CORTECH INC, 10KSB, 1999-03-30

CORTECH INC
10KSB, 1999-03-30
PHARMACEUTICAL PREPARATIONS

Previous: U S SHELTER CORP /DE/, 10-K405, 1999-03-30

Next: PARKWAY PROPERTIES INC, 10-K, 1999-03-30

This Schedule contains summary financial information extracted from the
Form 10-KSB of Cortech, Inc. for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.

</LEGEND>

<CIK> 0000728478
<NAME> CORTECH, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,597
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,674
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,674
<CURRENT-LIABILITIES> 1,133
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 10,537
<TOTAL-LIABILITY-AND-EQUITY> 11,674
<SALES> 0
<TOTAL-REVENUES> 1,347
<CGS> 0
<TOTAL-COSTS> 6,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,654)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,654)
<EPS-PRIMARY> (2.51)
<EPS-DILUTED> (2.51)

</TABLE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

MARK ONE:

[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the Fiscal year ended December 31, 1998

[ ] Transaction Report Under 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.
(Name of small business issuer in its charter)

DELAWARE 84-0894091
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

6850 N. Broadway, Suite G, Denver, Colorado
80221 (Address of principal executive offices with Zip Code)

Issuer's telephone number, including area code (303) 650-1200

Securities registered under Section 12(b) of the Exchange Act:

NONE

Securities registered under Section 12(g) of the Act

Common Stock, par value $.002 per share

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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

Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]

Issuer's revenues for the fiscal year ended December 31, 1998 were
approximately $1,347,000.

As of February 26, 1999, there were 1,852,209 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the issuer, based upon the closing price on the NASDAQ
National Market, was approximately $7.6 million.

Traditional Small Business Disclosure Format Yes ____ No X

<PAGE>

Item 1. - DESCRIPTION OF BUSINESS
- ------- -----------------------

General
- -------

Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-KSB are forward-looking statements
that involve risks and uncertainties. For a discussion of certain factors which
may affect the outcome projected in such statements, see Item 6 ("Management's
Discussion and Analysis of Financial Condition and Results of Operations") of
this Annual Report, as well as factors noted in the balance of this Item 1
("Description of Business"). Actual results may differ materially from those
projected. These forward-looking statements represent the Company's judgement as
of the date of the filing of this Annual Report. The Company disclaims, however,
any intent or obligation to update these forward-looking statements.

Overview
- --------

Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose research and development efforts have focused primarily on protease
inhibitors and bradykinin antagonists. These efforts have produced a technology
portfolio which may have 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 or to
sell the rights to certain of the compounds in the portfolio to third parties
interested in funding future research and development, while conserving the
Company's cash. At the same time, the Company is seeking to redeploy its assets
into an operating business.

As a result of these actions, Cortech no longer has the staff or operative
facilities required to recommence internal research and development activities.
Throughout 1998, Cortech retained a core group of professionals who, among other
things, were engaged in efforts to secure collaborative partners for Cortech's
technology portfolio. In November 1998, these efforts resulted in a
collaboration based on CE-1037 (the Company's lead human neutrophil elastase
inhibitor) with United Therapeutics Corp. ("UT") a privately held pharmaceutical
company based in North Carolina. Under the exclusive worldwide product and
license agreement, UT made an up-front payment of $250,000 and will pay the
future costs of developing the compound in pulmonary diseases. The agreement
also provides for Cortech to receive milestone payments if the compound is
successfully advanced in development and a royalty on product sales should the
compound be successfully commercialized. It is not expected that the agreement
will result in significant revenues in 1999.

<PAGE>

In March 1999, the Company announced that an agreement in principle had
been reached with Ono Pharmaceutical Co., Ltd. of Osaka, Japan ("Ono") whereby
Ono will be granted western rights to the oral elastase inhibitor program on
which Ono and Cortech have collaborated. Previous to the proposed agreement,
Ono's rights were limited to Korea, Japan, the People's Republic of China and
Taiwan (the "Ono Territory"). Consideration for Cortech granting western rights
to Ono is contemplated to include $2 million upon signing of a definitive
agreement and a series of possible future milestone payments which could
aggregate an additional $9.5 million. Cortech also may be entitled to royalties
at the rate of 4% of net sales of products developed by Ono based on Cortech
patents outside the Territory. It must be pointed out that the possible
milestone payments and royalties are probably many years in the future. The Ono
agreement in principle is subject to the signing of a definitive agreement.

Efforts to sell or establish partnerships for the remaining components of
Cortech's technology portfolio have now virtually ceased and although
discussions with some potential collaborators continue, there can be no
assurance that any transaction will be completed.

In December 1997, Cortech announced that it had signed a definitive merger
agreement with BioStar, Inc. ("BioStar"), a privately held diagnostics company
based in Boulder, Colorado. The merger agreement was mutually terminated by
BioStar and Cortech on May 7, 1998.

Following its Annual Meeting on September 4, 1998, the Company announced on
September 18, 1998 that four of the nominees of Asset Value Fund Limited
Partnership ("AVF"), a Delaware limited partnership, had been elected to the
Company's Board of Directors, constituting a majority of the Board of Directors.
Then on September 21, 1998, the Company announced that three of AVF's elected
nominees, Paul O. Koether, Mark W. Jaindl and John W. Galuchie, Jr., had been
elected to the positions of Chairman, Vice Chairman and President, respectively,
at the Company's annual organizational meeting of the Board of Directors. The
Company also announced implementation of a one-for-ten reverse stock split which
became effective at the close of business on September 22, 1998, and elimination
of the Company's Shareholder Rights Plan (the "Plan"). The Company redeemed all
rights issued under the Plan. The redemption resulted in a one-time payment of
$0.10 per share on a split adjusted basis to the Company's stockholders.

The Company was incorporated in 1982 in Colorado and reincorporated in
Delaware in August 1991. Cortech has incurred operating losses in each year
since its date of inception. For the year ended December 31, 1998, Cortech had a
net loss of approximately $4.7 million and through such date has an accumulated
deficit of approximately $89.3 million. The Company's offices are located at
6850 N. Broadway, Suite G, Denver, Colorado 80221. Its telephone number is (303)
650-1200.

Cortech's Work with Protease Inhibitors
- ---------------------------------------

Background. Proteases are enzymes that cleave peptide bonds within
proteins. Since proteins are one of the fundamental building blocks of

<PAGE>

biological systems, proteases are among the most important regulators of
biological activity that have been described. As a result of an increased
understanding of the causative role proteases play in a number of disease
processes, protease inhibition had become a very important area of drug
discovery. Cortech's work focused primarily on the discovery and synthesis of
inhibitors of human neutrophil elastase ("HNE"), a serine protease capable of
degrading a variety of connective tissue proteins, most notably elastin. Elastin
is found in the lungs, vasculature and skin, and therapy directed against HNE
may have therapeutic application in acute and chronic respiratory,
cardiovascular and skin disorders. As a result of its research and development
efforts in this field, Cortech has developed proprietary technology which it has
demonstrated has the potential to be applied to the discovery and synthesis of a
broader range of therapeutically interesting protease inhibitors.

During inflamation, neutrophils are activated and migrate to sites of
inflamation to help kill micro-organisms and eliminate inflammatory debris.
Neutrophils release HNE which disrupts the lining of blood vessels (endothelium)
and allows the neutrophils to reach their target destination. Because HNE is so
potent at digesting protein and thereby damaging tissue, the body possesses a
number of defenses against excessive HNE release, limiting its effect in minor
inflammatory states. In certain severe inflammatory conditions, however, HNE
production overwhelms the body's natural defenses, resulting in tissue
destruction. High levels of HNE release have also been found in cases of organ
dysfunction, such as those associated with acute respiratory distress syndrome
("ARDS"). Further, HNE appears to play a significant role in a number of chronic
diseases marked by tissue destruction, including cystic fibrosis and emphysema.
HNE also appears to be involved in less severe forms of tissue destruction, such
as rheumatoid arthritis, psoriasis and periodontal disease.

CE-1037 - HNE Inhibitor for Parenteral Administration. CE-1037 was
developed and advanced into early Phase II clinical trials in collaboration with
Hoechst Marion Roussel, Inc. ("HMRI"). HMRI terminated that collaboration in
December 1996 following animal experiments which suggested that the compound
might have genotoxic effects at high concentrations. A repeat experiment,
sponsored by Cortech but conducted by an independent outside laboratory failed
to show any genotoxic effect of the compound. Subsequently, in November 1998,
Cortech was successful in securing United Therapeutics as a new corporate
partner for CE-1037. Under the exclusive worldwide product and license
agreement, UT made an up-front payment of $250,000 and will pay the future costs
of developing the compound for the potential treatment of pulmonary diseases.
Notwithstanding this Agreement, there can be no assurance that CE-1037 will be
proven safe and efficacious in clinical trials, that the regulatory approvals
necessary for this commercialization (if it is ever advanced to this stage)would
be obtained or that it could be manufactured at acceptable costs and in
appropriate quantity.

HNE Inhibitors for Oral Administration. HNE has been implicated in a number
of chronic diseases of the respiratory tract including chronic obstructive
pulmonary disease and emphysema. Optimally, these conditions would require a
compound that could be administered orally for a prolonged period of time. Thus,
Cortech's research and development in the area of elastase inhibition was
expanded to include compounds suitable for oral administration.

<PAGE>

In March 1995, Cortech signed a three-year research agreement with Ono to
develop an orally active HNE inhibitor using technology developed by Cortech
prior to initiation of the collaboration. Under the terms of the agreement, Ono
substantially funded Cortech's research on oral HNE inhibitors ultimately
providing a total of approximately $10 million in funding from 1995-1997. The
agreement also granted Ono an exclusive, royalty-free license to make, use and
sell a resulting product in Japan, Korea, Taiwan and China (the "Ono
Territory"), with Cortech retaining all rights outside of the Ono Territory.

In April 1997, Cortech and Ono amended their agreement to transfer all
responsibilities for research activities to Ono during the final six months of
the collaborative project (from September 15, 1997 through March 14, 1998.)
During the third quarter of 1997, Cortech's remaining research staff focused
their efforts primarily on elastase inhibition in order to fulfill Cortech's
responsibilities under its agreement with Ono. On October 1, 1997, after
fulfilling these responsibilities, Cortech implemented a further, corporate
downsizing (to a staff of less than 15 full-time persons). Although Cortech
retains rights outside of the Ono Territory to any compounds developed pursuant
to the agreement with Ono, including those that might result from Ono's efforts
during the final six months of the collaborative project, there can be no
assurance that any research and development efforts with respect to HNE
inhibitors (including the efforts of Ono) will prove successful, that any
potential product would be proven safe and efficacious in clinical trials, that
the regulatory approvals necessary for the commercialization of any product (if
any product is ever advanced to this stage) would be obtained or that any
product could be manufactured at acceptable costs and with appropriate quantity.
Cortech does not intend to undertake further development of HNE inhibitors
without a collaborative partner. There can be no assurance that Cortech will be
able to establish such a collaboration or effect any transaction involving a
sale of technology rights on favorable terms, if at all.

In March 1999, the Company announced that an agreement in principle had
been reached with Ono whereby Ono will be granted western rights to the oral
elastase inhibitor program on which Ono and Cortech have collaborated. Previous
to the proposed agreement, Ono's rights were limited to the Ono Territory.
Consideration for Cortech granting western rights to Ono is contemplated to
include $2 million upon signing of a definitive agreement and a series of
possible future milestone payments which could aggregate an additional $9.5
million. Cortech also may be entitled to royalties at the rate of 4% of net
sales of products developed by Ono based on Cortech patents outside the
Territory. It must be pointed out that the possible milestone payments and
royalties are probably many years in the future. The Ono agreement in principle
is subject to the signing of a definitive agreement.

Other Protease Targets. As part of its protease inhibitor research efforts,
Cortech scientists synthesized and tested a number of compounds. Certain of
these compounds have been shown to have activity against other serine elastases,
such as proteinase-3 and endogenous vascular elastase. Serine elastases have
been shown to play an important role in vascular injury, and Cortech believes
that its portfolio of compounds may potentially provide useful therapeutic
interventions for certain acute and chronic vascular, skin and respiratory

<PAGE>

diseases. Cortech has also developed a proprietary technology which has the
potential to be applied to the discovery and syntheses of inhibitors of a
broader range of therapeutically interesting serine and cysteine proteases such
as most cell tryptase and picorna virus proteases, interleuken-1 beta converting
enzyme, other caspases involved in apoptosis and cell death and cathepsins B, K,
L and S.

Notwithstanding these initial findings, there can be no assurance that any
of these compounds will be proven safe and efficacious in clinical trials, that
the regulatory approvals necessary for their commercialization (if any such
compounds are ever advanced to this stage) would be obtained or that it could be
manufactured at acceptable costs and with appropriate quantity. Furthermore,
Cortech does not intend to undertake further development of any of these
compounds without a collaborative partner. Although Cortech is currently seeking
to secure such a partner or purchaser of Cortech's related technology rights,
there can be no assurance that Cortech will be able to establish such a
collaboration or effect any transaction involving a sale of technology rights on
favorable terms, if at all.

