-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O2bIeCDKrtWeLKq9bfhOURodAgP/RFgwGhUfVfF9Ghc21D6o1n2P/dPoqO49cwD5 9GRgXt38pq8zHPUXZwT7SQ== 0000728478-01-500018.txt : 20020410 0000728478-01-500018.hdr.sgml : 20020410 ACCESSION NUMBER: 0000728478-01-500018 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORTECH INC CENTRAL INDEX KEY: 0000728478 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 840894091 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20726 FILM NUMBER: 1782407 BUSINESS ADDRESS: STREET 1: 376 MAIN STREET CITY: BEDMINSTER STATE: NJ ZIP: 07921 BUSINESS PHONE: 9082341881 MAIL ADDRESS: STREET 1: 376 MAIN STREET STREET 2: P.O. BOX 74 CITY: BEDMINSTER STATE: NJ ZIP: 07921 10QSB 1 crtq901q.txt 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, 2001 ------------------ 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, 2001, the issuer had 3,695,618 shares of its common stock, par value $.002 per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes No X --- --- PART I. FINANCIAL INFORMATION - ------ --------------------- ITEM 1. Financial Statements - ------ -------------------- CORTECH, INC. BALANCE SHEET ($000 Omitted) (UNAUDITED) September 30, 2001 ------------- Assets - ------ Current assets: Cash and cash equivalents $ 13,619 Prepaid expenses and other 30 -------- Total current assets $ 13,649 ======== Liabilities and stockholders' equity Current liabilities: Accrued liabilities $ 187 -------- Total current liabilities 187 -------- Stockholders' equity: Preferred stock, $.002 par value, 2,000,000 shares authorized, none issued - Common stock, $.002 par value, 5,000,000 shares authorized, 3,695,618 shares issued and outstanding 7 Additional paid-in capital 99,778 Accumulated deficit ( 86,323) -------- Total stockholders' equity 13,462 -------- Total liabilities and stockholders' equity $ 13,649 ======== See accompanying notes to financial statements. 2 CORTECH, INC. STATEMENTS OF OPERATIONS ($000 Omitted, except per share data) (UNAUDITED) Three Months Ended September 30, ------------------- 2001 2000 ---- ---- Revenues: Interest income $ 115 $ 200 Expenses: General and administrative 213 98 ------ ------ Income (loss) before income taxes ( 98) 102 Provision (benefit) for income taxes ( 16) 2 ------ ------ Net income (loss) ($ 82) $ 100 ====== ====== Basic and fully diluted net income (loss) per share ($ .02) $ .03 ====== ====== Basic weighted average common shares outstanding (in 000's) 3,696 3,704 ====== ====== Diluted weighted average common shares outstanding (in 000's) 3,696 3,744 ====== ====== See accompanying notes to financial statements. 3 CORTECH, INC. STATEMENTS OF OPERATIONS ($000 Omitted, except per share data) (UNAUDITED) Nine Months Ended September 30, ------------------ 2001 2000 ---- ---- Revenues: Interest income $ 472 $ 575 Other income (Note 2) - 96 ------ ------ Total revenues 472 671 ------ ------ Expenses: General and administrative 562 326 ------ ------ Income (loss) before income taxes ( 90) 345 Provision (benefit) for income taxes ( 8) 13 ------ ------ Net income (loss) ($ 82) $ 332 ====== ====== Basic and fully diluted net income (loss) per share ($ .02) $ .09 ====== ====== Basic weighted average common shares outstanding (in 000's) 3,702 3,704 ====== ====== Diluted weighted average common shares outstanding (in 000's) 3,702 3,746 ====== ====== See accompanying notes to financial statements. 4 CORTECH, INC. STATEMENTS OF CASH FLOWS ($000 Omitted) (UNAUDITED) Nine Months Ended September 30, ----------------- 2001 2000 ---- ---- Cash flows from operating activities: Net income (loss) ($ 82) $ 332 Adjustments: Change in prepaid expenses and other assets 51 3 Change in accounts payable and accrued liabilities ( 20) ( 8) -------- -------- Net cash provided by (used in) operating activities ( 51) 327 -------- -------- Cash flows from investing activities: Purchases of short-term investments - ( 6,498) Maturities of short-term investments 6,611 6,568 -------- -------- Net cash provided by investing activities 6,611 70 -------- -------- Cash flows from financing activities: Issuance of common stock 175 - Repurchase of common stock ( 223) - -------- -------- Net cash used in financing activities ( 48) - -------- -------- Net increase in cash and cash equivalents 6,512 397 Cash and cash equivalents, beginning of period 7,107 6,648 -------- -------- Cash and cash equivalents, end of period $ 13,619 $ 7,045 ======== ======== Supplemental disclosure of cash flow information: Cash paid for taxes $ - $ 12 ======== ======== See accompanying notes to financial statements. 