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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____________________ TO _________________.
COMMISSION FILE NUMBER 0-20726
CORTECH, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 84-0894091
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6850 N. BROADWAY, SUITE G 80221
DENVER, COLORADO (Zip Code)
(Address of principal executive offices)
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(303) 650-1200
(Registrant's telephone number, including area code)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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<S> <C>
COMMON STOCK $0.002 PAR VALUE 18,523,918
(Class) (Outstanding at July 31, 1998)
</TABLE>
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CORTECH, INC.
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
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Item 1. Financial Statements and Notes
Balance Sheets --
June 30, 1998 and
December 31, 1997.................................... 3
Statements of Operations --
for the three and six months ended
June 30, 1998 and 1997............................... 4
Statements of Cash Flows --
for the six months ended
June 30, 1998 and 1997............................... 5
Notes to Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
Item 3. Qualitative and Quantitative Disclosure about Market
Risk................................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 13
Item 5. Other Information......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 14
SIGNATURE................................................................ 15
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PART I
ITEM 1. FINANCIAL STATEMENTS AND NOTES.
CORTECH, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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<CAPTION>
ASSETS
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(Unaudited)
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CURRENT ASSETS
Cash and cash equivalents........................................ $ 12,635 $ 11,562
Short-term investments (Note 3).................................. -- 3,841
Prepaid expenses and other....................................... 169 308
---------- -----------
Total current assets........................................ 12,804 15,711
---------- -----------
PROPERTY AND EQUIPMENT, at cost
Leasehold improvements........................................... 5,118 8,026
Office furniture and equipment................................... 2,299 2,300
---------- -----------
7,417 10,326
Less -- Accumulated depreciation and amortization................ (7,194) (9,592)
---------- -----------
223 734
---------- -----------
Total assets................................................ $ 13,027 $ 16,445
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................. $ 286 $ 600
Accrued liabilities.............................................. 87 162
Accrued vacation and other compensation.......................... 100 264
Advances from corporate partners................................. -- 36
---------- -----------
Total current liabilities................................... 473 1,062
---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.002 par value,
2,000,000 shares authorized, none issued....................... -- --
Common stock, $.002 par value, 50,000,000 shares authorized
18,523,918 shares issued and outstanding....................... 37 37
Warrants......................................................... 1,077 1,077
Additional paid-in capital....................................... 98,909 98,909
Deferred compensation............................................ -- (1)
Accumulated deficit.............................................. (87,469) (84,639)
---------- -----------
Total stockholders' equity.................................. 12,554 15,383
---------- -----------
Total liabilities and stockholders' equity................ $ 13,027 $ 16,445
---------- -----------
---------- -----------
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The accompanying notes to financial statements are an
integral part of these balance sheets.
3
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CORTECH, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------------- ---------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Sponsored research and development (Note 4)
Ono ...................................... $ -- $ 738 $ -- $ 2,183
SB......................................... 22 125 22 560
------------- ------------- ------------- -------------
Total revenues......................... 22 863 22 2,743
------------- ------------- ------------- -------------
EXPENSES
Research and development..................... 150 1,705 436 4,039
General and administrative.................. 1,498 655 3,023 1,412
Restructuring charge......................... -- 665 -- 665
------------- ------------- ------------- -------------
Total expenses ......................... 1,648 3,025 3,459 6,116
------------- ------------- ------------- -------------
Operating loss........................ (1,626) (2,162) (3,437) (3,373)
------------- ------------- ------------- -------------
Interest income................................ 183 194 379 508
Gain on disposition of property and equipment. 12 -- 228 --
------------- ------------- ------------- -------------
NET LOSS...................................... $ (1,431) $ (1,968) $ (2,830) $ (2,865)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic net loss per share..................... $ (0.08) $ (0.11) $ (0.15) $ (0.15)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares
outstanding................................ 18,523,918 18,521,031 18,523,918 18,519,563
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
4
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CORTECH, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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<CAPTION>
FOR THE SIX MONTHS ENDED
---------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $ (2,830) $ (2,865)
Adjustments to reconcile net loss
to net cash used in operating activities --
Depreciation and amortization............................ 429 878
Gain on disposition of equipment......................... (102) --
Research and compensation expense related to grant