Cortech's Work with Bradykinin Antagonists
- -------------------------------------------

Background. Inflammation is the body's response to injury of any kind,
including injury caused by infections, immune responses or physical trauma.
Controlled inflammation is beneficial because it facilitates the clearance of
pathogens (disease-causing agents) and the repair of damaged tissue. However,
because inflammation is a comprehensive response involving numerous pathologic
mediators, the strength of the response often converts normal, controlled
inflammation into an abnormal, destructive process. When this occurs,
inflammation can cause acute or chronic disease, often accompanied by pain,
edema (swelling) or tissue destruction leading to organ failure and death in
severe cases.

Bradykinin is generated immediately following tissue injury or infection.
It is a pivotal inflammatory mediator, and its diverse effects include pain,
edema, vascular leak, and hypotension or low blood pressure that can lead to
shock, organ dysfunction and death. The body normally inactivates bradykinin
within seconds of its generation. However, in instances of severe injury,
bradykinin production outstrips the body's capacity to inactivate it, thereby
generating sustained inflammation, pain and edema. Preclinical and clinical work
continues to support the role of bradykinin as an important mediator of
inflammation, particularly in brain injury following trauma or acute ischemia.

Bradycor (TM) (Deltibant or CP-0127). Bradycor is Cortech's lead,
first-generation bradykinin antagonist which may potentially have therapeutic
application in the management of traumatic brain injury ("TBI"). The rationale
for its use in TBI is based on the important contribution of inflammatory
processes to the full expression of the injury. A number of these inflammatory
processes are mediated by bradykinin receptor mechanisms, including neutrophil
activation and migration, stimulation of vascular endothelial cells and
interactions with neuronal and non-neuronal cell populations found within the
brain parenchyma. Following brain injury, these processes result in the

<PAGE>

production of inflammatory cytokines, endothelial retraction, blood brain
barrier disruption and neuronal death. Thus, compounds such as Bradycor which
can block these bradykinin mediated effects may potentially be efficacious in
ameliorating the inflammatory aspects of TBI.

Until mid-1995, Cortech's work on Bradycor concentrated primarily on the
treatment of sepsis, but two Phase II clinical trials, completed in 1994 and
1995, failed to provide sufficient evidence of efficacy to warrant additional
development in that indication. Concurrent with the sepsis studies, Cortech also
undertook a small, pilot Phase II study in patients with large focal cerebral
contusions (a type of injury that represents a subset of the spectrum of TBI).
In that study, Bradycor had significant beneficial effects, compared with
placebo, on intra cranial pressure, neurological status and the need for
surgical intervention. In addition, Bradycor was well tolerated and showed no
clinically significant adverse effects in these patients. A manuscript
describing the results of that study was recently published in Acta
Neurochisurgica.

In November 1995, Cortech entered into a worldwide product development and
license agreement with SmithKline Beecham ("SB") for the development of Bradycor
for the treatment of TBI and possibly stroke. Under the terms of this agreement,
SB undertook a multicenter, placebo controlled, Phase II clinical trial of
Bradycor in patients with severe TBI (The "TBI Study"). Results of the TBI
Study, which became available in March 1997, failed to demonstrate a
statistically significant benefit of Bradycor on intra cranial pressure, the
primary endpoint of the TBI Study. Based on these results, SB and Cortech agreed
to discontinue the planned development of Bradycor. Moreover, SB, after
providing Cortech with $4 million in funding for the development of Bradycor,
terminated its agreement with Cortech.

Notwithstanding the initial results of the TBI Study, an analysis of
long-term functional outcome by the American Brain Injury Consortium ("ABIC"),
which was completed during the third quarter of 1997, 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 in the TBI Study showed modest (but not statistically significant)
positive trends in intra cranial pressure and the requirement for other
interventions to control intra cranial pressure. The study and the results
generated by ABIC have been described in a manuscript which has been accepted
for publication in the JOURNAL OF NEUROTRAUMA.

During the term of the agreement between SB and Cortech, SB also conducted
a number of preclinical and other early phase clinical studies to broaden the
profile of Bradycor. One of SB's preclinical studies in rats yielded adverse
findings which were inconsistent with the findings of Cortech's toxicology
program and not supported by the safety profile observed in the clinic. These
adverse findings led to the premature suspension of the TBI Study with 133
patients available for analysis rather than the 160 patients planned. However,
repeat rat studies failed to duplicate the initially observed mortality or to
provide an explanation for the adverse findings. Furthermore, these results,
when considered in the context of the entire body of preclinical and clinical
data available on the compound, remain anomalous.

<PAGE>

Cortech does not intend to undertake further development of Bradycor
without a collaborative partner. There can be no assurance that Cortech will be
able to establish such a collaboration or effect any transaction involving a
sale of technology rights on favorable terms, if at all. In the event that such
a partnership is secured and development efforts with respect to Bradycor are
continued, there can be no assurance that Bradycor would be proven safe and
efficacious in clinical trials, that the regulatory approvals necessary for its
commercialization (if Bradycor is ever advanced to this stage) would be obtained
or that it could be manufactured at acceptable costs and with appropriate
quantity.

In February 1992, Cortech entered into a series of agreements with CP-0127
Development Corporation ("CDC") that govern the development of products
utilizing Bradycor. See "CP-0127 Development Corporation".

Second Generation Bradykinin Antagonist Research. Cortech has also
developed a series of peptide bradykinin antagonists that are 100 to 1,000 times
more potent than Bradycor. Compared to Bradycor, these compounds have longer
durations of action in vivo and are expected to be less costly to manufacture.
Cortech has identified a lead compound, CP-0597, which has been targeted for the
treatment of acute ischemic stroke where inflammatory consequences of the injury
are felt to be similar to those following traumatic injury. Acute ischemic
stroke is the term applied when blood supply to the brain is acutely compromised
by the obstruction of an artery. This obstruction leads to ischemia
(insufficient blood flow and loss of oxygen) of the brain tissue. As a result of
the ischemia, there is neuronal death, neurological impairment and death of
brain tissue. The microvasculature in the brain is acutely sensitive to ischemia
and reacts with endothelial swelling and changes in microvascular tone which
further compromise blood supply. There is blood brain barrier disruption in the
ischemic territory and an inflammatory response both at the vascular and
neuronal levels.

Results from preclinical experiments demonstrating the neuroprotective
effects of CP-0597 were reported in the July 1997 issue of STROKE. These results
indicate that CP-0597 may have significant therapeutic potential in the
treatment of stroke. Cortech does not, however, intend to undertake further
development of CP-0597 without a collaborative partner. There can be no
assurance that Cortech will be able to establish such a partnership or effect
any transaction involving a sale of technology rights on favorable terms, if at
all. Furthermore, there can be no assurance that CP-0597 would be proven safe
and efficacious in clinical trials, that the regulatory approvals necessary for
its commercialization (if it is ever advanced to this stage) would be obtained
or that it could be manufactured at acceptable costs and with appropriate
quantity.

Product Development Risks
- -------------------------

Cortech's compounds are in an early stage of research and development. All
of the compounds in Cortech's portfolio would require extensive additional
research and development prior to submission of any regulatory application for
commercial use. At this point, Cortech's compounds could only be advanced

<PAGE>

through collaborative arrangements or sale of its technology. There can be no
assurance that Cortech will be able to establish such collaborative arrangements
or to effect a transaction involving a sale of technology rights on acceptable
terms, if at all. Even if Cortech enters into collaborative arrangements and/or
receives funds for research and development, there can be no assurance that
research or product development efforts would be successfully completed, that
the compounds in Cortech's portfolio would be proven to be safe and efficacious
in clinical trials, that required regulatory approvals for commercialization (if
products are ever advanced to this stage) could be obtained, that products could
be manufactured at acceptable cost and with appropriate quality or that any
approved products could be successfully marketed or would be accepted by
patients, health care providers and third-party payors.

Patents, Trade Secrets and Licenses
- -----------------------------------

Cortech believes that patents and other proprietary rights are crucial to
its intellectual property portfolio. It is Cortech's policy to maintain
appropriate patent protection of proprietary technologies and compounds in its
portfolio. In addition to patents, Cortech relies upon trade secrets, know-how,
and licensing opportunities to develop and maintain its competitive position.
The value of Cortech's intellectual property will depend in part on its ability
to obtain patents, maintain trade secrets and operate without infringing on the
proprietary rights of others in the United States and in other countries.

Cortech has patent protection related to the following: protease
inhibitors, bradykinin antagonists and immunology (vaccines and treatments).
Cortech holds seven United States patents and currently has fourteen United
States patent applications pending which concern protease inhibitors. Cortech
holds five United States patents, has three United States patent applications
pending and has one patent application which has been allowed which concern
bradykinin antagonists. In addition, Cortech holds 26 foreign patents and has 40
foreign patents pending concerning protease inhibitors and bradykinin
antagonists.

The patent positions of pharmaceutical and biopharmaceutical firms,
including Cortech, are uncertain and involve complex factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before or after the patent is issued. Consequently, there can be no
assurance that any of Cortech's pending applications will result in the issuance
of patents or, if any patents are issued, whether they will provide significant
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy until patent issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, there can be no assurance that Cortech or
any licensor was the first creator of inventions covered by pending patent
applications or that Cortech or such licensor was the first to file patent
applications for such inventions. There can be no assurance that Cortech's
patents, if issued, would be held valid and infringed by a court of competent
jurisdiction. An adverse outcome with regard to a third party claim could
subject Cortech to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require Cortech to cease using such
technology.

<PAGE>

A number of pharmaceutical and biopharmaceutical companies and research and
academic institutions have filed patent applications or received patents in
Cortech's fields. Some of these applications or patents may be competitive with
Cortech's applications or may conflict in certain respects with claims made
under Cortech's applications. Such conflict could result in a significant
reduction of coverage of Cortech's patents, if issued. In addition, if patents
are issued to other companies that contain competitive or conflicting claims and
such claims are ultimately determined to be valid, there can be no assurance
that Cortech would be able to obtain licenses to these patents at a reasonable
cost or be able to develop or obtain alternative technology.

Cortech also seeks to protect unpatented trade secrets and improvements and
unpatented know-how. It is Cortech's policy to require its employees,
consultants, members of the Board of Directors, outside scientific collaborators
and sponsored researchers and other advisors to execute confidentiality
agreements upon the commencement of employment or consulting relationships with
Cortech. These agreements provide that all confidential information developed or
made known to the individual during the course of the individual's relationship
with Cortech is to be kept confidential and not disclosed to third parties
except in scientific circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual shall be the exclusive
property of Cortech. There can be no assurance, however, that these agreements
will not be breached or will provide meaningful protection or adequate remedies
in the event of unauthorized use of Cortech's trade secrets or disclosure of
such information. Cortech also has taken appropriate physical security measures
to protect its intellectual property. There can be no assurance, however, that
such security measures will be adequate.

CP-0127 Development Corporation
- -------------------------------

In February 1992, Cortech entered into a series of agreements with CDC that
govern the development of products utilizing Bradycor. The agreements grant CDC
the right to utilize Bradycor in the United States, Canada and Europe for
certain indications, while Cortech retained rights to Bradycor in other parts of
the world. Cortech has the right to market, sell and license the technology
licensed to CDC or to sell products derived therefrom and is subject or a
royalty obligation in favor of CDC.

Marketing Strategy
- ------------------

Cortech's compounds are in the early stages of research and development. In
the event that any of Cortech's compounds are approved for marketing in the
future, Cortech will be entirely reliant upon its corporate partners to market
those compounds. Any revenues received by Cortech will, therefore, be dependent
on the efforts of third parties, and there can be no assurance that such efforts
will be successful.

<PAGE>

Manufacturing
- -------------

The manufacture of sufficient quantities of new drugs can be an expensive,
time-consuming and complex process and may require the use of materials with
limited availability or require dependence on sole-source suppliers. In the
event that any of Cortech's compounds reach the stage of development involving
manufacturing, Cortech will be solely dependent upon its corporate partners for
the manufacture of compounds.

Competition
- -----------

The pharmaceutical and biopharmaceutical industries are engaged in intense
competition involving multiple technologies and strategies for compound
identification and development. Many companies are focused on research in the
same areas as Cortech. Cortech's most significant competitors are fully
integrated pharmaceutical companies and more established biotechnology
companies. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. In addition, Cortech faces competition from academic institutions,
governmental agencies, and other public and private research organizations that
conduct research, seek patent protection, and establish collaborative
arrangements for product and clinical development and marketing.

Many of Cortech's competitors have substantially greater financial,
technical and human resources than Cortech and have significant products
approved or in development.

