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, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File No.: 0-20726
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Cortech, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 84-0894091
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, PO Box 74, Bedminster, NJ 07921
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(Address of principal executive offices)
(908) 234-1881
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(Issuer's telephone number)
N/A
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(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
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State the number of shares outstanding of each of the issuer's classes
of common equity: As of July 31, 2000, 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
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PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
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CORTECH, INC.
BALANCE SHEET
($000 Omitted)
(UNAUDITED)
June 30,
2000
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ASSETS
Current assets:
Cash and cash equivalents $ 6,967
Short-term investments 6,498
Prepaid expenses and other 135
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Total assets $13,600
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14
Accrued liabilities 162
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Total liabilities 176
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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 ( 86,410)
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Total stockholders' equity 13,424
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Total liabilities and
stockholders' equity $13,600
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See accompanying notes to financial statements.
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CORTECH, INC.
STATEMENTS OF OPERATIONS
($000 Omitted, except per share data)
(UNAUDITED)
Three Months Ended
June 30 ,
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2000 1999
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Revenues:
Interest income $ 170 $ 127
Gain on disposition
of property and equipment - 64
License income (Note 2) - 2,000
Other income (Note 3) 96 15
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Total revenues 266 2,206
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Expenses:
General and administrative 95 146
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Income before income taxes 171 2,060
Provision for income taxes 8 218
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Net income $ 163 $ 1,842
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Basic and fully diluted net
income per share $ .09 $ .99
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Weighted average common shares
outstanding (in 000's) 1,852 1,852
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See accompanying notes to financial statements.
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CORTECH, INC.
STATEMENTS OF OPERATIONS
($000 Omitted, except per share data)
(UNAUDITED)
Six Months Ended
June 30 ,
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2000 1999
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Revenues:
Interest income $ 375 $ 251
Gain on disposition
of property and equipment - 310
License income (Note 2) - 2,000
Other income (Note 3) 96 60
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Total revenues 471 2,621
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Expenses:
General and administrative 228 361
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Income before income taxes 243 2,260
Provision for income taxes 11 218
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Net income $ 232 $ 2,042
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Basic and fully diluted net
income per share $ .13 $ 1.10
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Weighted average common shares
outstanding (in 000's) 1,852 1,852
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See accompanying notes to financial statements.
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<PAGE>
CORTECH, INC.
STATEMENTS OF CASH FLOWS
($000 Omitted)
(UNAUDITED)
Six Months Ended
June 30 ,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 232 $ 2,042
Adjustments:
License income - ( 2,000)
Gain on disposition of equipment - ( 310)
Change in prepaid expenses and other 20 71
Change in accounts payable ( 3) ( 131)
Change in accrued liabilities - ( 220)
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Net cash provided by (used in)
operating activities 249 ( 548)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment - 310
License income - 2,000
Purchases of short-term investments ( 6,498) -
Maturities of short-term investments 6,568 -
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Net cash provided by investing activities 70 2,310
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Net increase in cash and cash equivalents 319 1,762
Cash and cash equivalents, beginning of period 6,648 11,597
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Cash and cash equivalents, end of period $ 6,967 $ 13,359
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for taxes $ 5 $ 200
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See accompanying notes to financial statements.
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<PAGE>
CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. General
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The accompanying unaudited financial statements of Cortech,
Inc. ("Cortech" or the "Company") as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999 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 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, 1999 as filed with the
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.
The results of operations for the six months ended June 30,
2000 and 1999 are not necessarily indicative of the results to be
expected for the entire year or for any other period.
2. License Income
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In June 1999, the Company finalized an Agreement to license to
Ono Pharmaceutical Co., Ltd. of Osaka Japan ("Ono") the worldwide
rights to an 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.
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<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 a number of years of continued evaluation of the technology by
Ono.
3. Legal Proceedings
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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. as defendants. The compliant,
filed by a stockholder of the Company, claimed to be on behalf of a
class of all the Company's stockholders and the Company and contended
that the then current directors of the Company breached their fiduciary
duties to the Company's stockholder 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. Thereafter, the parties
negotiated a settlement of the claims. Pursuant to the terms of the
settlement a payment in the amount of $235,000 was made to Cortech on
behalf of Defendants by Cortech's directors and officers insurance
carrier. On April 6, 2000, the Court held a hearing and approved the
settlement and ordered Cortech to pay $129,261.88 in attorney's fees
and expenses from the insurance proceeds. There were no objectors to
the settlement and on May 11, 2000 Cortech received the settlement
payment and paid the attorney's fees and expenses.