of options, including amortization of deferred
compensation............................................ 1 22
Decrease in prepaid expenses and other................... 139 618
Decrease in accounts payable............................. (314) (251)
Decrease in advances from corporate partners............. (36) (764)
(Decrease) increase in accrued liabilities,
accrued vacation and other compensation................. (239) 261
Decrease in unearned income.............................. -- (708)
--------- ----------
Net cash used in operating activities.................. (2,952) (2,809)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................ -- (40)
Proceeds from sales of property and equipment.............. 184 21
Purchases of short-term investments........................ (9) (14,460)
Sales of short-term investments............................ 3,850 13,350
--------- ----------
Net cash provided by (used in) investing activities.... 4,025 (1,129)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from issuance of common stock..................... -- 4
--------- ----------
Net cash provided by financing activities.............. -- 4
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 1,073 (3,934)
CASH AND CASH EQUIVALENTS, beginning of period............... 11,562 7,792
--------- ----------
CASH AND CASH EQUIVALENTS, end of period..................... $ 12,635 $ 3,858
--------- ----------
--------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Note receivable from sale of property and equipment........ $ 125 $ --
--------- ----------
--------- ----------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
5
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CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(1) ORGANIZATION
In December of 1997 Cortech announced that it had signed a definitive
merger agreement with Biostar, Inc., a privately held diagnostics company
based in Boulder, Colorado ("BioStar"). However, the merger agreement was
mutually terminated by BioStar and Cortech on May 7, 1998, in order to allow
both Cortech and BioStar to consider other alternatives.
(2) SIGNIFICANT ACCOUNTING POLICIES
The balance sheet at June 30, 1998 and the related statements of
operations and cash flows for the three and six month periods ended June 30,
1998 and 1997 are unaudited, but in management's opinion include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such financial statements. Interim results are not
necessarily indicative of results for a full year. The accompanying financial
statements should be read in conjunction with the financial statements as of
and for the year ended December 31, 1997 (included in the Company's 1997
Annual Report on Form 10-K filed with the Securities and Exchange Commission).
Certain items in the prior period have been reclassified to conform to
the current presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which the Company adopted beginning with the year ended December 31,
1997. SFAS No. 128 requires restatement of amounts previously reported as net
loss per share. Application of SFAS No. 128 did not have an impact on
previously reported net loss per share amounts.
In March 1998, the Company adopted SFAS No. 130, "Reporting of
Comprehensive Income". SFAS No. 130 requires disclosure of comprehensive
income which includes all changes in stockholders' equity except those
resulting from transactions with owners. There were no significant differences
between comprehensive and net loss for the three and six month periods ended
June 30, 1998 and 1997.
(3) SHORT-TERM INVESTMENTS
Under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's short-term investments held as of December
31, 1997, which consisted entirely of government securities, were classified
as available-for-sale. These securities matured on various dates through
August 1997.
(4) RESEARCH AND DEVELOPMENT AGREEMENTS
During the first quarter of 1997, the Company received $1.5 million from
Ono Pharmaceutical Co., Ltd. ("Ono") for work to be performed over the next six
months (under an agreement signed in March of 1995 and amended in April 1997)
to develop an oral elastase inhibitor. Of this amount, $1.4 million was
recorded as unearned income in March 1997 and was recognized as revenue over
the following six months (including $738,000 in the second quarter of 1997).
Under the terms of the amended agreement, Ono assumed all responsibilities
for research activities during the final six-month period of the
collaborative project (which terminated on March 14, 1998). As a result of
this reallocation of responsibilities, Ono was not required to pay the
Company $1.5 million in research funding to offset the cost that the Company
would otherwise have incurred under the agreement during such final six month
period.
6
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(5) LEGAL PROCEEDINGS
BIOSTAR LITIGATION. On February 27, 1998, a complaint was filed in the
New Castle County, Delaware Court of Chancery naming the Company, the
Company's directors and BioStar as defendants. The complaint, filed by a
stockholder of the Company, claims to be on behalf of a class of all the
Company's stockholders and contends that the directors of the Company
breached their fiduciary duties to the Company's stockholders when they
unanimously approved the proposed combination with BioStar. The complaint
originally sought to enjoin the proposed combination with BioStar as well as
the operation of the Company's stockholder rights plan and sought an order
rescinding the proposed combination with BioStar upon its consummation as
well as compensatory damages and costs. The complaint was amended following
termination of the proposed BioStar merger to seek to force an auction of the
Company's assets and other relief. The Company believes that the claims are
without merit and intends to vigorously defend against this suit. Although
there can be no assurances in this regard, the Company believes that the suit
will have no material adverse effect on the Company's financial position or
results of operations because the Company (i) believes that the claimant will
not prevail on the merits and (ii) has insurance which it believes will cover
the cost of defending this claim (except for a $75,000 deductible amount).