5 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. General ------- The accompanying unaudited financial statements of Cortech, Inc. ("Cortech" or the "Company") as of September 30, 2001 and for the three and nine months ended September 30, 2001 and 2000 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 accounting principles generally accepted in the United States of America 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, 2000 as filed with the Securities and Exchange Commission. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 year's 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, 2001 and 2000 are not necessarily indicative of the results to be expected for the entire year or for any other period. 2. 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, 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 6 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. On August 7, 2001, Cortech filed a Demand for Arbitration with the American Arbitration Association against Ono Pharmaceuticals, Inc. ("Ono") seeking resolution of a dispute regarding the interpretation of a June 28, 1999 Research, Development and License Agreement ("Agreement") with Ono. The Agreement provides for the development and commercialization of a pharmaceutical product. Cortech and Ono disagree with respect to Article IV of the Agreement, which concerns the scope of the license granted to Ono thereunder. Cortech seeks an order interpreting Article IV of the Agreement and related provisions, and the rights and obligations of the parties thereunder, including a determination of the payments to Cortech under Article VII of the Agreement. Cortech has no assurance that it will be successful in the arbitration, and, even if successful, the arbitration may require Cortech to incur significant legal costs, impact Cortech's ability to conduct business or take advantage of new business opportunities, lower the stock price, or divert management's attention from Cortech's primary business activities in general. 3. Related Party Transactions -------------------------- 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 40% of the Company's Common Stock at September 30, 2001. 4. Stock Options ------------- 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. In 2000, 190,000 stock options were issued to the officers and directors of the Company. Of the 190,000 stock options issued, 75,000 were incentive stock options and 115,000 were non-qualified stock options. In the first quarter 2001, 25,000 non-qualified stock options were exercised for proceeds of $175,000. 7 5. Common Stock ------------ On May 14, 2001, the Company announced a 100% stock dividend. The record date for the stock dividend was May 22, 2001 and the distribution date was June 1, 2001. Accordingly, all common share information has been restated to reflect this stock dividend. On October 30, 2000 the Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 320,000 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. As of September 30, 2001, 58,800 shares of Common Stock were repurchased for approximately $223,000. All shares repurchased were returned to the status of authorized but unissued shares. 6. Net Income (Loss) Per Share --------------------------- Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) 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 income (loss) per share and diluted income (loss) per share are reconciled below (in 000's): Three Months Ended Nine Months Ended September 30, September 30, ------------------- ----------------- 2001 2000 2001 2000 ------ ------ ------ ------ Average shares outstanding for basic income (loss) per share 3,696 3,704 3,702 3,704 Dilutive effect of stock options - 40 - 42 ----- ----- ----- ----- Average shares outstanding for diluted income (loss) per share 3,696 3,744 3,702 3,746 ===== ===== ===== ===== Excluded from the calculation of diluted loss per share for the three and nine months ended September 30, 2001 are 165,000 common stock options which, if included, would have an antidilutive effect. 8 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") 2000 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 a net loss of $82,000 or $.02 basic and fully diluted loss per share for the three and nine months ended September 30, 2001, compared to net income of $100,000 or $.03 basic and fully diluted earnings per share and $332,000 or $.09 basic and fully diluted earnings per share for the same periods in 2000, respectively. Interest income was $115,000 and $472,000 in the three and nine months ended September 30, 2001, respectively, compared to $200,000 and $575,000 for the same periods in 2000, a decrease of $85,000 and $103,000 in the three and nine month periods, respectively. Lower yields on investments was the primary reason for this decrease. 