Any of Cortech's products that successfully gain regulatory approval must
then compete for market acceptance and market share. For certain of Cortech's
potential products, an important competitive factor will be the timing of market
introduction. Accordingly, Cortech expects that important competitive factors
will be the relative speed with which companies can develop products, complete
the clinical testing and approval processes and supply commercial quantities of
the product to the market. With respect to clinical testing, competition may
delay progress by limiting the number of clinical investigators and patients
available to test Cortech's potential products.

HNE inhibitors have been the target of research and development efforts by
a number of large pharmaceutical companies. While no company has succeeded in
developing a small molecular weight HNE inhibitor to the point of filing an
application for marketing approval, there can be no assurance that any of these
programs will not achieve success in the future. In addition, alternative
approaches to the use of HNE inhibitors are being developed.

At least four other companies have developed bradykinin antagonists and may
be engaged in product development activities. Numerous companies are developing
alternative strategies to treat inflammation. A number of these are in
preclinical and clinical development. Any of these approached could compete with
Cortech's HNE inhibitor programs.

<PAGE>

Government Regulation
- ---------------------

The Food and Drug Administration ("FDA") is the primary agency regulating
the research, development, manufacturer, sale and marketing of drugs in the
United States. From the time at which a promising compound is identified,
regulations dictate its development, approval, marketing and sale. Product
development and approval within this regulatory framework takes a number of
years and involves the expenditure of substantial resources. Many products that
initially appear promising are never approved because they do not meet safety
and efficacy requirements of the FDA. Regulatory requirements may change at any
stage of Cortech's product development and may affect approval, delay in
application, or require additional expenditures by Cortech. If approval is
obtained, failure to comply with ongoing regulatory requirements, or new
information that negatively impacts the safety or effectiveness of the approved
drug, could cause the FDA to withdraw approval to market the product.

The time period between when a promising new compound is identified and
when human testing is initiated is generally referred to as the preclinical
development period. A series of pharmacologic studies are also performed during
preclinical development to identify the essential characteristics of the
compound's behavior. In addition, both in vitro and in vivo animal toxicity
studies are required to characterize the toxicity profile of the compound.
Preclinical studies are regulated by the FDA under a series of regulations
called Good Laboratory Practice ("GLP") regulations. Violations of these
regulations can, in come cases, lead to invalidation of the studies, requiring
those studies to be repeated. During this time, a manufacturing process which is
capable of producing the compound in an adequately pure and well characterized
form for human use is developed. Production of compounds for use in humans is
governed by a series of FDA regulations known as Good Manufacturing Practice
("GMP") regulations, which regulate all aspects of the manufacturing process.

The entire body of preclinical development work is summarized in a
submission to the FDA called a Notice of Claimed Exemption for an
Investigational New Drug ("IND"). FDA regulations allow human clinical trials to
begin 30 days following the submission of the IND, unless the FDA requests
additional information, clarification or additional time to review the IND.
There is no assurance that the submission of an IND will allow a company to
commence clinical trials. Once trials have started, the company or the FDA may
decide to stop the trials because of concerns about the safety of the product or
the adequacy of the trial design. Such action can substantially delay individual
trials, as well as the entire development program for the compound and, in some
cases, may require abandonment of a product.

Clinical testing of new compounds in humans is designed to establish both
safety and efficacy in treating a specific disease or condition. These studies
are usually conducted in three phases of testing. In Phase I, a small number of
healthy subjects or patients with the specific condition being targeted are
given the new compound to determine the pharmacokinetic and pharmacologic

<PAGE>

actions of the drug in humans, the side effects associated with increasing doses
and if possible, to gain early evidence of effectiveness. In Phase II, small
numbers of patients with the targeted disease are given the compound to test its
efficacy in treating the targeted disease, to determine the common short-term
side effects and risks associated with the drug, and to establish effective dose
levels. Phase III studies are larger studies designed to confirm the compound's
efficacy and safety for the targeted disease and to provide an adequate basis
for physician labeling.

When a drug is being developed for a condition that is life or organ
threatening, or for which there is no alternative therapy, the FDA may, in
certain cases, grant an accelerated approval process. However, there is no
assurance that any of Cortech's products would be eligible for this accelerated
approval process.

Once adequate data have been obtained in clinical testing to demonstrate
that the compound is both safe and effective for the intended use, all of the
data available is submitted to the FDA in an New Drug Application ("NDA"). The
FDA reviews this application and, once it decides that adequate data are
available which show that the new compound is both safe and effective, approves
the drug for marketing. The approval process may take several years and is a
function of a number of variables including the quality of the submission and
data presented, the potential contribution that the compound will make in
improving the treatment of the disease in question, and the extent of agreement
between the sponsor and the FDA on the product labeling. There can be no
assurance that any new drug will successfully proceed through this approval
process or that it will be approved in any specific period of time.

The FDA may, during its review of an NDA, ask for additional data, and may
also require postmarketing testing, including potentially expensive Phase IV
studies. In addition, postmarketing surveillance to monitor the safety and
effectiveness of the drug must be done by the sponsor. The FDA may in some
circumstances impose additional restrictions on the use and or promotion of the
drug that may be difficult and expensive to administer.

Before marketing approval is granted, the facility in which the drug
product is manufactured must be inspected by the FDA and deemed to be adequate
for the manufacture, holding and distribution of drugs in compliance with GMPs.
Manufacturers must continue to expend time, money and effort in the area of
production, and quality control, labeling, advertising and promotion of drug
product to ensure full compliance with GMP requirements. Failure to comply with
applicable requirements can lead to FDA demands that production and shipment
cease, that products be recalled, or to enforcement actions that can include
seizures, injunctions, or criminal prosecution. Such failures or new information
that negatively impact the safety and effectiveness of the drug that becomes
available after approval may lead to FDA withdrawal of approval to market the
product.

To market its product abroad, Cortech also must satisfy regulatory
requirements implemented by foreign regulatory authorities. The foreign
regulatory approval process includes all of the risks associated with FDA
approval set forth above, and may introduce additional requirements of risks.
There is no assurance that a foreign regulatory body will accept the data
developed by Cortech for any of its products. Approval by the FDA does not

<PAGE>

ensure approval in other countries, nor does approval by any other country
ensure approval decisions by FDA.

In Europe, human pharmaceutical products are subject to extensive
regulations of testing, manufacture, safety, efficacy, labeling, storage, record
keeping, advertising and promotion. Effective in January 1995, the European
Union enacted new regulations providing for a centralized licensing procedure,
which is mandatory for certain kinds of products, and a decentralized (country
by country) procedure for all other products. A license granted under the
centralized procedure authorizes marketing of the product in all of the member
states of the European Union. Under the decentralized procedure, a license
granted in one member state can be extended to additional member states pursuant
to a simplified application process. The assessment of products filed under the
centralized procedure is coordinated by the European Medicine Evaluation Agency
("EMEA").

In addition to regulations enforced by the FDA, Cortech is also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, regulations promulgated by the United States Department of
Agriculture, and other related federal, state or local regulations. Cortech's
research and development involved the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Although Cortech believes
that its safety procedures for handling and disposing of such materials complied
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated.

Third-Party Reimbursement
- -------------------------

The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to government control. In particular,
individual pricing negotiations are often required in each country of the
European Union, even if approval to market the drug under the EMEA's centralized
procedure is obtained. In the United States, there have been, and Cortech
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. In addition, an increasing emphasis on
managed care in the United States has increased and will likely continue to
increase the pressure on pharmaceutical pricing. While Cortech cannot predict
whether any such legislative or regulatory proposals will be adopted, the
announcement or adoption of such proposals or efforts could have a material
adverse effect on pharmaceutical companies that are prospective corporate
partners for Cortech. Therefore, Cortech's ability to establish and maintain
strategic alliances may be adversely affected. In addition, in the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in part on
the availability of reimbursement to the consumer from third-party payors, such
as government and private insurance plans that mandate predetermined discounts
from list prices. In addition, third-party payors are increasingly challenging
the prices charged for medical products and services. If Cortech succeeds in

<PAGE>

bringing one or more products to the market, there can be no assurance that
these products will be considered cost effective and reimbursement to the
consumer will be available or will be sufficient to allow Cortech to sell its
products on a competitive basis.

Human Resources
- ---------------

At its peak in July 1994, Cortech employed 206 full-time, regular
employees. Over the past four-and-one-half years, Cortech has implemented a
series of reductions in force which reduced the number of full-time, regular
employees to one compensated full-time employee as of February 28, 1999. During
this time, these employees were primarily engaged in management, business
development and administrative efforts including the archiving of records and
liquidation of non-cash tangible assets.

ITEM 2. - DESCRIPTION OF PROPERTY
- ------- -----------------------

As of February 28, 1999, the Company occupies 4,150 square feet of leased
administrative space in Denver, Colorado. This lease is on a month-to-month
basis and the Company has given the landlord notice that it will vacate this
space during April 1999. Additionally, the Company is liable for lease payments
on 5,700 square feet of warehouse space through April 30, 1999. Attempts to
sublease this space have been unsuccessful so far.

ITEM 3. - LEGAL PROCEEDINGS
- ------ -----------------

On February 27, 1998, a complaint was filed in the Court of Chancery of the
State of Delaware, naming the Company, the Company's then current 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 then current 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. Prior management of
the Company believed that the claims are without merit. Recently elected members
of the Board of Directors, who comprise a majority of the board, have not
determined the merits of the claims nor whether they would have a material
adverse effect on the Company's financial position or results of operations.

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

There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1998.

<PAGE>

PART II
-------

ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- --------------------------------------------------------

At February 26, 1999, the Company had approximately 500 stockholders of
record. The Company's common stock currently trades on the NASDAQ / National
Market System under the symbol "CRTQ". On February 26, 1999, the closing price
per share of the common stock was $5.875.

The following table sets forth the high and low bid and ask prices for the
common stock for the periods indicated, as reported by the Over-the-Counter
Bulletin Board. The Company's common stock was traded on the NASDAQ National
Market System until July 13, 1998. (See separate table below.) All prices have
been adjusted to reflect the one-for-ten stock split.

Calendar Quarter Ended:
Bid Ask
----------------- -------------
Low High Low High
--- ---- --- ----
1998
September 30 $3.90 $5.8125 $4.10 $6.65625
December 31 4.25 6.625 4.8125 6.75

The following table sets forth the high and low closing prices for the
common stock for the periods indicated, as reported by NASDAQ on the National
Market System. All closing prices have been adjusted to reflect the one-for-ten
stock split.

Calendar Quarter Ended:
Low High
--- ----
1998

March 31 $ 3.75 $ 6.875
June 30 4.375 5.625

1997

March 31 $ 8.44 $20.00
June 30 5.94 9.38
September 30 5.00 8.13
December 31 5.31 8.44

<PAGE>

On July 13, 1998, the NASDAQ Stock Market, Inc. ("NASDAQ") Listing
Qualification 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 standards
require, among other things, 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
traded on the Over-the-Counter Bulletin Board. The Company implemented a
one-for-ten stock split, as approved by the stockholders, as of the close of
business on September 22, 1998. On January 21, 1999, NASDAQ approved Cortech's
Common Stock for re-listing on the NASDAQ National Market, and the shares began
trading on January 25, 1999.

On September 29, 1998, the Board of Directors authorized the redemption of
all outstanding preferred share purchase rights issued pursuant to the Rights
Agreement, dated as of June 13, 1995, between the Company and American
Securities Transfer, Inc., as Rights Agent, effective as of the close of
business on October 13, 1998, with the redemption price of $.01 ($.10 on a split
adjusted basis) per right to be paid in cash on October 14, 1998 to the holders
of record of Common Stock of the Company as of the close of business on October
13, 1998.

The Company has not paid any cash dividends on its Common Stock since its
inception and does not intend to pay any cash dividends in the foreseeable
future.

ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

The following discussion and analysis should be read in conjunction with
Cortech's Financial Statements and Notes thereto included elsewhere in this Form
10-KSB. 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 and include, but are not limited to, the risks discussed
below, the risks discussed in the section of this Form 10-KSB entitled
"Description of Business" and risks discussed elsewhere in this Form 10-KSB.

General
- -------

Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose primary focus has been the discovery and development of novel therapeutics
for the treatment of inflammatory disorders. Specifically, Cortech has directed
its research and development efforts principally toward protease inhibitors and
bradykinin antagonists. These efforts have produced certain intellectual
property rights. (See Item 1. - Description of Business - "Cortech's Work with
Protease Inhibitors" and "Cortech's Work with Bradykinin Antagonists.")

<PAGE>

Cortech has also sold most of its leasehold improvements and is actively
seeking to sell the remainder and lease its unused space. As of December 31,
1998, all fixed assets had been written-off. As a result of these actions,
Cortech no longer has the staff or operative facilities required to recommence
internal research and development activities. Cortech's strategy is to seek
collaborative partners to conduct and fund future research and development on
the components of its portfolio or to sell the rights to certain of the
compounds in the portfolio to third parties interested in funding future
research and development, while conserving the Company's cash. There can be no
assurance that any particular agreement will be completed. At the same time, the
Company is seeking to redeploy its assets into an operating business.