ASSET VALUE FUND LITIGATION. Because the proposed combination with
BioStar was terminated on May 7, 1998, the annual meeting of the Company
scheduled to be held in conjunction with the stockholder vote on the BioStar
transaction was not held. Under Delaware law, any stockholder can seek a
court action to require an annual meeting if a company has not held an annual
meeting for a period of 13 months. This period expired on June 28, 1998, and,
on the following day, Asset Value Fund Limited Partnership, a Delaware limited
partnership ("AVF"), filed an action in the Court of Chancery of the State of
Delaware to compel the Company to hold an annual meeting of stockholders
immediately. Pursuant to a stipulation order entered into by the Company and
AVF, and approved by the Court on July 16, 1998, the Company and AVF agreed
and stipulated that the Company's annual meeting would be held on September 4,
1998 with the record date set for July 10, 1998.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K AS WELL AS THE COMPANY'S
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY
REPORT ON FORM 10-Q. WHEN USED IN THIS DISCUSSION, THE WORD "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS DISCUSSED BELOW AS
WELL AS THE RISKS DISCUSSED IN THE SECTIONS ENTITLED "RISK FACTORS" AND
"BUSINESS" IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K. THE FORWARD
LOOKING STATEMENTS CONTAINED HEREIN SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN
TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR
ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT
IS BASED.
GENERAL
Cortech Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose research and development efforts have focused primarily on bradykinin
antagonists and protease inhibitors. These efforts have produced a technology
portfolio which may have potential therapeutic application across a broad
range of medical conditions. Cortech's strategy is to seek collaborative
partners to conduct and fund future research and development on the components
of its portfolio, although there can be no assurance that any particular
agreement will be completed. Cortech's technology portfolio is comprised of
the following:
BRADYKININ ANTAGONISTS
Cortech believes that Bradycor-TM-, its lead bradykinin atagonist, and
CP-0597, its lead second generation compound, have potential as
novel therapies for the treatment of traumatic brain injury and stroke.
Results from the Bradycor Phase II, placebo-controlled, 133-patient study
conducted in North America by SmithKline Beecham ("SB"), under the terms of a
collaboration announced in November of 1995, suggest that the compound may
improve the outcome of patients with severe traumatic brain injury.
That collaboration was terminated in March of 1997 when results from the
acute phase of the study failed to demonstrate a statistically significant
effect on intracranial pressure, the study's primary endpoint. When Cortech
announced those results in 1997, the analysis of long-term functional outcome
was still pending. That analysis was completed in collaboration with the
American Brain Injury Consortium (ABIC) in August of 1997 and showed positive
trends in functional outcome for patients treated with Bradycor which were
statistically significant in the most severely injured patients. In addition,
patients treated with Bradycor showed modest (but not statistically
significant) positive trends in intracranial pressure and the requirement for
other interventions to control intracranial pressure.
Two manuscripts describing the positive effects of Bradycor in traumatic
brain injury have been prepared for publication in peer-reviewed journals.
One has been accepted for publication and the other will be submitted shortly.
CP-0597 has shown significant neuroprotective effects in animal models
of stroke. Results from preclinical experiments demonstrating the
neuroprotective effects of CP-0597 were reported in the July 1997 issue of
the journal STROKE.
PROTEASE INHIBITORS
ELASTASE INHIBITORS
Neutrophil elastase and related serine elastases have been implicated in
a number of chronic diseases of the respiratory tract including chronic
obstructive pulmonary disease and emphysema as well as certain skin diseases
such as psoriasis and atopic dermatitis.
In March 1995, Cortech signed a three year agreement with Ono
Pharmaceutical Co., Ltd. ("Ono") to develop an orally bioavailable neutrophil
elastase inhibitor using Cortech's protease inhibitor research capabilities.
Following the conclusion of the collaborative project on March 14, 1998, Ono
notified Cortech that Ono had selected a compound for further evaluation
(also indicating that Ono would further study the compound prior to
considering it for advancment to full development in the Ono Territory of
Japan, Korea, Taiwan and China).
