<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Cortech, Inc. for the period ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000728478
<NAME> CORTECH, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,446
<SECURITIES> 0
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<INVENTORY> 0
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<CURRENT-LIABILITIES> 609
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0
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<TOTAL-LIABILITY-AND-EQUITY> 13,455
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<TOTAL-REVENUES> 2,995
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<TOTAL-COSTS> 462
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<INCOME-PRETAX> 2,533
<INCOME-TAX> 228
<INCOME-CONTINUING> 2,305
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</TABLE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: September 30, 1999
------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File No.: 0-20726
-------
Cortech, Inc.
----------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 84-0894091
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, PO Box 74, Bedminster, NJ 07921
------------------------------------------------
(Address of principal executive offices)
(908) 234-1881
-------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity: As of October 31, 1999, the issuer had 1,852,209 shares of its
common stock, par value $.002 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. Financial Statements
- ------ ---------------------
CORTECH, INC.
BALANCE SHEET
($000 Omitted)
(UNAUDITED)
September 30,
1999
-------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,446
Prepaid expenses and other 9
--------
Total assets $ 13,455
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18
Accrued severance and other compensation 93
Other accrued liabilities 498
--------
Total liabilities 609
--------
Stockholders' equity:
Preferred stock, $.002 par value,
2,000,000 shares authorized,
none issued -
Common stock, $.002 par value, 5,000,000
shares authorized, 1,852,209 shares
issued and outstanding 4
Additional paid-in capital 99,830
Accumulated deficit ( 86,988)
--------
Total stockholders' equity 12,846
--------
Total liabilities and
stockholders' equity $ 13,455
========
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
STATEMENTS OF OPERATIONS
($000 Omitted, except per share data)
(UNAUDITED)
Three Months Ended
September 30,
-------------------
1999 1998
------ ------
Revenues:
Interest income $ 157 $ 171
Gain on disposition
of property and equipment 125 -
Other income 92 -
------- -------
Total revenues 374 171
------- -------
Expenses:
General and administrative 101 1,452
------- ------
Total expenses 101 1,452
------- ------
Income (loss) before income taxes 273 ( 1,281)
Provision for income taxes 10 -
------- -------
Net income (loss) $ 263 ($ 1,281)
======= =======
Basic and fully diluted net
income (loss) per share $ .14 ($ .69)
======= =======
Weighted average common
shares outstanding (in 000's) 1,852 1,852
======= =======
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
STATEMENTS OF OPERATIONS
($000 Omitted, except per share data)
(UNAUDITED)
Nine Months Ended
September 30,
------------------
1999 1998
---- ----
Revenues:
Interest income $ 408 $ 550
Gain on disposition
of property and equipment 435 228
Gain on sale of licensing
rights (Note 2) 2,000 -
Other income 152 22
------- -------
Total revenues 2,995 800
------- -------
Expenses:
General and administrative 462 4,475
Research and development - 436
------- -------
Total expenses 462 4,911
------- -------
Income (loss) before income taxes 2,533 ( 4,111)
Provision for income taxes 228 -
------- -------
Net income (loss) $ 2,305 ($ 4,111)
======= =======
Basic and fully diluted net
income (loss) per share $ 1.24 ($ 2.22)
======= =======
Weighted average common
shares outstanding (in 000's) 1,852 1,852
======= =======
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
STATEMENTS OF CASH FLOWS
($000 Omitted)
(UNAUDITED)
Nine Months Ended
September 30,
---------------------
1999 1998
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,305 ($ 4,111)
Adjustments:
Depreciation and amortization - 527
Gain on sale of licensing rights ( 2,000) -
Gain on disposition of equipment ( 435) ( 228)
Decrease in prepaid expenses and other 69 177
Decrease in accounts payable ( 133) ( 455)
Decrease in accrued liabilities,
accrued severance and other ( 392) ( 20)
-------- --------
Net cash used in operating activities ( 586) ( 4,110)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 435 339
Gain on sale of licensing rights 2,000 -
Purchases of short-term investments - ( 9)
Sales of short-term investments - 3,850
-------- --------
Net cash provided by investing activities 2,435 4,180
-------- --------
Net increase in cash and cash equivalents 1,849 70
Cash and cash equivalents, beginning of period 11,597 11,562
-------- --------
Cash and cash equivalents, end of period $ 13,446 $ 11,632
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for taxes $ 200 $ -
======== ========
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. General
-------
The accompanying unaudited financial statements of Cortech, Inc. ("Cortech"
or the "Company") as of September 30, 1999 and for the three and nine month
periods ended September 30, 1999 and 1998 reflect all material adjustments
consisting of only normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods. Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 as
filed with the U.S. Securities and Exchange Commission.
