VENTANA MEDICAL SYSTEMS INC - 10-Q Quarterly Report

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

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2002.

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____________ to ____________.

Commission File Number: 000-20931

Ventana Medical Systems, Inc.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		94-2976937 (I.R.S. employer identification no.)

1910 Innovation Park Drive Tucson, AZ (Address of principal executive offices)		85737 (Zip Code)

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

Not Applicable
(Formal name, former address and former fiscal year, if changed from last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Applicable Only to Issuers Involved in Bankruptcy
(Formal name, former address and former fiscal year, if changed from last report)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court.

Yes

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common Stock, $0.001 par value — 16,343,337 shares as of November 6, 2002

Ventana Medical Systems, Inc.

INDEX

Part I.		Financial Information

	Item 1.		Financial Statements (Unaudited)

			Condensed Consolidated Balance Sheets September 30, 2002 and December 31, 2001	1

			Condensed Consolidated Statements of Operations Three and Nine months ended September 30, 2002 and 2001	2

			Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2002 and 2001	3

			Notes to Condensed Consolidated Financial Statements	4

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 4.		Controls and Procedures	15

Part II.		Other Information

	Item 1.		Legal Proceedings	15

	Item 6.		Exhibits and Reports on Form 8-K	18

			Signature	19

			Exhibits	22

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

		September 30, 2002			December 31, 2001

ASSETS
Current assets:
	Cash and cash equivalents	$	12,287		$	12,280
	Accounts receivable, net		23,255			20,448
	Inventories		15,069			11,763
	Prepaid expenses		1,005			520
	Deferred tax benefit, current portion		2,386			2,386
	Other current assets		1,248			752

Total current assets			55,250			48,149
Property and equipment, net			43,897			41,432
Goodwill			2,804			3,068
Intangibles, net			9,208			9,124
Other assets			3,595			2,796
Deferred tax benefit, long term portion			6,716			6,416

Total assets		$	121,470		$	110,985

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts Payable	$	7,688		$	4,733
	Other current liabilities		13,041			9,578

Total current liabilities			20,729			14,311
Long term debt			2,208			2,521
Commitments and Contingencies
Stockholders’ equity
	Common stock - $.001 par value; 50,000,000 shares authorized; 16,343,337 and 16,110,466 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively		16			16
	Additional paid-in capital		144,411			140,587
	Accumulated deficit		(44,764	)		(45,194	)
	Accumulated other comprehensive loss		(530	)		(656	)
	Treasury stock - 40,000 shares, at cost		(600	)		(600	)

Total stockholders’ equity			98,533			94,153

Total liabilities and stockholders’ equity		$	121,470		$	110,985

See accompanying notes

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

				Three Months Ended September 30						Nine Months Ended September 30

				2002			2001			2002			2001

Sales:
	Reagents and other			$	20,411		$	15,735		$	58,046		$	44,642
	Instruments				6,676			5,922			16,974			17,633

		Total net sales			27,087			21,657			75,020			62,275
Cost of goods sold					7,989			6,472			22,684			19,698

Gross profit					19,098			15,185			52,336			42,577
Operating expenses:
	Research and development				4,075			4,137			11,546			11,293
	Selling, general and administrative				13,060			10,440			37,698			31,420
	Amortization of acquisition costs				382			381			1,190			1,135
	Impairment charges and other expenses				1,151			—			1,151			—

Income (loss) from operations					430			227			751			(1,271	)
Interest and other income (expense)					108			135			174			760

Income (loss) before taxes					538			362			925			(511	)
(Provision for) benefit from income taxes					(31	)		(72	)		(495	)		(311	)

Net income (loss)				$	507		$	290		$	430		$	(822	)

Per share data:
	Net income (loss)
			—Basic	$	0.03		$	0.02		$	0.03		$	(0.05	)

			—Diluted	$	0.03		$	0.02		$	0.03		$	(0.05	)

Shares used in computing per share data:
			—Basic		16,308			16,031			16,258			15,832

			—Diluted		16,609			16,784			16,580			15,832

See accompanying notes

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

		Nine Months Ended September 30

		2002			2001

Operating activities:
Net income (loss)		$	430		$	(822	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
	Depreciation and amortization		5,875			5,011
	Impairment charges and other expenses		1,151			—
	Changes in operating assets and liabilities		(2,592	)		(8,677	)

Net cash provided by (used in) operating activities			4,864			(4,488	)
Investing activities:
Purchase of property and equipment			(6,586	)		(18,179	)
Purchase of intangible assets, net			(1,250	)		—

Net cash provided by (used in) investing activities			(7,836	)		(18,179	)
Financing activities:
Payments of debt			(971	)		(380	)
Issuance of common stock			3,824			5,181

Net cash provided by (used in) by financing activities			2,853			4,801
Effect of exchange rate change on cash			126			121

Net increase (decrease) in cash and cash equivalents			7			(17,745	)
Cash and cash equivalents, beginning of period			12,280			38,512

Cash and cash equivalents, end of period		$	12,287		$	20,767

See accompanying notes

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

1. Organization and Significant Accounting Policies

Organization: Ventana Medical Systems, Inc. (the “Company”) develops, manufactures and markets proprietary instrument and reagent sy

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