8
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Cortech retains rights outside of Ono's Territory to any compounds developed
pursuant to the agreement with Ono.
Cortech also has in its portfolio CE-1037, a parenterally-administered
elastase inhibitor. The product was developed in collaboration with Hoechst
Marion Roussel, Inc. ("HMRI") until December 1996 when HMRI terminated its
agreement with Cortech and returned the rights to CE-1037 to Cortech. The
compound had been advanced into Phase II development.
Cortech has synthesized combined serine elastase inhibitors which have
activity against neutrophil elastase as well as other elastases which are
believed by the Company to be important in the pathophysiology of vascular
diseases including restenosis following angioplasty and atherosclerosis. A
lead compound for the combined serine elastase program has not yet been
identified.
OTHER PROTEASE TARGETS
Cortech has also developed a proprietary technology that has the
potential to be applied to the discovery and synthesis of inhibitors of a
broader range of therapeutically interesting serine and cysteine proteases
which are thought to play an important role in the pathophysiology of many
conditions including viral diseases, vascular diseases and cancer.
In an effort to conserve cash while still retaining its ability to
realize value from its technology portfolio, the Company has undertaken a
series of restructurings over the past four years. These restructurings have
decreased the number of employees from more than 200 to fewer than 10.
Throughout these restructurings, the Company has retained a core group of
employees with expertise in drug discovery, research and development who are
actively involved in seeking corporate partners for Cortech's technology.
Alongside the restructuring of its workforce, the Company has also
decommissioned its laboratories and sold most of its leasehold improvements
and scientific and technical equipment. Although the Company has discontinued
on-site research and development, it has continued focused research
activities through collaborative arrangements with academic and medical
institutions.
In December 1997, Cortech announced that it had signed a definitive
merger agreement with Biostar.
9
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However, the merger agreement was mutually terminated by BioStar and Cortech
on May 7, 1998, in order to allow both Cortech and BioStar to consider other
alternatives.
RESULTS OF OPERATIONS
REVENUES
Revenues from research and development decreased from $863,000 in the
second quarter of 1997 to $22,000 in the second quarter of 1998 and decreased
from $2.7 million to $22,000 in the six month periods ended June 30, 1997 and
1998, respectively. The decrease in revenues resulted primarily from an April
1997 amendment to the Ono
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Agreement (defined below) with Ono, which terminated the obligation of Ono to
make further research payments to the Company, and the discontinuation, as of
March 1997, of the Company's collaboration with SB. The Company expects no
further payments from Ono or SB.
In the second quarter of 1997, the Company recognized as revenue $125,000
received from SB for work performed in connection with Bradycor clinical
trials and $738,000 from Ono for work performed in 1997 under a contract to
develop an oral elastase inhibitor (the "Ono Agreement"). Under the terms of
the Ono Agreement, as amended in April 1997, Ono assumed all responsibilities
for research activities which were conducted during the final six months of
the collaborative project (which terminated on March 14, 1998). As a result,
Ono was not required to pay the Company the last scheduled $1.5 million in
research funding to offset certain costs that the Company would otherwise
have incurred.
RESEARCH AND DEVELOPMENT
Expenses for research and development decreased from $1.7 million in the
second quarter of 1997 to $150,000 in the second quarter of 1998 and
decreased from $4.0 million in the six months ended June 30, 1997 to $436,000
in the six months ended June 30, 1998. This decrease was due primarily to the
cessation of on-site research and development activities by the Company in
late 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $655,000 in the second
quarter of 1997 to $1.5 million in the second quarter of 1998 and increased
from $1.4 million in the six months ended June 30, 1997 to $3.0 million in
the six months ended June 30, 1998. The increase was due substantially to
certain severance payments made to former employees, including the Company's
former chief executive officer ($606,000), certain costs related to the
proposed combination with BioStar that was terminated on May 7, 1998
($328,000), and costs related to stockholder litigation ($185,000) with the
remainder of the increase attributable to certain overhead costs that would
otherwise have been allocated to research and development expenses had the
Company's on-site research and development efforts not been ceased in late
1997.
