<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Cortech, Inc. for the six months ended June 30, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,359
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,364
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,364
<CURRENT-LIABILITIES> 781
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,579
<TOTAL-LIABILITY-AND-EQUITY> 12,583
<SALES> 0
<TOTAL-REVENUES> 2,621
<CGS> 0
<TOTAL-COSTS> 361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,260
<INCOME-TAX> 218
<INCOME-CONTINUING> 2,042
<DISCONTINUED> 0
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<NET-INCOME> 2,042
<EPS-BASIC> 1.10
<EPS-DILUTED> 1.10
</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: June 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 July 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)
June 30,
1999
--------
ASSETS
- ------
Current assets:
Cash and cash equivalents $13,359
Prepaid expenses and other 5
-------
Total assets $13,364
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 19
Accrued severance and other compensation 213
Other accrued liabilities 549
-------
Total liabilities 781
-------
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 ( 87,251)
-------
Total stockholders' equity 12,583
-------
Total liabilities and
stockholders' equity $13,364
=======
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
STATEMENTS OF OPERATIONS
($000 Omitted, except per share data)
(UNAUDITED)
Three Months Ended
June 30,
------------------
1999 1998
---- ----
Revenues:
Interest income $ 127 $ 183
Gain on disposition
of property and equipment 64 12
License income (Note 2) 2,000 -
Other income 15 22
------- -------
Total revenues 2,206 217
------- -------
Expenses:
General and administrative 146 1,498
Research and development - 150
------- -------
Total expenses 146 1,648
------- -------
Income (loss) before income taxes 2,060 ( 1,431)
Provision for income taxes 218 -
------- -------
Net income (loss) $ 1,842 ($ 1,431)
======= =======
Basic and fully diluted net
income (loss) per share $ .99 ($ .77)
======= =======
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)
Six Months Ended
June 30,
----------------
1999 1998
---- ----
Revenues:
Interest income $ 251 $ 379
Gain on disposition
of property and equipment 310 228
License income (Note 2) 2,000 -
Other income 60 22
------- -------
Total revenues 2,621 629
------- -------
Expenses:
General and administrative 361 3,023
Research and development - 436
------- -------
Total expenses 361 3,459
------- -------
Income (loss) before income taxes 2,260 ( 2,830)
Provision for income taxes 218 -
------- -------
Net income (loss) $ 2,042 ($ 2,830)
======= =======
Basic and fully diluted net
income (loss) per share $ 1.10 ($ 1.53)
======= =======
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)
Six Months Ended
June 30,
--------------------
1999 1998
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,042 ($ 2,830)
Adjustments:
Depreciation and amortization - 429
License income ( 2,000) -
Gain on disposition of equipment ( 310) ( 102)
Decrease in prepaid expenses and other 71 140
Decrease in accounts payable ( 131) ( 314)
Decrease in accrued liabilities,
accrued severance and other ( 220) ( 275)
-------- --------
Net cash used in operating activities ( 548) ( 2,952)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 310 184
License income 2,000 -
Purchases of short-term investments - ( 9)
Sales of short-term investments - 3,850
-------- --------
Net cash provided by investing activities 2,310 4,025
-------- --------
Net increase in cash and cash equivalents 1,762 1,073
Cash and cash equivalents, beginning of period 11,597 11,562
-------- --------
Cash and cash equivalents, end of period $ 13,359 $ 12,635
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Note receivable from sale of equipment $ - $ 125
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for taxes $ 200 $ -
======== ========
See accompanying notes to financial statements.
<PAGE>
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. General
-------
The accompanying unaudited financial statements of Cortech, Inc. ("Cortech"
or the "Company") as of June 30, 1999 and for the three and six month periods
ended June 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 six months ended June 30, 1999
and 1998 are not necessarily indicative of the results to be expected for the
entire year or for any other period.
2. License Income
--------------
In June 1999, the Company made final the Agreement first announced in March
1999 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, however, the Company does not
believe it was liable for this withholding and is appealing the withholding and
seeking reimbursement from the Japanese taxing authorities. There is no
assurance that the Company will be successful with this appeal.
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
<PAGE>
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 $1,842,000 or $.99 basic and fully diluted
earnings per share and $2,042,000 or $1.10 basic and fully diluted earnings per
share for the three and six months ended June 30, 1999, respectively, compared
to net losses of $1,431,000 or $.77 basic and fully diluted loss per share and
$2,830,000 or $1.53 basic and fully diluted loss per share for the same periods
in 1998, respectively.
Interest income was $127,000 and $251,000 in the three and six months ended
June 30, 1999, respectively, compared to $183,000 and $379,000 for the same
periods in 1998, a decrease of $56,000 and $128,000 in the three and six month
periods, respectively. Lower yields on cash equivalents was the primary reason
for this decrease.
Gains on disposition of property and equipment were $64,000 and $310,000 in
the three and six months ended June 30, 1999, respectively, compared to $12,000
and $228,000 for the same periods in 1998. During 1997, the Company commenced
selling property and equipment previously used in research and development and
for administrative purposes which has continued into 1999.
License income of $2,000,000 in the three and six months ended June 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.)
<PAGE>
Other income of $15,000 and $60,000 in the three and six months ended June
30, 1999, respectively, primarily relate to the collection of a rental deposit
of $15,000 in June 1999 and reimbursement by one of the Company's insurance
carriers of legal fees of $45,000 previously expensed for the BioStar
Litigation. (see Part II, Item 1.)
General and administrative expenses were $146,000 and $361,000 in the three
and six months ended June 30, 1999, respectively, and $1.5 million and $3.0
million in the same periods in 1998, respectively, a decrease of $1.4 million
and $2.6 million. During 1998, the Company was still in the process of winding
down its operations. In 1999, management instituted strict cost controls with
the goal of preserving cash. For the six months ended June 30, 1999, general and
administrative expenses consisted principally of patent related costs of $75,000
and legal expenses of $153,000, which are being expensed.
Expenses for research and development were $150,000 and $436,000 in the
three and six months ended June 30, 1998, respectively. 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 and six months ended June 30,
1999.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1999, the Company had cash and cash equivalents of
approximately $13,359,000. Cash equivalents of $13,204,000 consisted of U.S.
Treasury Bills with an original maturity of three months or less with yields
ranging between 4.293% and 4.889%. 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 $548,000 was used in operating activities for the six months
ended June 30, 1999 compared to a net use of $2,952,000 for the same period in
1998. In 1999, cash flows from net income of $2,042,000 were offset by the gain
on disposition of equipment of $310,000 and license income of $2,000,000
(classified as investing activities) and a decrease in accounts payable of
$131,000 and accrued liabilities, accrued severance and other of $220,000. In
1998, the net loss of $2,830,000 and the decrease in accounts payable of
$314,000 and accrued liabilities, accrued severance and other of $275,000 was
partially offset by depreciation and amortization of $429,000 and a decrease in
prepaid expenses of $140,000.
Net cash of $2,310,000 was provided by investing activities in the six
months ended June 30, 1999, due to the sale of property and equipment of
$310,000 and license income of $2,000,000. In the six months ended June 30,
1998, $4,025,000 was provided by investing activities with $3,850,000 provided
by the sale of short-term investments and $184,000 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 Board who
were elected at the last annual meeting 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 it
is 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, will do so.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
a. Exhibits
27. Financial Data Schedule for the six months ended June 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: August 13, 1999 /s/ Sue Ann Itzel
---------------------------
Sue Ann Itzel
Treasurer
(Principal Accounting and Financial
Officer)