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 revenues 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.
The results of operations for the three and nine months ended September 30,
1999 and 1998 are not necessarily indicative of the results to be expected for
the entire year or for any other period.
2. Gain on Sale of Licensing Rights
--------------------------------
In June 1999, the Company finalized an Agreement to license to Ono
Pharmaceutical Co., Ltd. of Osaka Japan ("Ono") the worldwide rights to the oral
elastase inhibitor program on which the two companies have been collaborating.
Prior to this Agreement, Ono's rights to this technology were limited to the
territories of Korea, Japan, China and Taiwan. In connection with the expansion
of Ono's rights to the technology, Cortech received a $2,000,000 payment less
applicable taxes both in the United States and Japan. Ono withheld at the source
$200,000 of withholding taxes which they remitted directly to the Japanese
taxing authorities. This withholding tax was expensed in the accompanying
financial statements. The Company believed it was not liable for this
withholding and appealed the withholding, seeking reimbursement from the
Japanese taxing authorities. The Company was informed by the Japanese taxing
authorities that its appeal was denied.
<PAGE>
If Ono's studies of the technology are favorable, Cortech could also
receive milestone payments of up to $9.5 million. Ono also agreed to pay Cortech
a royalty on sales generated outside the original territories on products using
Cortech's technology. Milestone payments or royalties are not assured and in any
event could be expected only after several more years of continued evaluation of
the technology by Ono.
Elastase is a protein-degrading enzyme released from neutrophil and is
considered to play a major role in tissue damage and organ failure in severe
inflammatory conditions. Development of an orally active elastase inhibitor is
expected to bring a new therapy for patients with chronic inflammatory diseases.
Ono plans to conduct clinical studies targeting chronic obstructive pulmonary
disease and rheumatoid arthritis.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------- Results of Operations
---------------------
The following discussion and analysis should be read in conjunction with
Cortech, Inc.'s ("Cortech" or the "Company") 1998 Annual Report on Form 10-KSB
as well as the Company's financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-QSB. 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. The
forward-looking statements contained herein speak only as of the date hereof.
The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
General
- -------
Cortech operated as a biopharmaceutical company whose research and
development efforts focused primarily on bradykinin antagonists and protease
inhibitors. Those efforts produced a technology portfolio which may have
potential therapeutic application across a broad range of medical conditions.
Cortech's strategy is to seek collaborative partners to conduct and fund future
research and development on the components of its portfolio, although there can
be no assurance that any particular agreement will be completed. At the same
time, the Company is seeking to redeploy its assets into an operating business.
Results of Operations
- ---------------------
Cortech had net income of $263,000 or $.14 basic and fully diluted earnings
per share and $2,305,000 or $1.24 basic and fully diluted earnings per share for
the three and nine months ended September 30, 1999, respectively, compared to
net losses of $1,281,000 or $.69 basic and fully diluted loss per share and
$4,111,000 or $2.22 basic and fully diluted loss per share for the same periods
in 1998, respectively.
Interest income was $157,000 and $408,000 in the three and nine months
ended September 30, 1999, respectively, compared to $171,000 and $550,000 for
the same periods in 1998, a decrease of $14,000 and $142,000 in the three and
nine month periods, respectively. Lower yields on cash equivalents was the
primary reason for this decrease.
Gains on disposition of property and equipment were $125,000 and $435,000
in the three and nine months ended September 30, 1999, respectively, compared to
zero and $228,000 for the same periods in 1998. During 1998 and 1999, the
Company sold property and equipment previously used in research and development
and for administrative purposes.