Results of Operations
- ---------------------

Revenues
- --------

Revenues from sponsored research and development decreased from $3.5
million in 1997 to $22,000 in 1998. This decrease in revenues resulted primarily
from an April 1997 amendment to the Ono Agreement (defined below) which
terminated the obligation of Ono Pharmaceutical Company, Ltd. ("Ono") to make
further research payments to the Company, and the discontinuation, as of March
1997, of the Company's collaboration with SmithKline Beecham ("SB"). The Company
expects no further payments from Ono or SB in connection with sponsored research
and development activities.

Cortech received $1.5 million from Ono for work performed in 1997 under a
contract to develop an oral elastase inhibitor (the "Ono Agreement"). Pursuant
to the Ono Agreement, Cortech had received an additional $1.3 million in 1996
which was recorded as revenue in 1997 (as a result of work performed in 1997 by
Cortech). Under the terms of the Ono Agreement, as amended in 1997, Ono assumed
all responsibilities for research activities conducted during the final six
months of the collaborative project (terminating on March 14, 1998). As a
result, Ono was not required to pay Cortech the last scheduled $1.5 million in
research funding previously provided for under the Ono Agreement to offset
certain costs that Cortech would otherwise have incurred.

Interest income decreased from $939,000 in 1997 to $695,000 in 1998. Lower
invested balances with lower yields on investments accounted for the decrease.

The disposition of property and equipment relating to the sale of certain
leasehold improvements and equipment resulted in gains of $380,000 during 1998
and losses of $530,000 during 1997. During 1997, the Company commenced selling
property and equipment previously used in research and development and for
administrative purposes.

<PAGE>

During 1998, the Company recorded $250,000 in license revenues it received
from an unrelated third party, United Therapeutics Corp. ("UT"), in connection
with the signing of an exclusive worldwide product development and license
agreement for Cortech's elastase inhibitor, CE-1037, for the potential treatment
of emphysema and other diseases. The agreement provided for certain milestone
payments in the event the compound is successfully advanced and a royalty on
product sales should the compound be successfully commercialized. It is not
expected that this agreement will result in significant revenues in 1999.

Research and development related expenses decreased from $7.6 million in
1997 to $436,000 in 1998. The decrease was due primarily to the ceasation of
on-site research and development activities by the Company in late 1997.

General and administrative expenses increased from $3.1 million in 1997 to
$5.6 million in 1998. The $2.5 million increase was primarily due to the
following expenses: severance payment for former employees and officers of $1.1
million (including $605,000 to the Company's former Chief Executive Officer);
certain costs related to the proposed combination with BioStar, Inc. that was
terminated on May 7, 1998 of $328,000; costs related to stockholder litigation
of $185,000; Directors and Officers liability run-off policy, approved by the
prior Board of Directors of $198,000; and $258,000 in expenses incurred by the
prior Board of Directors for the solicitation of proxies in connection with the
Annual Meeting of Stockholders which included additional legal fees of $100,000.

Liquidity and Capital Resources
- -------------------------------

At December 31, 1998, the Company had cash and cash equivalents of $11.6
million. Cash equivalents consisted of Federal Treasury Obligation Funds and
Repurchase Agreements with yields ranging from 4.65% to 4.85%. In January 1999,
all cash equivalents were transferred to U.S. Treasury Bills with original
maturities of three months or less. Net working capital at December 31, 1998 was
approximately $10.5 million. Management believes its cash and cash equivalents
are sufficient for its remaining business activities and for the costs of
seeking an acquisition of an operating business.

Net cash of approximately $4.1 million was used in operations in 1998. The
net loss of $4.7 million and the decrease in accounts payable of $549,000, were
the primary reasons for the use of cash, although these uses were partially
offset by depreciation and amortization of $623,000 and an increase in accrued
liabilities of $656,000. In 1997, net cash of approximately $6.4 million was
used in operations. In 1997, the net loss of $6.8 million and the decreases in
advances from a corporate partner of $928,000 and unearned income of $1,323,000,
were the primary reasons for the use of cash, although these uses were partially
offset by depreciation and amortization of $1.5 million and a decrease in
prepaid expenses and other assets of $537,000.

Net cash provided by investing activities was approximately $4.3 million in
1998, primarily due to the sales of short-term investments of $3.9 million and
the proceeds from the sale of property and equipment of $491,000, which resulted
in a net gain on the disposition of equipment of $380,000. In 1997, net cash of
approximately $10.2 million was provided by investing activities primarily due
to the sales of short-term investments of $24.9 million and the proceeds from

<PAGE>

the sale of property and equipment of $890,000, offset by purchases of
short-term investments of $15.5 million. Sales of property and equipment in 1997
resulted in a net loss of $530,000.

Net cash used in financing activities was $189,000 in 1998, due to the
redemption of the preferred share purchase rights. See Part II, Item 5. - Market
for Common Equity and Related Stockholder Matters for more information on the
redemption. In 1997, net cash of $4,000 was provided by financing activities,
due to the issuance of common stock.

Other Matters
- -------------

Net Operating Loss Carryforwards and Tax Credits: As of December 31, 1998,
Cortech had approximately $86.6 million of net operating loss carry forwards for
income tax purposes which expire from 1999 through 2013. In addition, Cortech
has approximately $2.9 million of research and development tax credit
carryforwards available to offset future federal income tax, subject to
limitations for alternative minimum tax. Cortech's use of operating loss
carryforwards and tax credit carryforwards is subject to limitations imposed by
the Internal Revenue Code.

Impact of Year 2000: The year 2000 will impact computer programs written
using two digits rather than four to define the applicable year. Any programs
with time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operation, including a temporary
inability to process transactions, send invoices or engage in other ordinary
activities. This problem largely affects software programs written years ago,
before the issue came to prominence. Insofar as Cortech has effectively
discontinued all internal efforts to advance its research and development
activities, Cortech does not believe that it has significant risk associated
with the year 2000 problem.

<PAGE>

ITEM 7. - FINANCIAL STATEMENTS
- ------- --------------------

The financial statements filed with this item are listed below:

Reports of Independent Accountants

Financial Statements:

Balance Sheet as of December 31, 1998

Statements of Operations for the Years ended December 31, 1998
and 1997

Statements of Stockholders' Equity for the Years ended
December 31, 1998 and 1997

Statements of Cash Flows for the Years ended December 31, 1998
and 1997

Notes to Financial Statements

<PAGE>

PricewaterhouseCoopers LLP
400 Campus Drive
P.O. Box 988
Florham Park, NJ 07932
Telephone (973) 236 4000
Facsimile (973) 236 5000

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareowners and Directors of
Cortech, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Cortech, Inc. (the "Company") at
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey
February 26, 1999

<PAGE>

ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Cortech, Inc. (a Delaware corporation) for the year ended
December 31, 1997. 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 audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Cortech,
Inc., for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Arthur Andersen LLP

Denver, Colorado,
February 12, 1998.

<PAGE>

CORTECH, INC.
BALANCE SHEET
December 31, 1998
(in $000's, except share and per share amounts)

ASSETS

Current assets:
Cash and cash equivalents $11,597
Prepaid expenses and other 77
-------
Total current assets $11,674
=======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 151
Accrued liabilities 485
Accrued severance and other compensation 497
-------
Total current liabilities 1,133
-------

Commitments and Contingencies (Notes 6 and 7)

Stockholders' equity (Note 4):
Preferred stock, $.002 par value 2,000,000 shares
authorized, none issued -
Common stock, par value $.002;
5,000,000 shares authorized;
1,852,209 shares issued and outstanding 4
Additional paid-in capital 99,830
Accumulated deficit ( 89,293)
-------
Total stockholders' equity 10,541
-------
Total liabilities and stockholders' equity $11,674
=======

See accompanying notes to financial statements

<PAGE>

CORTECH, INC.
STATEMENTS OF OPERATIONS
(in $000's, except per share amounts)

Years Ended December 31,
------------------------
1998 1997
------ ------

Revenues:
Sponsored research and development $ 22 $ 3,451
Interest income 695 939
Gain (loss)on disposition of property
and equipment 380 ( 530)
Technology license revenue (Note 3) 250 -
------- -------
Total revenues 1,347 3,860
------- -------

Expenses:
Research and development (Note 7) 436 7,552
General and administrative 5,565 3,086
------- -------
Total expenses 6,001 10,638
------- -------

Net loss ($ 4,654) ($ 6,778)
======= =======

Basic net loss per share ($ 2.51) ($ 3.65)
======= =======

Weighted average common shares
outstanding 1,852 1,852
======= =======

See accompanying notes to financial statements.

<PAGE>

CORTECH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 4)
(in 000's, except per share amounts)

Additional
Common Stock Paid-In Deferred Accumulated
Shares Amount Warrants Capital Compensation Deficit Total
------ ------ -------- ---------- -------------- ------------ -----

<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,852 $ 4 $2,330 $97,692 ($ 40) ($ 77,861) $22,125

Reversal of deferred
compensation in connection
with resignation of a
director and other - - - ( 7) 3 - ( 4)

Amortization of deferred
compensation - - - - 36 - 36

Issuance of common stock
at $6.60 per share pursuant
to employee stock purchase
plan - - - 4 - - 4

Contribution of certain
warrants - - ( 175) 175 - - -

Expiration of certain CDC
warrants - - ( 1,078) 1,078 - - -

Net loss - - - - - ( 6,778) ( 6,778)
------ --- ------ ------- ---- -------- -------

Balance, December 31, 1997 1,852 4 1,077 98,942 ( 1) ( 84,639) 15,383

Amortization of deferred
compensation - - - - 1 - 1

Redemption of preferred share
purchase rights - - - ( 189) - - ( 189)

Expiration of CDC warrants - - ( 1,077) 1,077 - - -

Net loss - - - - - ( 4,654) ( 4,654)
------ --- ------ ------- ---- -------- -------

Balance, December 31, 1998 1,852 $ 4 - $99,830 - ($ 89,293) ($10,541)
====== === ====== ======= ==== ======== =======

See accompanying notes to financial statements.

</TABLE>

<PAGE>

CORTECH, INC.
STATEMENTS OF CASH FLOWS
(in 000's)

Year Ended December 31,
-----------------------
1998 1997
------ ------

<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 4,654) ($ 6,778)
Adjustments:
Depreciation and amortization 623 1,545
(Gain)loss on disposition of equipment ( 380) 530
Research and compensation expense related
to grant of options, including
amortization of deferred compensation 1 32
Decrease in prepaid expenses and
other assets 231 537
Decrease in accounts payable ( 549) ( 80)
Decrease in advances from corporate partner ( 36) ( 928)
Increase in accrued liabilities, accrued
severance and other compensation 656 35
Decrease in unearned income - ( 1,323)
------- -------
Net cash used in operating activities ( 4,108) ( 6,430)
------- -------

Cash flows from investing activities:
Purchases of property and equipment - ( 39)
Proceeds from sale of property and equipment 491 890
Purchases of short-term investments ( 9) ( 15,505)
Sales of short-term investments 3,850 24,850
------- -------
Net cash provided by investing activities 4,332 10,196
------- -------

Cash flows from financing activities:
Proceeds from issuance of common stock - 4
Redemption of preferred share purchase rights ( 189) -
------- -------
Net cash provided by (used in)financing
activities ( 189) 4
------- -------

Net increase in cash and cash equivalents 35 3,770
Cash and cash equivalents, beginning of
period 11,562 7,792
------- -------
Cash and cash equivalents, end of period $11,597 $11,562
======= =======

Supplemental disclosure of noncash
financing activities:
Contribution of 562,576 warrants to the
Company - $ 175
======= =======

</TABLE>

See accompanying notes to financial statements.

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

1. Organization
------------

Cortech, Inc. ("Cortech" or the "Company") is a biopharmaceutical company
whose primary focus has been the discovery and development of novel
therapeutics for the treatment of inflammatory disorders. Specifically,
Cortech has directed its research and development efforts principally
toward protease inhibitors and bradykinin antagonists. These efforts have
produced certain intellectual property rights.

In response to disappointing test results and its loss of collaborative
partner support, Cortech has implemented a series of reductions in force
over the past four-and-one-half years (which reduced the number of full
time, regular employees from more than 200 down to one compensated
full-time employee) and effectively discontinued all internal efforts to
advance its research and development activities. In addition, Cortech has
decommissioned its laboratories, and sold most of its scientific, technical
and office equipment. Cortech has sold most of its leasehold improvements
and is actively seeking to sell the remainder and lease its unused space.
As of December 31, 1998, all fixed assets have been written off. As a
result of these actions, Cortech no longer has the staff or operative
facilities required to recommence internal research and development
activities. Cortech's strategy is to seek collaborative partners to conduct
and fund future research and development on the components of its portfolio
or to sell the rights to certain of the compounds in the portfolio to third
parties interested in funding future research and development, while
conserving the Company's cash, although there can be no assurance that any
particular agreement will be completed. At the same time, the Company is
seeking to redeploy its assets into an operating business.