NET LOSS
The net loss for the second quarter ended June 30, 1998 decreased to $1.4
million from $2.0 million for the quarter ended June 30, 1997 and decreased
from $2.9 million in the six months ended June 30, 1997 to $2.8 million in the
period ended June 30, 1998. The decrease was due principally to a decrease in
research and development expenses offset in part by decreased revenues and
increased general and administrative expenses. Cortech expects to continue to
report losses in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash, cash equivalents and short-term
investments totaling $12.6 million, compared to $15.4 million at December 31,
1997. The Company's net cash used in operating activities totaled $1.7 million
and $3.0 million for the second quarter and six month period ended June 30,
1998, respectively. Operating activities used $2.4 million and $2.8 million
for the second quarter and six month period ended June 30, 1997, respectively.
The Company's expenditures, net of depreciation and non-cash charges,
decreased from $2.6 million in the second quarter of 1997 to $1.8 million in
the second quarter of 1998 and decreased from $5.2 million in the six months
ended June 30, 1997 to $3.1 million in the first half of 1998. This decrease
reflects the cessation of on-site research and development activities by the
Company in late 1997 and the effects of restructurings implemented by the
Company in May and November 1997.
In January 1998, the Company sold certain leasehold improvements for
$150,000 in cash and a note receivable of $125,000 payable in July 1998 which
resulted in a gain of $215,000. The note receivable was collected in July
1998. There can be no assurances that any of the Company's remaining assets
can be sold for book value, if at all.
11
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From its inception through June 30, 1998, the Company raised cash
totaling $97.1 million from the sale of equity securities, including $33.6
million in net proceeds from its November 1992 initial public offering and
$37.7 million in net proceeds from its October 1993 follow-on public offering.
The Company has experienced net losses and negative cash flows from
operations each year since inception and has incurred an accumulated deficit
of $87.5 million through June 30, 1998.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK.
No information is presented for this Item (the Company is not presently
required to prepare or provide this information pursuant to Instructions to
Item 305 of Regulation S-K).
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PART II
ITEM 1. LEGAL PROCEEDINGS.
BIOSTAR LITIGATION. On February 27, 1998, a complaint was filed in the
New Castle County, Delaware Court of Chancery naming the Company, the
Company's directors and BioStar as defendants. The complaint, filed by a
stockholder of the Company, claims to be on behalf of a class of all the
Company's stockholders and contends that the directors of the Company breached
their fiduciary duties to the Company's stockholders when they unanimously
approved the proposed combination with BioStar. The complaint originally
sought to enjoin the proposed combination with BioStar as well as the
operation of the Company's stockholder rights plan and sought an order
rescinding the proposed combination with BioStar upon its consummation as well
as compensatory damages and costs. The complaint was amended following
termination of the proposed BioStar merger to seek to force an auction of the
Company's assets and other relief. The Company believes that the claims are
without merit and intends to vigorously defend against this suit. Although
there can be no assurances in this regard, the Company believes that the suit
will have no material adverse effect on the Company's financial position or
results of operations because the Company (i) believes that the claimant will
not prevail on the merits and (ii) has insurance which it believes will cover
the cost of defending this claim (except for a $75,000 deductible amount).
AVF LITIGATION. Because the proposed combination with BioStar was
terminated on May 7, 1998, the annual meeting of the Company scheduled to be
held in conjunction with the stockholder vote on the BioStar transaction was
not held. Under Delaware law, any stockholder can seek a court action to
require an annual meeting if a company has not held an annual meeting for a
period of 13 months. This period expired on June 28, 1998, and, on the
following day, AVF filed an action in the Court of Chancery of the State of
Delaware to compel the Company to hold an annual meeting of stockholders
immediately. Pursuant to a stipulation order entered into by the Company and
AVF, and approved by the Court on July 16, 1998, the Company and AVF agreed
and stipulated that the Company's annual meeting would be held on September
4, 1998 with the record date set for July 10, 1998.
ITEM 5. OTHER INFORMATION.
On July 13, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") Listing
Qualifications Panel (the "Panel") notified the Company that, as of the close
of business on such date, the Company's Common Stock ("Common Stock") would be
delisted from the Nasdaq National Market. Nasdaq's maintenance standard
requires that the common stock of companies listed on the Nasdaq National
Market must have a bid price of at least $1.00 per share, and the basis for
the Panel's decision was that the bid price of the Common Stock was less than
$1.00 per share. As a result of the delisting, the Common Stock currently
trades on Nasdaq's OTC Bulletin Board.
