 1, 1997, are as follows

|                            |  |      |        |      |  |   |        |  
|--------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                            |  | 1998 |        | 1997
|                            |  |      |        |     
|Net sales                   |  | $    | 51,628 |      |  | $ | 37,379 |  
|                           
|                           
|                           
|                           
|Net income (loss)           |  | $    | 859    |      |  | $ | (1,068 | )
|                           
|                           
|                           
|                           
|Net income (loss) per share |  | $    | .06    |      |  | $ | (.08   | )

14.  Acquisition of Certain Technology from Oncor, Inc.

The Company acquired certain oncology diagnostic technology and
assets from Oncor, Inc. on November 23, 1998 for $5,000 in
cash. The Company plans to incorporate certain aspects of the
acquired technology in future products. The Company charged to
expense at the date of the acquisition $2,900 relating to the
portion of the purchase price allocated to those in-process
research and development projects where technological feasibility
 had not yet been established and where there are no alternative
future uses. This amount is included as non-recurring expense in
the accompanying consolidated statements of operations.

The purchase price for the technology was allocated as follows:

|                                            |  |   |       | 
|------------------------------------------- |  | - | ----- | 
|                                           
|                                           
|                                           
|                                           
|Tangible net assets                         |  | $ | 521   | 
|                                           
|                                           
|                                           
|                                           
|In-process research and development expense |  |   | 2,900 | 
|                                           
|                                           
|                                           
|                                           
|Supply agreement                            |  |   | 1,200 | 
|                                           
|                                           
|                                           
|                                           
|Workforce in place                          |  |   | 100   | 
|                                           
|                                           
|                                           
|                                           
|Goodwill                                    |  |   | 279   | 
|                                            |  |   |       | 
|                                            |  | $ | 5,000 | 
|                                            |  |   |       | 

The Company is amortizing goodwill on a straight-line basis over
15 years. The value assigned to an existing supply agreement
 assumed by the Company is being amortized on a straight-line
basis over the life of the patent underlying the key technology
involved in the supply agreement. The workforce in place costs
are being amortized on a straight-line basis over 5 years.

F-19



---



EXHIBIT INDEX

|        |       |             |  |                                                                                  |  |  |     | 
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |       |             |  |                                                                                 
|Number  |       | Description |  | Notes                                                                           
|        |       |             |  |                                                                                 
|        | 3.1   |             |  | Restated Certificate of Incorporation or Registrant                              |  |  | (1) | 
|        | 3.2   |             |  | Bylaws of Registrant                                                             |  |  | (1) | 
|        | 4.1   |             |  | Specimen Common Stock Certificate                                                |  |  | (1) | 
|        | 10.1  |             |  | Form of Indemnification Agreement for directors and officers                     |  |  | (1) | 
|        | 10.2  |             |  | 1988 Stock Option Plan and forms of agreements thereunder                        |  |  | (1) | 
|        | 10.3  |             |  | 1996 Stock Option Plan and forms of agreements thereunder                        |  |  | (1) | 
|        | 10.4  |             |  | 1991 Employee Stock Purchase Plan                                                |  |  | (1) | 
|        | 10.5  |             |  | 1996 Employee Stock Purchase Plan                                                |  |  | (1) | 
|        | 10.6  |             |  | 1996 Directors Option Plan                                                       |  |  | (1) | 
|        | 10.7  |             |  | 1998 Nonstatutory Stock Option Plan and forms of agreements
	thereunder          |  |  | (2) | 
|        | 10.8  |             |  | Form of Stock Purchase Warrant to Purchase shares of Series 
	 D Preferred Stock |  |  | (1) | 
|        | 10.9  |             |  | Bank of America Business Loan Agreement dated June 9, 1998                       |  |  | (3) | 
|        | 10.10 |             |  | Amendment to Bank of America Business Loan Agreement dated
	October 1, 1998      |  |  | (3) | 
|        | 10.11 |             |  | Amendment to Bank of America Business Loan Agreement dated
	March 17, 1999       |  |  | (3) | 
|        | 21.1  |             |  | Subsidiaries of Registrant                                                       |  |  |     | 
|        | 23.1  |             |  | Consent of Ernst & Young LLP, Independent Auditors                               |  |  |     | 
|        | 27.1  |             |  | Financial Data Schedule                                                          |  |  |     | 




|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed with the Registration Statement on Form S-1
	(Commission File No. 333-4461), declared effective by the
	Commission July  26, 1996.
|   
|(2) | Filed with the Registration Statement on Form S-8
	(Commission File No. 333-92883), filed with the Commission on
	December 16, 1999.    
|   
|(3) | Filed with the report on Form 10-K filed March 31, 1999
	 (Commission File No.  000-20931).