2. Significant Accounting Policies
-------------------------------

Use of Estimates
----------------

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates. Prior years financial statements have been reclassified to
conform to the current year's presentation.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents consist primarily of cash on hand, cash in banks,
Treasury Obligation Funds and Repurchase Agreements. As of January 1999,
cash equivalents consist of U.S. Treasury Bills purchased with an original
maturity of three months or less.

<PAGE>
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

Research and Development Expenses
---------------------------------

Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities
that perform certain research on behalf of the Company. On-site research
and development activities were terminated by the Company in the fourth
quarter of 1997.

Sponsored Research and Development Revenue
------------------------------------------

The Company recognizes revenue from sponsored research and development as
research activities are performed or as development milestones are
completed under the terms of the research and development agreements. Costs
incurred in connection with the performance of sponsored research and
development are expensed as incurred and were approximately $2,882,000, for
the year ended December 31, 1997 and zero in 1998. Such costs are included
in research and development expense in the accompanying statements of
operations.

Basic Net Loss Per Share
------------------------

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period as adjusted for the
one-for-ten reserve stock split. Excluded from the calculation of the net
loss per share are 117,149 and 214,509 common stock options, in 1998 and
1997 respectively which, if included, would have an antidilutive effect.
(See Note 4.)

Income Taxes
------------

The Company recognizes deferred tax assets and liabilities related to the
expected future tax consequences of events that have been recognized in the
Company's financial statements and tax returns. However, if it is more
likely than not that some portion or all of the net deferred tax assets
will not be realized, a valuation allowance is established and the tax
benefit is not recognized in the statements of operations.

3. Sponsored Research and Development
----------------------------------

Ono Pharmaceutical Co., Ltd. ("Ono")
------------------------------------

In March 1995, Cortech entered into a research agreement with Ono to
develop an orally active human neutrophil elastase inhibitor using
Cortech's protease inhibitor research capabilities. Upon entering into the
agreement, Ono paid the Company $500,000 for research previously conducted
by the Company. Under the agreement as amended in 1996, Ono paid $4.3
million in 1996 and an additional $1.5 million was paid in March 1997 for

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

work that was performed in the second and third quarters of 1997. Under the
terms of the agreement, as amended in April, 1997, Ono assumed all
responsibilities for research activities during the final six months of the
collaborative project, which terminated on March 14, 1998. As a result of
this reallocation of responsibilities, Ono was no longer required to pay
the Company the last scheduled $1.5 million in research funding previously
provided for under the agreement to offset certain costs that the Company
would otherwise have incurred under the agreement. Cortech expects no
further payments from Ono under the agreement.

Under the terms of the agreement, Ono will have an exclusive, royalty-free
license to make, use and sell a resulting product in Japan, Korea, Taiwan
and China (the "Ono Territory"). Cortech has retained all other rights.

In March 1999, the Company announced that an agreement in principle had
been reached with Ono whereby Ono will be granted western rights to the
oral elastase inhibitor program on which Ono and Cortech have collaborated.
Previous to the proposed agreement, Ono's rights were limited to the Ono
Territory. Consideration for Cortech granting western rights to Ono is
contemplated to include $2 million upon signing of a definitive agreement
and a series of possible future milestone payments which could aggregate an
additional $9.5 million. Cortech also may be entitled to royalties at the
rate of 4% of net sales of products developed by Ono based on Cortech
patents outside the Territory. The receipt of milestone payments and
royalties, if any, are probably many years in the future. The Ono agreement
in principle is subject to the signing of a definitive agreement.

4. Stockholders' Equity
--------------------

Preferred Stock
---------------

The Company is authorized to issue 2,000,000 shares of $.002 par value
preferred stock which may be issued with various terms in one or more
series, as the Board of Directors may determine.

On June 2, 1995, the Company's Board of Directors approved the adoption of
a Preferred Share Rights Plan under which stockholders received one Right
to purchase one one-hundredth (one-tenth on a split adjusted basis - see
"Common Stock" below) of a share of Series A Junior Participating Preferred
Stock ("Junior Preferred Stock") for each outstanding share of Cortech
common stock of record held at the close of business on June 26, 1995.
These rights were distributed as a non-taxable dividend and were set to
expire in June 2005. The rights would separate from shares of Cortech
common stock and become exercisable at $20.00 each ($200 on a split

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

adjusted basis - see "Common Stock" below), subject to future adjustment,
only if a person or group acquired 15 percent or more of the Cortech common
stock. Cortech's Board of Directors could terminate the plan or redeem the
rights, at a nominal redemption price, prior to the time a person acquires
more than 15 percent of the Cortech common stock. The Company had
designated 500,000 shares of its Preferred Stock as Junior Preferred Stock.

On September 29, 1998, the Board of Directors authorized the redemption of
all outstanding rights, effective as of the close of business on October
13, 1998, with the redemption price of $.01 ($.10 on a split adjusted basis
- see "Common Stock" below) per right paid in cash on October 14, 1998 to
the holders of record of Common Stock of the Company as of the close of
business on October 13, 1998.

Common Stock
------------

The stockholders of the Company approved a one-for-ten reverse stock split
which was effective as of the close of business on September 22, 1998. Also
on this date, the Company's authorized shares were reduced from 50,000,000
to 5,000,000. Accordingly, all common share information has been restated
to reflect this reverse stock split.

Stock Option Plans
------------------

On September 22, 1998, the Company effected a one-for-ten reverse stock
split. All stock option information has been restated to reflect this
reverse stock split.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". This new standard encouraged, but did not
require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments based on a fair-value method of
accounting.

Companies that do not adopt the new expense recognition rules of SFAS No.
123 will continue to apply the existing rules contained in Accounting
Principles Board ("APB") Opinion No. 25, but will be required to provide
pro forma disclosures of the compensation expense determined under the
fair-value provisions of SFAS No. 123, if material. APB No. 25 requires no
recognition of compensation expense for most of the stock-based employee
compensation arrangements provided by the Company, namely broad-based
employee stock option grants and stock purchase plans where the exercise
price is equal to the market price at the date of grant.

The Company adopted the disclosure provisions of SFAS No. 123 for the years
ended December 31, 1998 and 1997. The Company will continue to follow the

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

accounting provisions of APB No. 25 for stock-based compensa- tion and will
furnish the pro forma disclosures required under SFAS No. 123.

The Company applies APB No. 25 and related Interpretations in accounting
for its plans. Had compensation cost for the Company's our stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No.
123, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997
---- ----
(In 000's, except per share amounts)

<S> <C> <C>
Net loss - as reported ($ 4,654) ($ 6,778)

Net loss - pro forma ($ 5,053) ($ 7,577)

Net loss per share - as reported ($ 2.51) ($ 3.65)

Net loss per share - pro forma ($ 2.73) ($ 4.09)

</TABLE>

The Company's 1986 Stock Option Plan ("1986 Plan") authorizes the grant of
stock options to officers and employees of the Company to purchase an
aggregate of 150,000 shares of common stock. Although 40,710 shares were
available under the 1986 Plan as of December 19, 1997, on such date the
Board of Directors effectively suspended future grants of options under the
1986 Plan to the extent that any such grant would increase the shares
subject to outstanding grants above the figure as of such date.

The Company's 1993 Equity Incentive Plan ("1993 Plan"), approved by the
stockholders on May 10, 1994, authorizes the issuance of 170,000 shares
through the grant of options to purchase common stock, stock bonuses, and
rights to purchase restricted stock. The options outstanding as of December
31, 1998 generally become exercisable in varying amounts over a five-year
period from the date of grant. Although 37,085 shares were available under
the 1993 Plan as of December 19, 1997, on such date the Board of Directors
effectively suspended further grants of options under the 1993 Plan to the
extent that any such grant would increase the shares subject to outstanding
grants above the figures as of such date.

The stock options granted from either plan may be incentive stock options
("ISO") or nonstatutory stock options ("NSO"). The Board of Directors may
set the rate at which the options expire, subject to limitations discussed
below. However, no options shall be exercisable after the tenth anniversary

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

of the date of grant or, in the case of ISOs, three months following
termination of employment, except in cases of death or disability, for
which the time or exercisability is extended. In the event of a
dissolution, liquidation or other corporate reorganization, all stock
options outstanding under the 1986 Plan and the 1993 Plan would become
exercisable in full.

ISOs may not be granted at an exercise price of less than the fair market
value of the common stock at the date of grant. If an ISO is granted to an
employee who owns more than 10% of the Company's total voting stock, such
exercise price shall be at least 110% of fair market value of the common
stock, and the ISO shall not be exercisable until after five years from the
date of grant. The exercise price of each NSO may not be less than 85% of
the fair market value of the common stock at the date of grant. The ISOs
outstanding as of December 31, 1998, generally become exercisable in
varying amounts over a two-to-five year period from the date of grant. NSOs
also generally become exercisable over a two-to-five year period.

Each of these plans also provides for stock appreciation rights, which may
be granted with respect to any stock option. No stock appreciation rights
have been granted as of December 31, 1998.

During 1991, a Nonemployee Directors' Stock Option Plan was approved which
authorized the grant of stock options to purchase up to 15,000 shares of
common stock to the nonemployee directors of the Company. The exercise
price of the options is equal to the fair market value of the shares on the
date of grant, which is generally the later of initiation of the plan or
the date of election to the Board of Directors. In March 1993, the Board of
Directors suspended further grants under this plan. Vesting of the options
occurred upon the participation by a director in a Board meeting. As of
December 31, 1998, options to purchase 10,800 shares of common stock had
been granted and were fully vested. The Company recorded the difference
between the fair market value of the underlying common stock and the
exercise price as compensation expense over the vesting period.

The Company's 1992 Nonemployee Directors' Stock Option Plan authorizes the
granting of options to purchase up to 40,000 shares of common stock to the
nonemployee directors of the Company. The plan was originally approved by
the stockholders on May 17, 1993, and an amendment to the plan was approved
by the stockholders on May 10, 1994. No options were granted during 1998.
During 1997, options to purchase 2,750 shares of common stock were granted
to nonemployee directors. During 1994, in order to effect a repricing of
certain of these options, options to purchase 16,225 shares of common stock
were amended to become options to purchase 14,854 shares of common stock at
an exercise price of $17.50 per share.

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

The amended options generally become exercisable from one to two years
later than as originally granted. The Company recorded deferred
compensation in 1993 of approximately $114,000 based on the amount that the
fair market value of the Company's common stock exceeded the exercise price
on the date the options were approved by the stockholders. The Company
began in July 1993 to amortize such deferred compensation over
approximately five years and has recorded compensation expense of
approximately $1,000 and $6,000 in 1998 and 1997, respectively. There are
currently options to purchase 19,054 shares of common stock outstanding
under the plan at exercise prices ranging from $14.70 to $87.50 per share.
By its terms, the plan terminated on December 31, 1997 (although such event
does not affect outstanding options granted under the plan).

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

1997
----

Expected life (years) 1.0
Interest rate 5.54%
Volatility 93.10%

During 1998, no options were granted.

A summary of the status of the Company's 1986 Plan, 1993 Plan and
nonemployee directors' stock option plans as of December 31, 1998, 1997 and
changes during the years ended on those dates is presented below:

1998 1997
---------------------------- ---------------------------
Weighted-Average Weighted-Average
Options Shares Exercise Price Shares Exercise Price
- ------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Options
outstanding
at beginning
of year 199,951 $20.60 244,270 $20.80
Granted - - 4,680 13.90
Forfeited/canceled ( 96,128) 21.30 ( 48,999) 20.80
--------- --------
Outstanding at
end of year 103,823 20.20 199,951 20.60
========= ========
Options exercisable
at year end 93,608 20.30 144,157 20.90
========= ========

Weighted-average
fair value of
options granted
during the year - $ 5.20

</TABLE>

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

The Company granted other options to certain directors and consultants:

<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Weighted-Average Weighted-Average
Options Shares Exercise Price Shares Exercise Price
- ------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding
beginning of
year 14,559 $37.10 16,059 $39.20
Forfeited/canceled ( 1,233) 21.50 ( 1,500) 60.00
------ ------
Outstanding at
end of year 13,326 38.40 14,559 37.10
====== ======
Options exercisable
at year end 13,326 38.40 13,175 38.60
====== ======

</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------------------------------
Number Weighted-Average Weighted- Number Weighted-Average Weighted-
Range of Outstanding at Remaining Life Average Outstanding at Remaining Life Average
Exercise Prices December 31, 1998 (in years) Exercise Price December 31, 1998 (in years) Exercise Price
-------------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10 - $20 78,444 5.84 $ 17.10 73,246 5.7 $ 17.20
$20.01 - $30 31,622 5.5 $ 25.30 26,605 5.12 $ 25.50
$30.01 - $40 2,125 5.45 $ 34.70 2,125 5.45 $ 34.70
$80 - $87.50 4,958 3.31 $ 80.60 4,958 3 $ 80.60
------- -------
117,149 106,934
======= =======

</TABLE>

During 1992, the Company granted options to purchase 5,000 shares of the
Company's common stock at $26.00 per share to the former president of the
Company. These options began vesting upon the occurrence of certain events.
The Company recorded $170,000 in deferred compensation based on the
difference between the fair value of the underlying common stock on the
date the specified event incurred and the exercise price of $26.00 per
share. Deferred compensation was amortized over the applicable vesting
periods. In connection with these options, the Company recorded
amortization expense of approximately $20,000 in 1997.