4. Related Party Transactions
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An administrative fee of $15,000 per month is paid to Asset
Value Fund Limited Partnership ("AVF") for management services
performed for the Company. These services include corporate governance,
financial management and accounting services. AVF is the beneficial
owner of approximately 38% of the Company's Common Stock at July 31,
2000.
5. Stock Options
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On June 19, 2000, the Board of Directors restored the 1986
stock option plan and the 1993 equity incentive plan. Both plans had
been suspended in 1997. On July 18, 2000 a total of 180,000 stock
options were issued to the officers and directors of the Company. On
August 9, 2000 10,000 stock options were issued to a newly appointed
director.
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ITEM 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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The following discussion and analysis should be read in conjunction with
Cortech, Inc.'s ("Cortech" or the "Company") 1999 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
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Until 1998, 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
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Cortech had net income of $163,000 or $.09 basic and fully diluted income
per share and $232,000 or $.13 basic and fully diluted income per share for the
three and six months ended June 30, 2000 respectively, compared to net income of
$1,842,000 or $.99 basic and fully diluted income per share and $2,042,000 or
$1.10 basic and fully diluted income per share for the same periods in 1999,
respectively.
Interest income was $170,000 and $375,000 in the three and six months ended
June 30, 2000, respectively, compared to $127,000 and $251,000 for the same
periods in 1999, an increase of $43,000 and $124,000 in the three and six month
periods, respectively. Higher invested balances and higher yields on investments
were the primary reasons for this increase.
Gains on disposition of property and equipment were $64,000 and $310,000
for the three and six months ended June 30, 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.)
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Other income in the three and six months ended June 30, 2000 relates to the
settlement of a derivative action brought on behalf of the Company in which the
Company recovered $96,000 net of court ordered payments. For more information on
the settlement, see Note 3 of Notes to Financial Statements.
Other income of $15,000 and $60,000 in the three and six months ended June
30, 1999, respectively, relate primarily 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.
General and administrative expenses were $95,000 and $228,000 in the three
and six months ended June 30, 2000, respectively, and $146,000 and $361,000 in
the same periods in 1999, respectively, a decrease of $51,000 and $133,000. For
the six months ended June 30, 2000, general and administrative expenses
consisted of administrative fees of $90,000; legal fees of $59,000; insurance
fees of $30,000 and all other expenses of $49,000. For the six months ended June
30, 1999, general and administrative expenses consisted of patent related costs
of $75,000; legal fees of $153,000; insurance fees of $62,000 and all other
expenses of $71,000.
Liquidity and Capital Resources
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At June 30, 2000, the Company had cash and cash equivalents of
approximately $6,967,000. Cash equivalents of $6,808,000 consisted of U.S.
Treasury Bills with an original maturity of three months or less with yields
ranging between 5.460% and 6.159%. 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 $249,000 was provided by operating activities for the six
months ended June 30,2000 compared to a net use of $548,000 for the same period
in 1999. In 2000, cash flows from net income of $232,000 was the primary reason
for the cash provided by operations. 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 a decrease in accrued liabilities of
$220,000.
Net cash of $70,000 was provided by investing activities in the six months
ended June 30, 2000, due to the purchases and maturities of short-term
investments. Net cash of $2,310,000 was provided by investing activities in the
six months ended June 30, 2000, due to the sale of property and equipment of
$310,000 and license income of $2,000,000.
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<PAGE>
PART II - OTHER INFORMATION
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ITEM 4. Submissions of Matters to a Vote of Security Holders
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The Company held its Annual Meeting of Stockholders on May 23, 2000 to elect
one Class III director. The Company's Nominee was elected. The following is a
vote tabulation for the nominee:
NOMINEE FOR WITHHELD
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James L. Bicksler, Ph.D. 1,711,682 4,684
ITEM 6. Exhibits and Reports on Form 8-K
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a. Exhibits
27 Financial Data Schedule for the six months ended June
30, 2000
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
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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 10, 2000 /s/ Sue Ann Itzel
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Sue Ann Itzel
Treasurer
(Principal Accounting and
Financial Officer)
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