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, 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 _____
State the number of shares outstanding of each of the issuer's classes of
common equity: As of October 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)
September 30,
2000
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ASSETS
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Current assets:
Cash and cash equivalents $ 7,045
Short-term investments 6,498
Prepaid expenses and other 152
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Total assets $ 13,695
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 171
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Total liabilities 171
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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 ( 86,310)
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Total stockholders' equity 13,524
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Total liabilities and
stockholders' equity $ 13,695
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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
September 30,
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2000 1999
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Revenues:
Interest income $ 200 $ 157
Gain on disposition
of property and equipment - 125
Other income - 92
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Total revenues 200 374
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Expenses:
General and administrative 98 101
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Income before income taxes 102 273
Provision for income taxes 2 10
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Net income $ 100 $ 263
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Basic and fully diluted net
income per share $ .05 $ .14
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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)
Nine Months Ended
September 30,
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2000 1999
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Revenues:
Interest income $ 575 $ 408
Gain on disposition
of property and equipment - 435
License income (Note 2) - 2,000
Other income (Note 3) 96 152
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Total revenues 671 2,995
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Expenses:
General and administrative 326 462
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Income before income taxes 345 2,533
Provision for income taxes 13 228
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Net income $ 332 $ 2,305
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Basic and fully diluted net
income per share $ .18 $ 1.24
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See accompanying notes to financial statements.
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CORTECH, INC.
STATEMENTS OF CASH FLOWS
($000 Omitted)
(UNAUDITED)
Nine Months Ended
September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 332 $ 2,305
Adjustments:
Licensing income - ( 2,000)
Gain on disposition of equipment - ( 435)
Change in prepaid expenses and other 3 69
Change in accounts payable ( 17) ( 133)
Change in accrued liabilities and other 9 ( 392)
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Net cash provided by (used in)
operating activities 327 ( 586)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment - 435
Licensing 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 2,435
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Net increase in cash and cash equivalents 397 1,849
Cash and cash equivalents, beginning of period 6,648 11,597
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Cash and cash equivalents, end of period $ 7,045 $ 13,446
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for taxes $ 12 $ 200
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See accompanying notes to financial statements.
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CORTECH, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. General
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The accompanying unaudited financial statements of Cortech, Inc. ("Cortech"
or the "Company") as of September 30, 2000 and for the three and nine month
periods ended September 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 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, 1999 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.
The results of operations for the three and nine months ended September 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 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.
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.
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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 complaint, 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 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 39% of the Company's
Common Stock at October 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. Of the 190,000 stock options issued, 75,000 were
incentive stock options and 115,000 were non-qualified stock options.
6. Common Stock
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On October 30, 2000 the Board of Directors approved a stock repurchase
program authorizing the Company to repurchase up to 160,000 shares of its Common
Stock at prices deemed favorable from time to time in the open market or in
privately negotiated transactions subject to market conditions, the Company's
financial position and other considerations.
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7. Net Income Per Share
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Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted net income per
share is computed by dividing net income by the sum of the weighted-average
number of common shares outstanding plus the dilutive effect of shares issuable
through the exercise of stock options.
The shares used for basic earnings per share and diluted earnings per share
are reconciled below (in 000's).
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
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Average shares
outstanding for
basic earnings
per share 1,852 1,852 1,852 1,852
Dilutive effect of
stock options 20 - 21 -
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Average shares
outstanding for
diluted earnings
per share 1,872 1,852 1,873 1,852
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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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 $100,000 or $.05 basic and fully diluted earnings
per share and $332,000 or $.18 basic and fully diluted earnings per share for
the three and nine months ended September 30, 2000, respectively, compared to
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 same
periods in 1999, respectively.
Interest income was $200,000 and $575,000 in the three and nine months
ended September 30, 2000, respectively, compared to $157,000 and $408,000 for
the same periods in 1999, an increase of $43,000 and $167,000 in the three and
nine month periods, respectively. Higher yields on investments and higher
invested balances were the primary reasons for this increase.
Gains on disposition of property and equipment were $125,000 and $435,000
in the three and nine months ended September 30, 1999, respectively.
Licensing income 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 in the nine months ended September 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.
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<PAGE>
Other income of $92,000 and $152,000 in the three and nine months ended
September 30, 1999, respectively, relate to the reimbursement by one of the
Company's insurance carriers of legal fees previously expensed and the reversal
of previously accrued expenses in connection with the closing of the Company's
Denver facilities.
General and administrative expenses were $98,000 and $326,000 in the three
and nine months ended September 30, 2000, respectively, and $101,000 and
$462,000 in the same periods in 1999, respectively, a decrease of $3,000 and
$136,000. For the nine months ended September 30, 2000, general and
administrative expenses consisted of administrative fees of $135,000; legal fees
of $68,000; insurance fees of $48,000 and all other expenses of $75,000. For the
nine months ended September 30, 1999, general and administrative expenses
consisted of patent related costs of $75,000; legal fees of $225,000; insurance
fees of $70,000 and all other expenses of $92,000.
Liquidity and Capital Resources
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At September 30, 2000, the Company had cash, cash equivalents and short
term investments of approximately $13,543,000. Cash equivalents of $6,905,000
consisted of U.S. Treasury Bills with a maturity of three months or less at the
date of purchase with yields ranging between 5.29% and 6.18%. Short term
investments of $6,498,000 consisted of U.S. Treasury Bills with a maturity of
greater than three months at the date of purchase with yields ranging between
5.85% and 6.167%. 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 $327,000 was provided by operating activities for the nine
months ended September 30, 2000 compared to a net use of $586,000 for the same
period in 1999. In 2000, cash flows from net income of $332,000 was the primary
reason for the cash provided by operations. In 1999, cash flows from net income
of $2,305,000 were offset by the gain on dispositions of equipment of $435,000
and license income of $2,000,000 (classified as investing activities), a
decrease in accounts payable of $133,000 and a decrease in accrued liabilities
of $392,000.
Net cash of $70,000 was provided by investing activities in the nine months
ended September 30, 2000, due to the purchase and maturities of short-term
investments. 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 license income of $2,000,000.
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ITEM 6. Exhibits and Reports on Form 8-K
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a. Exhibits
27. Financial Data Schedule for the nine months ended September
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: November 8, 2000 /s/ Sue Ann Itzel
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Sue Ann Itzel
Treasurer
(Principal Accounting and Financial
Officer)
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