Stock Purchase Plan
-------------------

In December 1992, the Board of Directors approved an employee stock
purchase plan. Under the terms of the plan, 30,000 shares of the Company's
common stock were authorized for purchase by eligible employees as
specified by the Board of Directors. Eligible employees were granted the
right to purchase shares with a percentage of such employees' earnings at
the lesser of 85% of the fair market value of the common stock on the

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

offering date or exercise date. Under the plan, employees purchased 584
shares of the Company's common stock in 1997 at $6.60 per share. In
November 1997, the employee stock purchase plan was effectively suspended
pending further action by the Board of Directors.

For disclosure purposes under SFAS No. 123, compensation cost is recognized
for the fair value of the employees' purchase rights, which was estimated
using the Black-Scholes model with the following assumptions:

1997
----

Expected life (years) 1.0
Interest rate 5.54%
Volatility 93.10%
Weighed-average fair value $ 3.30

Registration Rights
-------------------

Investors in the CP-0127 Development Corporation ("CDC") offering (Note 7)
are entitled to certain "piggyback" registration rights with respect to
shares of common stock they hold. At December 31, 1998, CDC investors owned
75 shares of common stock. Furthermore, 21,969 common shares acquired
through the exercise of warrants carry similar piggyback registration
rights.

5. Income Taxes
------------

As of December 31, 1998, the Company has approximately $86.6 million of net
operating loss carryforwards ("NOL") for income tax purposes and
approximately $2.9 million of research and development tax credit
carryforwards available to offset future federal income tax, subject to
limitations for alternative minimum tax. The NOL's and credit carryforwards
are subject to examination by the tax authorities and expire in various
years from 1999 through 2013.

The components of the net deferred income tax asset at December 31, 1998
were as follows (in $000's):

Net operating loss carryforwards $29,441
Research and development credits 2,880
Other 403
Less: Valuation allowance ( 32,724)
-------

Net deferred tax asset $ -
=======

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

The Company has not yet achieved profitable operations. Accordingly,
Management believes the deferred tax assets as of December 31, 1998 do not
satisfy the realization criteria set forth in SFAS No. 109 and has recorded
a valuation allowance for the entire net tax asset.

By recording a valuation allowance for the entire amount of future tax
benefits, the Company has not recognized a deferred tax benefit for income
taxes in its statements of operations. The difference between the Company's
recorded income tax benefit and that computed by applying the statutory
Federal income tax rate to its loss before income taxes is due primarily to
the valuation allowance established to offset the Company's net deferred
tax asset.

Included in the net operating loss carryforward is approximately $1.7
million related to income tax deductions for the Company's stock option
plans. The tax benefit of such deductions will be recorded as an increase
in additional paid-in capital when realized.

The Tax Reform Act of 1986 contains provisions that may limit the NOL and
credit carryforwards available to be used in any given year upon the
occurrence of certain events, including significant changes in ownership of
a company of greater than 50% within a three-year period results in an
annual limitation on the Company's ability to utilize its NOLs and tax
credit carryforwards from tax periods prior to the ownership change.

6. Commitments
-----------

The Company has various noncancellable operating leases for its office and
laboratory space. Rent expense for these facilities was approximately
$314,000 and $427,000 in 1998 and 1997, respectively. Future minimum cash
obligations under these leases are $34,000 for the year ending December 31,
1999, all of which has been expensed in 1998.

7. CP-0127 Development Corporation
-------------------------------

In February 1992, the Company completed a private placement of 709,687
units (as discussed below) to unrelated third parties representing total
subscriptions of approximately $8,516,000. Each unit was comprised of one
share of CDC common stock and three warrants for Cortech common stock, of
which one warrant expired each on December 31, 1998, 1997 and 1996 (Note
4). The net proceeds received by CDC were allocated to CDC as consideration
for its common stock and to the Company for the issuance of the warrants in
the amounts of approximately $5,284,000 and $3,232,000, respectively. Such
allocation was based on the relative fair market value of the Company's
warrants and the CDC common stock.

<PAGE>

CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 1998 and 1997

In connection with the formation of CDC, the Company granted to CDC, under
the terms of a technology license agreement, an exclusive license to
certain technology for human pharmaceutical use within the United States,
Canada and Europe for $1,000,000. CDC, in turn, granted to Cortech a
worldwide exclusive right and license to the technology that is developed
by Cortech.

In connection with the technology license agreement referred to above, the
Company entered into a research and development agreement with CDC. Since
December 31, 1997, the Company was not engaged in active development of any
compounds covered by the license agreement.

The Company was granted an option by the purchasers of the CDC common stock
to purchase all, but not less than all, of the 709,687 shares of CDC common
stock outstanding. The purchase option was exercisable at any date before
December 31, 1998, based on an exercise price of $75.40 per share of CDC
common stock in 1998. The option has expired unexercised.

8. Employee Retirement Plan
------------------------

The Company provides a defined contribution 401(k) plan for eligible
employees. Employee contribution to the plan is voluntary. In 1994, the
Company voluntarily began contributing an amount equal to 25% of a covered
employee's contribution to a maximum of 1% of compensation. The Company's
contributions to the plan totaled $6,000 in 1998 and $21,000 in 1997.

<PAGE>

ITEM 8. - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
- ------- ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------

On January 14, 1999, Arthur Andersen LLP ("Arthur Andersen") resigned as
independent auditors of the financial statements of Cortech, Inc. (the
"Company") as of and for the year ended December 31, 1998. On January 14, 1999,
the Board of Directors of the Company retained PricewaterhouseCoopers LLP
("PwC"), Certified Public Accountants, as its certifying accountant for the
fiscal year ended December 31, 1998.

No report on the financial statements of the Company issued by Arthur
Andersen during the last two fiscal years contained an adverse opinion or
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles, nor were there any disagreements during the last
two fiscal years and through January 14, 1999, between Arthur Andersen and the
Company concerning any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved would have required Arthur Andersen to make reference to the subject
matter thereof in connection with its report. During the last two fiscal years
and through January 14, 1999, none of the events listed in items (1) through (3)
of Item 304(b) of Regulation S-K have occurred; and during such period the
Company has not consulted with PwC concerning any matter referred to under
paragraphs (i) or (ii) of Item 304(a)(2) of Regulation S-K.

<PAGE>

PART III
--------

ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
- ------- PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXECUTIVE ACT
-------------

Election of Directors
- ---------------------

The Company's Restated Certificate of Incorporation and Bylaws, each as
amended, provide that the Board of Directors shall be divided into three
classes, each class consisting, as nearly as possible, of one-third of the total
number of directors, with each class having a three-year term. Vacancies on the
Board may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy will serve until
such director's successor is elected and qualified.

The Board of Directors is presently composed of seven members. Messrs,
Koether, Jaindl, Galuchie and Bicksler were elected at the 1998 Annual Meeting
of Stockholders. Directors will serve until their terms expire or until their
successors are duly elected and qualified. The Company's officers are elected by
and serve at the leave of the Board.

There is no arrangement or understanding between any executive officer and
any other person pursuant to which such officer was elected.

The directors and executive officers of the Company at February 28, 1999
were as follows:

Position and Office
Presently holds Director
Name of Person Age with the Company Since
-------------- --- ------------------- --------

Paul O. Koether 62 Chairman and Director 1998

Mark W. Jaindl 39 Vice Chairman and
Director 1998

John W. Galuchie, Jr. 46 President and
Director 1998

James L. Bicksler, Ph.D. 60 Director 1998

Bert Fingerhut 55 Director 1988

Edward Finkelstein 61 Director 1998

John E. Repine, MD 54 Director 1998

Sue Ann Itzel 35 Treasurer and
Secretary -

<PAGE>

Set forth below is biographical information for each Director by class:

CLASS I DIRECTORS (Continuing in office until the 2001 Annual Meeting)

Paul O. Koether, Chairman and Director of the Company since September 1998,
is principally engaged in the following businesses: (i) as Chairman and director
of Kent Financial Services, Inc. ("Kent") since July 1987 and President since
October 1990 and the general partner since 1990 of Shamrock Associates, an
investment partnership which is the principal stockholder of Kent and (ii)
various positions with affiliates of Kent, including Chairman since 1990 and a
registered representative since 1989 of T. R. Winston & Company, Inc.
("Winston") and since July 1992, a director of American Metals Service, Inc.,
("AMS") which was an indirect, majority-owned subsidiary of Kent before its
shares were distributed to Kent's stockholders. Mr. Koether is also the
President of Asset Value Management ("AVM"), a wholly owned subsidiary of Kent,
AVM the sole general partner of Asset Value Fund Limited Partnership ("AVFLP").
Mr. Koether also has been Chairman since April 1988, President from April 1989
to February 1997 and director since March 1988 of Pure World, Inc., ("Pure
World") and since December 1994 has been a director and since January 1995 has
been Chairman of Pure World's majority-owned subsidiary, Pure World Botanicals
Inc.("PWBI") a manufacturer and distributor of natural products. He is also
Chairman and a director of Pure World's principal stockholder, Sun Equities
Corporation, ("Sun") a private company. Mr. Koether served as Chairman and a
director of NorthCorp Realty Advisors, Inc., an asset management company,
("NorthCorp") from June 1992 when it was acquired by Pure World until August,
1994 when it was merged and renamed Crown NorthCorp, Inc.

Mark W. Jaindl, Vice Chairman and Director of the Company since September
1998, is the President and Chief Executive Officer of the American Bank of the
Lehigh Valley, a commercial bank. He has served as Senior Vice President of Pure
World from June 1992 until May 1995 and as a director since October 1994. He was
Senior Vice President of PWBI from December 1994 until May 1995 and a director
of PWBI since December 1994 and he has served as a director of AMS since July
1992. Mr. Jaindl was a director of NorthCorp from June 1992 until September 1994
and was Interim President of NorthCorp from February 1994 until August 1994.
From May 1982 to October 1991 and again since May 1995 he has served as Chief
Financial Officer of Jaindl Farms, which is engaged in diversified businesses,
including the operation of a 12,000-acre turkey farm, a mobile home park, a John
Deere dealership and a grain operation. Mr. Jaindl also served as the Chief
Financial Officer of Jaindl Land Company, a developer of residential, commercial
and industrial properties in eastern Pennsylvania.

John W. Galuchie, Jr., a certified public accountant and President and
Director of the Company since September 1998, is principally engaged in the
following businesses: (i) Winston, as President since January 1990 and director
since September 1989; (ii) Kent, in various executive positions since 1986 and a
director from June 1989 until August 1993; (iii) Pure World, as Executive Vice
President since April 1988, director from January 1990 until October 1994 and
for more than five years as Vice President and director of Sun; (iv) AMS as Vice
President, Treasurer and a director since July 1992. Mr. Galuchie is also the

<PAGE>

Vice President and Secretary of AVM, the sole general partner of AVFLP. Mr.
Galuchie served as a director of Crown NorthCorp, Inc., the successor
corporation to NorthCorp from June 1992 to August 1996. Since December 1998, Mr.
Galuchie has been a director of HealthRite, Inc.

CLASS II DIRECTORS (Continuing in office until the 1999 Annual Meeting)

Bert Fingerhut, has been a Director of the Company since 1988 and served as
Chairman of the Board from June 1991 to April 1997. Mr. Fingerhut presently
pursues private business and conservation interests. From 1984 to 1985, he was
Special Limited Partner and Senior Vice President of Odyssey Partners, a private
investment partnership. From 1965 to 1983, he was General Partner, Managing
Director, Executive Vice President and Director of Research of Oppenheimer &
Company, Inc., an investment banking firm. Mr. Fingerhut is Chairman of the
Board of Directors of Toxics Targeting, a private company based in Ithaca, N.Y.
that tracks and provides information on toxic waste sites. He is currently a
member of the Executive Committee of the Governing Council of the Wilderness
Society, the Vice-Chairman of the Board of Directors of the Southern Utah
Wilderness Alliance, a Director of the Grand Canyon Trust and Trustee of the
Alaska Conservation Foundation.