<PAGE>
Gain on sale of licensing rights of $2,000,000 in the nine months ended
September 30, 1999 relates to an agreement to license to Ono Pharmaceutical Co.,
Ltd. of Osaka, Japan ("Ono") the worldwide rights to an oral elastase inhibitor
program. (See Note 2 of Notes to Financial Statements.)
Other income of $92,000 and $152,000 in the three and nine months ended
September 30, 1999, respectively, primarily relate to the reimbursement by one
of the Company's insurance carriers of legal fees previously expensed for the
Biostar Litigation, (see Part II, Item 1.), and the reversal of previously
accrued expenses in connection to the closing of the Company's Denver
facilities.
General and administrative expenses were $101,000 and $462,000 in the three
and nine months ended September 30, 1999, respectively, and $1,452,000 and
$4,475,000 in the same periods in 1998, respectively, a decrease of $1,351,000
and $4,013,000. During 1998, the Company was in the process of winding down its
operations. In 1999, management instituted strict cost controls with the goal of
preserving cash. For the nine months ended September 30, 1999, general and
administrative expenses consisted principally of patent related costs of $75,000
and legal expenses relating to patent and licensing agreements of $225,000,
which are being expensed.
Expenses for research and development were $436,000 in the nine months
ended September 30, 1998. Due to the cessation of research and development
activities by the Company in late 1997, there were no research and development
expenses in the three months ended September 30, 1998 or the three and nine
months ended September 30, 1999.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1999, the Company had cash and cash equivalents of
approximately $13,446,000. Cash equivalents of $13,275,000 consisted of U.S.
Treasury Bills with an original maturity of three months or less with yields
ranging between 4.70% and 4.856%. 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 $586,000 was used in operating activities for the nine months
ended September 30, 1999 compared to a net use of $4,110,000 for the same period
in 1998. In 1999, cash flows from net income of $2,305,000 were offset by the
gain on disposition of equipment of $435,000 and gain on sale of licensing
rights of $2,000,000 (both classified as investing activities) and decreases in
accounts payable of $133,000 and accrued liabilities, accrued severance and
other liabilities of $392,000. In 1998, the net loss of $4,111,000 and the
decreases in accounts payable of $455,000 and accrued liabilities, accrued
severance and other liabilities of $20,000 was partially offset by depreciation
and amortization of $527,000 and a decrease in prepaid expenses of $177,000.
Net cash of $2,435,000 was provided by investing activities in the nine
months ended September 30, 1999, due to the sale of property and equipment of
$435,000 and the gain on sale of licensing rights of $2,000,000. In the nine
months ended September 30, 1998, $4,180,000 was provided by investing activities
with $3,850,000 provided by the sale of short-term investments and $339,000
provided by the sale of property and equipment.
<PAGE>
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>
PART II - OTHER INFORMATION
- ------- -----------------
ITEM 1. Legal Proceedings
- ------ -----------------
BIOSTAR LITIGATION. 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, Inc. ("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. The members of the current
Board made no independent review of the merits of the claim or whether the claim
could have a material adverse effect on the Company's financial position or
results of operations.
Recently, counsel for the plaintiff in the litigation has agreed in
principal to approach the court to seek dismissal of the case on grounds that
the allegations of the case which sought to enjoin the proposed combination with
BioStar is moot. In addition, such counsel are currently discussing a potential
settlement of other claims which may not be moot. Notwithstanding the foregoing,
however, no papers have yet been submitted to the court and there is no
guarantee that the court, which would have to approve such dismissal and
potential settlement, will do so.
ITEM 2. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company held its Annual Meeting of Stockholders on November 4, 1999.
All nominees to the Company's Board of Directors were elected. The following is
a vote tabulation for all nominees:
For Withheld
---------- --------
Leonard M. Tannenbaum 1,703,002 8,743
Sheri Perge 1,703,002 8,743
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
a. Exhibits
27. Financial Data Schedule for the nine months ended
September 30, 1999
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORTECH, INC.
Date: November 12, 1999 /s/ Sue Ann Itzel
---------------------------
Sue Ann Itzel
Treasurer
(Principal Accounting and Financial
Officer)