With respect to the minimum bid price of $1.00 per share of the Company's
Common Stock, the Company has proposed for consideration a reverse split of
1-for-10 of the Company's Common Stock at the Company's 1998 Annual
Stockholder Meeting (the "Annual Meeting") on September 4, 1998.
Nasdaq's delisting of the Common Stock will have a number of adverse
effects on the Company's stockholders. Availability of current market price
information for the Common Stock and news coverage of the Company will be
limited. Delisting may have the effect of restricting investors' interest in
the Common Stock and may have a material adverse effect on the trading market
and prices for the Common Stock as well as the Company's ability to issue
additional securities or to secure additional financing. Because of the
adverse impact on the trading market of the Common Stock and the potential
loss of effective trading markets, the volatility of the Common Stock may be
increased.
On July 23, 1998, the Company appealed Nasdaq's decision to delist the
Common Stock to the Nasdaq Listing and Hearing Review Council (the "Review
Council"). The basis for the Company's appeal is that the Company believes
that the failure of the Common Stock to comply with Nasdaq's minimum $1.00
per share bid price requirement will be
13
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cured by stockholder approval of the reverse split at the Annual Meeting.
However, even if the reverse split is approved, there can be no assurance
that the Company's appeal to the Review Council will be successful. In
addition, while the Company believes it currently meets the continued listing
criteria for the Nasdaq National Market (other than with respect to the
minimum bid price), even if the decision of the Review Council is favorable,
there can be no assurance that the Company will meet Nasdaq's continued
listing criteria in the future (whether as a result of failure to meet the
minimum bid price requirement or other requirements imposed by Nasdaq).
On July 24, 1998 Cortech announced that Joachim von Roy, John E. Repine,
M.D., and Edward Finkelstein had been appointed to the Company's Board of
Directors. The appointments filled the vacancies created by the resignations
of three Directors, Charles Cohen, Ph.D., Donald Kennedy, Ph.D., and Allen
Misher, Ph.D., who had planned to leave the Board upon consummation of the
merger agreement with BioStar. In August of 1998 Larry Gold, Ph.D. was also
appointed to Cortech's Board of Directors.
On July 29, 1998, Nasdaq informed the Company that the Company would be
permitted to submit information to the Review Council in connection with the
Company's appeal until the close of business on September 23, 1998. Nasdaq
further indicated in its July 29, 1998 letter that the Review Council would
issue a decision after the National Association of Securities Dealers Board of
Governors had an opportunity to consider the delisting decision pursuant to
NASD Rule 4880, an opportunity the Nasdaq indicated would likely occur at the
December NASD Board of Governors meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
<TABLE>
<CAPTION>
ITEM DESCRIPTION
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<S> <C>
27.1 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
On May 19, 1998 the Company filed a report on Form 8-K which discussed
the departure of Kenneth R. Lynn from all positions with the Company and
included as Exhibit 99.1 a press release dated May 18, 1998, announcing
changes in the management of Cortech and Exhibit 99.2 the Amended Severance
Arrangements between Cortech and Mr. Lynn.
On May 29, 1998, the Company filed a report on Form 8-K which included
as Exhibit 99.1 a letter dated May 28, 1998 from Bert Fingerhut, Chairman of
the Board and Acting Chief Executive Officer of Cortech, to Paul O. Koether of
Asset Value Fund Limited Partnership responding to certain demands made by
Mr. Koether.
On June 16, 1998 the Company filed a report on Form 8-K which included
as Exhibit 99.1 a letter dated June 16, 1998 from Bert Fingerhut, Chairman of
the Board and Acting Chief Executive Officer of the Company to Paul O.
Koether of Asset Value Fund Limited Partnership discussing proposals to be
voted on at the 1998 Annual Stockholder Meeting.
The Company filed no other reports on Form 8-K during the quarter ended
June 30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORTECH, INC.
(Registrant)
Date: August 14, 1998 By: /s/ DIARMUID F. BORAN
---------------------- -----------------------------------
Diarmuid F. Boran
CHIEF OPERATING OFFICER
ACTING CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND FINANCIAL
OFFICER)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,635
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,804
<PP&E> 7,417
<DEPRECIATION> 7,194
<TOTAL-ASSETS> 13,027
<CURRENT-LIABILITIES> 473
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 12,517
<TOTAL-LIABILITY-AND-EQUITY> 13,027
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,459
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,830)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
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