John E. Repine, M.D., has been a Director of the Company since July 1998.
Dr. Repine has been the President since 1993 and Director since 1989 of the
Webb-Waring Institute for cancer, aging and anti-oxidant research. He is also
the James J. Waring Professor in the Department of Medicine and Pediatrics at
the University of Colorado Health Science Center. Dr. Repine was elected to the
American Society of Clinical Investigation and the Association of American
Physicians. He is also the recipient of an Established Investigator Award from
the American Heart Association, the Basil O'Connor Research Award from the March
of Dimes and the Bonfils-Stanton Award for his outstanding contribution to
medicine and science. Dr. Repine serves on the scientific advisory boards of a
number of biotechnology companies. He currently holds 6 patents.

CLASS III DIRECTORS (Continuing in office until the 2000 Annual Meeting)

James L. Bicksler, Ph.D., Director of the Company since September 1998, is
a Professor of Economics and Finance, Graduate School of Management, Rutgers
University, a position he has held since 1969.

Edward Finkelstein, has been a Director of the Company since July 1998. Mr.
Finkelstein has been a managing partner of REM, a real estate holding company
since 1986, and the President and Chief Executive Officer of Edmark Development,
a commercial real estate development and management company, since 1990. He has
also served as the President and Chief Executive Officer of Central Motors, a
holding company of Midwestern car dealerships, since 1991, and the Chairman and
Chief Executive Officer of Rollabind, Inc., the largest manufacturer of patented
disc binding systems worldwide, since 1996. Between 1972 and 1991, Mr.
Finklestein was President and Chief Executive Officer of Michigan Sporting Goods
Distributors, Inc., the parent company of MC Sports, one of the largest retail
sporting good chains in the world.

<PAGE>

OFFICERS

Sue Ann Itzel, a certified public accountant and Secretary and Treasurer of
the Company since September 1998, is principally engaged in the following
businesses: (i) Secretary of Kent and Winston since September 1995; (ii)
Assistant Secretary and Assistant Treasurer of Pure World since September 1995;
(iii) Assistant Secretary of PWBI since September 1995; (iv) Assistant Secretary
and Assistant Treasurer of AVM, the sole general partner of AVFLP since
September 1995, and (v) Assistant Secretary of AMS since September 1995. From
1992 through 1995, Ms. Itzel was employed in various positions at First Fidelity
Bank, lastly as Assistant Vice President.

BOARD COMMITTEES AND MEETINGS

During the fiscal year ended December 31, 1998, the Board of Directors held
ten meetings. The Board currently has an Audit Committee composed of Mr. Jaindl,
as Chairman, Dr. Bicksler and Dr. Repine.

The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance, and procedures in connection with audit and
financial controls. The Audit Committee, which was previously composed of Mr.
Fingerhut and a former director, met once during 1998.

During the year ended December 31, 1998, each Board member, except Mr. von
Roy and Dr. Gold, attended 75% or more of the aggregate of the meetings of the
Board and of the committees on which he served, held during the period for which
each was a director or committee member, respectively.

Compliance with the Reporting Requirements of Section 16(a)
- -----------------------------------------------------------

Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.

<PAGE>

ITEM 10. - EXECUTIVE COMPENSATION
- ------- ----------------------

Compensation of Directors
- -------------------------

Until the current Board of Directors was elected by the stockholders at the
1998 Annual Meeting, each non-employee director received options to purchase
Common Stock of the Company under the 1992 Amended and Restated Non-Employee
Directors' Stock Option Plan (the "1992 Directors' Plan") as compensation for
his or her services as a director and received additional options under such
plans for service on certain committees of the Board. Options may also have been
granted to non-employee directors outside of such Plan. Outside directors
received $1,000 per Board meeting attended and $1,000 per committee meeting
attended if held on a non-Board meeting occasion and an additional $6,000
annually. On September 23, 1998, the current Board of Directors agreed that all
directors fees and granting of stock options to directors would be suspended.

Option grants under the 1992 Directors' Plan were automatic and
non-discretionary. Each person who was a non-employee director of the Company as
of the adoption date of the 1992 Directors' Plan was granted options generally
covering 2,500 shares, with adjustments to equalize the directors' overall
options in light of options previously granted to them. Such options generally
became exercisable ("vest") in year-end installments of 500 shares. For services
as Chairman, Mr. Fingerhut received an option covering an additional 2,125
shares (the "Chairman Option"), vesting at the rate of 41.67 shares per month,
and each member of the Compensation and Audit Committees received options
covering an additional 50 shares for each committee on which he served. In
addition, (a) each person subsequently elected for the first time as a
non-employee director was granted an option on the date of his or her initial
election as a director to purchase a pro rata portion of 2,500 shares, depending
upon when he or she was elected, which options generally vested in year-end
installments of 500 shares; (b) each person subsequently elected for the first
time to the Audit or Compensation Committee was granted an option to purchase 50
shares if elected before July 1, or a portion thereof, prorated on a quarterly
basis, if elected after such date, vesting in full on December 31; (c) each
non-employee director received an annual option to purchase an additional number
of shares, determined by multiplying 500 by a fraction, the numerator of which
was $200 and the denominator of which was the fair market value per share of the
Common Stock on the grant date, subject to minimum and maximum limits of 250 and
500 shares, respectively, vesting quarterly over five years; and (d) each
non-employee director who was a member of the Company's Audit or Compensation
Committee received an annual option to purchase 50 shares, vesting in full on
December 31. Vesting of all options was subject to continued service as a
non-employee director or employee of the Company during the vesting period and,
in the case of options granted for service on a committee, to continued service
on the applicable committee. As of December 31, 1997, 165 options had been
exercised under the 1992 Directors' Plan. By its terms, the plan terminated on
December 31, 1997 (although such event does not affect outstanding options
granted under the plan.)

<PAGE>

All non-employee directors are reimbursed for their expenses incurred in
attending Board of Directors meetings.

Directors who are employees of the Company do not receive separate
compensation for their services as directors.

During the fiscal year ended December 31, 1997, non-employee directors
received options pursuant to the 1992 Directors' Plan as follows: Dr. Cohen
received options covering 500 shares at an exercise price of $14.69 per share;
Mr. Fingerhut received options covering 600 shares at $14.69 per share; Dr.
Misher received options covering 550 shares at $14.69 per share; and Dr. Kennedy
received options covering 550 shares at $14.69 per share.

Compensation of Executive Officers
- ----------------------------------

The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, each person who
served as (i) the Company's Chief Executive Officer during 1998, and (ii) the
Company's other most highly compensated executive officers at December 31, 1998
(the "Named Executive Officers"):

Long-Term Compensation
Annual Compensation Awards
------------------------------- ------------------------------
Name and Securities
Principal Underlying All other
Position Year Salary Bonus Options Compensation(1)
- --------- ---- ------ ----- ---------- ---------------

<S> <C> <C> <C> <C> <C>
Paul O. Koether 1998 $ - $ - - $ -
Chief Executive (2)
Officer and
Chairman of the
Board

John W. Galuchie,Jr.(2) 1998 $ - $ - - $ -
President

Kenneth R., Lynn(3) 1998 $135,975 $ - - $459,887
Former President, 1997 265,513 65,000 - 1,141
Chief Executive Officer 1996 265,006 65,000 7,500 1,174
and Chairman of
the Board

Joseph L. Turner(4) 1998 $ - $ - - $ -
Former Vice President, 1997 165,537 - - 2,165
Finance and 1996 154,533 25,000 4,000 2,399
Administration
Chief Financial
Officer and
Secretary

Diarmuid Boran(5) 1998 $140,375 $ - - $ 1,707
Former Vice President, 1997 140,364 30,000 - 1,708
Corporate 1996 140,046 25,000 4,000 1,707
Development and
Planning

</TABLE>

<PAGE>

- --------------------

(1) Includes matching payments by the Company under its 401(k) Plan and premium
paid by the Company for group term life insurance. For 1998, the amounts
were $664 and $456, respectively, for Mr. Lynn and $1,404 and $304,
respectively, for Mr. Boran. In addition, for Mr. Lynn, this amount
includes severance benefits as more fully described in (3) below.

(2) Mr. Koether and Mr. Galuchie were elected to their current positions on
September 20, 1998 and receive no compensation or fees for their services.

(3) Mr. Lynn left all positions with the Company as of May 18, 1998. In
accordance with the prior Board's determination that Mr. Lynn's departure
constituted a Termination Event under the Executive Compensation and
Benefits Agreement dated as of October 14, 1997 between the Company and Mr.
Lynn, Mr. Lynn was entitled to receive the benefits provided thereunder,
subject to the modifications set forth in the letter agreement dated May
18, 1998 between Mr. Lynn and the Board: (i) the lump sum salary
continuation payment was limited to 20 months salary or $441,667, (ii) no
pro rata bonus was paid, and (iii) all outstanding options held by Mr. Lynn
were terminated and extinguished. Pursuant to the letter agreement, Mr.
Lynn agreed to make himself available as a consultant to the Company
through June 30, 1998 at a rate equal to half of his former rate of
compensation; consulting fees totaling $17,100 were paid to Mr. Lynn during
such period. In addition, the Company entered into an indemnity agreement
with Mr. Lynn whereby it agreed to indemnify him against claims arising in
connection with acts or omissions arising out of his service as a director,
executive, employee, consultant and/or agent of the Company.

(4) Mr. Turner resigned as an officer and employee of the Company as of
December 1, 1997. At such time, Mr. Turner and the Company entered into an
agreement pursuant to which Mr. Turner served as a consultant and continued
to receive his former salary through June 30, 1998. Stock options held by
Mr. Turner at the time of his resignation continued to vest until June 30,
1998.

(5) Mr. Boran became an executive officer in 1995. In May 1998, Mr. Boran was
appointed Chief Operating Officer and Acting Chief Financial Officer of the
Company. Mr. Boran resigned effective December 31, 1998 and received as a
severance benefit approximately nine months salary which included an
arrangement to provide consulting services to the Company. No severance
benefits were paid to Mr. Boran in 1998.

Stock Option Grants and Exercises
--------------------------------

No options were granted to or exercised by the Named Executive Officers
during 1998 or 1997.

<PAGE>

The table below contains information concerning the fiscal year-end value
of unexercised options held by the Executive Officers.

Fiscal Year-End Options Values
------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money
Options at 12/31/98 Options at 12/31/98
Exercisable/Unexercisable Exercisable/Unexercisable(1)
------------------------------------------------------------

Name
----
<S> <C> <C>
Paul O. Koether - / - - / -
John W. Galuchie, Jr. - / - - / -
Kenneth R. Lynn - / - - / -
Joseph L. Turner 16,400 / 13,400 - / -
Diarmuid Boran - / - - / -

No options were exercised during 1998.

(1) There were no In-the-Money options at December 31, 1998.

</TABLE>

<PAGE>

ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------

The following table sets forth the beneficial ownership of Common Stock of
the Company as of February 28, 1999, by each person who was known by the Company
to beneficially own more than 5% of the Common Stock, by each director and
officer and directors and officers as a group.

Number of Shares Approximate
Name and Address of of Common Stock Percent
Beneficial Owner Beneficially Owned(1) of Class
- -------------------- --------------------- -------------

Asset Value Fund Limited 441,650 23.84%
Partnership(2)
376 Main Street
PO Box 74
Bedminster, NJ 07921

Paul O. Koether (3) 441,650 23.84%
211 Pennbrook Road
PO Box 97
Far Hills, NJ 07931

Mark W. Jaindl (2) 25,000 1.35%
3150 Coffeetown Road
Orefield, PA 18069

James L. Bicksler - -
96 Inwood Ave
Upper Montclair, NJ 07043

John W. Galuchie, Jr.(3) 441,650 23.84%
376 Main Street
PO Box 74
Bedminster, NJ 07921

Bert Fingerhut(4) 56,440 3.02%
1520 Silver King Drive
Aspen, CO 81611-1049

Edward Finkelstein 44,402 2.40%
17842 Argyll Terrace
Boca Raton, FL 33496-1415

John E. Repine, M.D.(5) 500 *
2275 Cherry Hills Farm Drive
Englewood, CO 80110

Sue Ann Itzel(3) 441,650 23.84%
376 Main Street
PO Box 74
Bedminster, NJ 07921

All directors and officers
as a group (8 persons)(6) 552,071 29.81%
-----------------------------------
* Represents less than one percent.

<PAGE>

(1) This table is based upon information supplied by the Company's officers,
directors and principal stockholders and Schedule 13D and 13G filed with
the Securities Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
1,852,209 shares outstanding on February 28, 1999, adjusted as required by
rules promulgated by the SEC.

(2) The sole general partner of Asset Value Fund Limited Partnership ("Asset
Value") is Asset Value Management, Inc. ("AVM"), a Delaware corporation and
wholly owned subsidiary of Kent Financial Services Inc. ("Kent"), a
Delaware corporation. Mr. Koether is the Chairman and President of Kent and
the President of AVM. Mr. Galuchie is the Vice President and Treasurer of
Kent and Treasurer of AVM and Ms. Itzel is the Assistant Secretary and
Assistant Treasurer of AVM and Secretary of Kent. On February 10, 1998,
Mark W. Jaindl and Frederick J. Jaindl acquired, respectively, 25,000
shares and 52,000 shares of the Company's Common Stock from Asset Value in
a privately negotiated transaction. Mark Jaindl is the son of Fred Jaindl.
Mark and Fred Jaindl disclaim beneficial ownership of each others shares.

(3) Includes 441,650 shares held by Asset Value.

(4) Includes options to purchase 15,571 shares, which are exercisable within 60
days of the date of this table. Also includes 300 shares held by Mr.
Fingerhut's wife and 1,700 shares by Mr. Fingerhut's minor daughter.

(5) Includes options to purchase 500 shares, which are exercisable within 60
days of the date of this table.

(6) Includes options to purchase a total of 15,921 shares, which are
exercisable within 60 days of the date of this table by executive officers
and directors.

ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- ----------------------------------------------

Indemnification
- ---------------

The Company's Certificate of Incorporation and Bylaws provide, among other
things, that the Company will indemnify each officer or director, under the
circumstances and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he may be required to pay in actions or
proceedings to which he is or may be made a party by reason of his position as a
director, officer or other agent of the Company, and otherwise to the full
extent permitted under Delaware law.

<PAGE>

Severance Agreements
- --------------------

Kenneth R. Lynn and Diarmuid Boran have entered into certain arrangements
with Cortech which provide for certain payments and benefits. Joseph L. Turner,
Cortech's former Vice President, Finance and Administration, Chief Financial
Officer and Secretary, entered into a consulting arrangement with Cortech upon
his resignation on December 1, 1997 (see Item 10 "Executive
Compensation-Compensation of Executive Officers").

<PAGE>

PART IV
-------

ITEM 13. - EXHIBITS
- -------- --------

The following exhibits are filed as part of this report:

Exhibit
Number Description of Document
- ------- -----------------------

3.1 (a) Certificate of Incorporation of Cortech, Inc. as
amended.(1)

(b) Certificate of Amendment of Certificate of
Incorporated of Cortech, Inc.(11)

3.3 Certificate of Designation for Series A Junior
Participating Preferred Stock.(6)

3.4 Amended and Restated ByLaws of Cortech, Inc.(9)

4.1 Reference is made to Exhibits 3.3 and 10.30(9)

4.2 Specimen certificate for the Common Stock of
Cortech, Inc.(1)

10.28 Sponsored Research and License Agreement,
dated February 13, 1987, between The John
Hopkins University and the Company.(1)

10.29 License Agreement, dated June 30, 1997
between The Research Foundation of the
State University of New York and the Company.(1)

10.30 Stock Purchase Agreement dated July 8, 1994,
between the Company and the Research
Foundation of State University of New York.(5)

10.31 Royalty Buyout Agreement dated July 8, 1994,
between the Company and the Research
Foundation of State University of New York.(5)

10.39 Amended and Restated 1986 Incentive Stock Option
Plan of the Company.(1)**

10.40 1991 Non-employee Directors' Stock Option Plan
of the Company.(2)**

10.41 Amended and Restated 1992 Non-employee Directors'
Stock Option Plan of the Company.(4)**

<PAGE>

Exhibit
Number Description of Document
- ------- -----------------------

10.42 1993 Employee Stock Purchase Plan of the Company,
as amended.(3)**

10.43 1993 Equity Incentive Plan of the Company,
as amended.(10)**

10.47 Executive Officers' Severance Benefit Plan.(7)**

10.55 Amendment No. 1 To Executive Officers' Severance
Benefit Plan.(7)**

10.57 Second Amendment of the Research, Development
and License Agreement dated April 23, 1997,
between Ono and the Company.(8)*

10.94 Executive Compensation Benefits Continuation
Agreement between the Company and Kenneth R. Lynn,
dated October 14, 1997, as amended February 12,
1998.(9)**

10.97 Form of Option Agreement for Directors' Non-Plan
Options.(10)**

10.98 Termination Agreement between the Company and
Diarmuid Boran dated January 29, 1999.(11)**

27.1 Financial Data Schedule.(11)

Reports on Form 8-K

On January 15, 1999, the Company filed Form 8-K reporting a change in
accountants from Arthur Andersen LLP to PricewaterhouseCoopers LLP. See
Item 8 "Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure".

On October 5, 1998, the Company filed Form 8-K reporting that the Board of
Directors authorized the redemption of all outstanding preferred share
purchase rights issued pursuant to the Rights Agreement, dated as of June
13, 1995, between the Company and American Securities Transfer, Inc., as
Rights Agent, effective as of the close of business on October 13, 1998,
with the redemption price of $.10 per right paid in cash on October 14,
1998 to the holders of record of Common Stock of the Company as of the
close of business on October 13, 1998.

- --------------------------

(1) Filed as an exhibit to the Company's Registration Statement of Form S-1,
filed October 13, 1992, file number 33-53244, or amendments thereto and
incorporated herein by reference.

<PAGE>

(2) Filed as an exhibit to the Company's annual report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.

(3) Filed as an exhibit to the Company's Registration Statement on Form S-8,
filed March 29, 1993, file number 33-60242, or amendments thereto and
incorporated herein by reference.

(4) Filed as an exhibit to the Company's annual report on Form 10-K for the
year ended December 31, 1993, and incorporated herein by reference.

(5) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1994, and incorporated herein by reference.

(6) Filed as an exhibit to Cortech Inc.'s annual report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.

(7) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.

(8) Filed as an exhibit to Cortech, Inc.'s quarterly report on Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by reference.

(9) Filed as an exhibit to the Company's Registration Statement on Form S-4,
filed February 17, 1998, file number 33-46445 and incorporated herein by
reference.

(10) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference.

(11) Filed herewith.

* Subject to Confidential Treatment Order.

** Compensatory Plan.

<PAGE>

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, thereunto duly authorized.

CORTECH, INC.

March 29, 1999 By: /s/ Paul O. Koether
--------------------
Paul O. Koether
Chairman and Chief
Executive Officer

March 29, 1999 By: /s/ Sue Ann Itzel
------------------
Sue Ann Itzel
Treasurer
(Principal Financial and
Accounting Officer)

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

Signature Capacity Date
- ----------------------- --------------------- ---------------

/s/ Paul O. Koether Chairman and Director March 29, 1999
-------------------- (Principal Executive
Paul O. Koether Officer)

/s/ Mark W. Jaindl Vice Chairman March 29, 1999
------------------- and Director
Mark W. Jaindl

/s/ John W. Galuchie, Jr. President and Director March 29, 1999
-------------------------
John W. Galuchie, Jr.

/s/ James L. Bicksler Director March 29, 1999
---------------------
James L. Bicksler

/s/ Bert Fingerhut Director March 29, 1999
---------------------
Bert Fingerhut

/s/ Edward Finkelstein Director March 29, 1999
----------------------
Edward Finkelstein

/s/ John E. Repine, M.D. Director March 29, 1999
------------------------
John E. Repine, M.D.

Exhibit 3.1(b)

CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION OF
CORTECH, INC.

Cortech, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:

FIRST: The name of the Corporation is Cortech, Inc.

SECOND: Article V, Section 1, of the Certificate of Incorporation is hereby
amended in its entirety to read as follows:

"Section 1. Authorized Shares. The aggregate number of
shares of capital stock which this Corporation shall have
the authority to issue shall be 7,000,000 shares, 5,000,000
of which shall be Common Stock, with a par value of $.002
per share (hereinafter referred to as "Common Stock"), and
2,000,000 of which shall be Preferred Stock, with a par
value of $.002 per share (hereinafter referred to as
"Preferred Stock"). On the effective date of this
Certificate of Amendment, the number of outstanding shares
of Common Stock of the Corporation shall be reduced so that
each ten (10) shares of Common Stock issued and outstanding
will be automatically reclassified, combined, and converted
into one (1) share of Common Stock. No fractions of shares
will be issued, and on the effective time of this
Certificate of Amendment, stockholders otherwise entitled to
receive fractions of shares, unless and until such fractions
of shares are combined with other fractions of shares
resulting in full shares within a period of time to be set
by the Corporation's Board of Directors, shall have no
further interest as a stockholder in respect of such
fractions of shares and shall be entitled to receive from
the Corporation in cash the fair value, as determined by the
Board of Directors, of such fractions of shares."

THIRD: The foregoing Certificate of Amendment to the Certificate of
Incorporation of the Corporation shall be effective at 7:00 p.m., Delaware time,
on September 22, 1998.

FOURTH: The foregoing Certificate of Amendment to the Certificate of
Incorporation of the Corporation has been duly adopted by the Board of Directors
and the stockholders of the Corporation in accordance with the provisions of
Sections 141, 211 and 242 of the General Corporation Law of the State of
Delaware.

<PAGE>

IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Diarmuid Boran, its Chief Operating Officer, this
21st day of September, 1998.

CORTECH, INC.

By: /s/ Diarmuid Boran
---------------------------------------
Diarmuid Boran, Chief Operating Officer

Exhibit 10.98

Cortech, Inc.
6850 North Broadway
Denver, Colorado 80221
(303) 650-1200
Fax (303) 650-1220

January 29, 1999

Mr. Diarmuid Boran
2367 South Holman Circle
Lakewood, CO 80228

Via: Airborne Express

Dear Mr. Boran:

This letter sets forth our agreement concerning termination of your
employment with Cortech, Inc. (the "Company").

1. We have agreed that your employment with the Company will terminate,
effective December 31, 1998.

2. For ten months from the effective date of termination of your
employment (the "Severance Period"), you will receive, as a special
severance benefit, and subject to paragraph 3 below, $109,400, less
applicable withholding and deductions, payable in accordance with the
Company's regular payroll practices. You understand and agree that
such payment is not required, and that you are not entitled to, and
will not receive, any other payments.

3. You have elected to continue your health insurance coverage pursuant
to COBRA. You will pay the cost of such continued health insurance
during the Severance Period or until such earlier time as you obtain
new employment with an employer that has a health insurance plan
available to its employees. If, after the Severance Period, you are
not employed and covered under another health insurance plan, you may
continue to participate in the Company's health insurance plan at your
own expense for the remainder of the COBRA period. You will notify the
Company of your re- employment in writing within 10 days of your
commencement of such employment in order for the Company to determine
its obligations under this paragraph.

<PAGE>

4. Unless you are unable to perform due to disability or death, you will
provide services, and be available, to the Company, as the Company may
request, for two days a week, at a mutually convenient time, during
the first two months of the Severance Period.

5. In consideration of the foregoing special benefits, you release and
discharge the Company, and each of its present and former officers,
directors, shareholders, employees and agents in their respective
capacities as such, and the heirs, executors, administrators,
successors and assigns of each of them, from all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims, and demands whatsoever, in law,
admiralty, equity, arbitration or otherwise, which against the Company
and its officers, directors, shareholders, employees and agents, or
any of them, you ever had, now have or hereafter can, shall or may
have for, upon, or by reason of any matter, cause or thing whatsoever,
whether known or unknown, and whether heretofore asserted or
unasserted, from the beginning of the world to the date of this
agreement, based on your employment with the Company, the terms of
your employment and termination of your employment, or otherwise,
including, but not limited to, claims under federal, state or local
laws, statutes or ordinances, or tort or common law claims, and any
claim for unemployment compensation, severance or vacation or any
other form of compensation or benefit relating to your employment and
the termination thereof.

6. Any and all prior agreements between you and the Company are hereby
terminated and discharged, and are null and void and of no force and
effect.

7. Any stock options held by you are hereby terminated and canceled. You
agree that you have no rights, and will not assert that you have any
rights, to any such options.

8. You will return to the Company all passes, door and file keys,
computer access codes, computer software and hardware, documents,
records, files, memoranda, letters, technical, business or financial
information, and any other property of the Company in your possession,
custody or control, except as may be required for you to perform the
services provided for in paragraph 4.

9. You agree that you will not disclose or use any confidential and/or
proprietary information of the Company, except as may be required for
you to perform the services provided for in paragraph 4.

<PAGE>

10. The parties agree that neither of them will disparage, or make any
disparaging or negative statements about, the other party, or its
business, or any present and former officers, directors, shareholders
or employees.

11. You agree that you will not disclose the contents of this agreement or
the subject matter thereof, or the circumstances surrounding it,
except to immediate family members or as required by law.

Please sign below to signify your acceptance of and agreement to this
agreement.
Very truly yours,

CORTECH, INC.

By: /s/ John W. Galuchie, Jr.
----------------------------
John W. Galuchie, Jr.
President

AGREED AND ACCEPTED

By: /s/ Diarmuid Boran
---------------------
Diarmuid Boran