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 2 of Notes to Financial Statements. 9 General and administrative expenses were $213,000 and $562,000 in the three and nine months ended September 30, 2001, respectively, and $98,000 and $326,000 in the same periods in 2000, respectively, an increase of $115,000 and $236,000. For the three months ended September 30, 2001 general and administrative expenses consisted of legal expenses of $80,000; consulting fees of $61,000; administrative fees of $45,000 and all other expenses of $27,000. For the three months ended September 30, 2000, general and administrative expenses consisted of administrative fees of $45,000, insurance expenses of $17,000; legal expenses of $10,000 and all other expenses of $26,000. The increase in legal and consulting fees is a result of the Company's increased efforts in seeking a collaborative partner and expenses incurred in connection with the Company's arbitration against Ono. For the nine months ended September 30, 2001, general and administrative expenses consisted of consulting fees of $163,000; legal fees of $155,000; administrative fees of $135,000 and all other expenses of $109,000. For the nine months ended September 30, 2000, general and administrative expenses consisted of administrative fees of $135,000; legal fees of $68,000 and all other expenses of $123,000. The increase in consulting and legal fees is a result of the Company's increased efforts in seeking a collaborative partner and expenses incurred in connection with the Company's arbitration against Ono. Liquidity and Capital Resources - ------------------------------- At September 30, 2001, the Company had cash and cash equivalents of approximately $13.6 million. Cash equivalents of $13.6 million consisted of U.S. Treasury Bills with a maturity of three months or less at the date of purchase with yields ranging between 2.46% and 2.58%. 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 $51,000 was used in operating activities for the nine months ended September 30, 2001 compared to net cash provided of $327,000 for the same period in 2000. In 2001, cash consumed by the net loss of $82,000 and the change in accounts payable and accrued liabilities of $20,000, was offset by the change in prepaid expenses and other assets of $51,000. In 2000, cash flows from net income of $332,000 was the primary reason for the cash provided by operations. Net cash of $6.6 million was provided by investing activities in the nine months ended September 30, 2001, due to the maturities of short-term investments. 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 $48,000 was used in financing activities in the nine months ended September 30, 2001, due to the issuance and repurchase of common stock. 10 PART II - OTHER INFORMATION - ------- ----------------- ITEM 1. LEGAL PROCEEDINGS - ------ ----------------- On August 7, 2001, Cortech filed a Demand for Arbitration with the American Arbitration Association against Ono Pharmaceuticals, Inc. ("Ono") seeking resolution of a dispute regarding the interpretation of a June 28, 1999 Research, Development and License Agreement ("Agreement") with Ono. The Agreement provides for the development and commercialization of a pharmaceutical product. Cortech and Ono disagree with respect to Article IV of the Agreement, which concerns the scope of the license granted to Ono thereunder. Cortech seeks an order interpreting Article IV of the Agreement and related provisions, and the rights and obligations of the parties thereunder, including a determination of the payments to Cortech under Article VII of the Agreement. Cortech has no assurance that it will be successful in the arbitration, and, even if successful, the arbitration may require Cortech to incur significant legal costs, impact Cortech's ability to conduct business or take advantage of new business opportunities, lower the stock price, or divert management's attention from Cortech's primary business activities in general. ITEM 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- a. Exhibits None b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is being filed. 11 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 13, 2001 /s/ Sue Ann Itzel --------------------------- Sue Ann Itzel Treasurer (Principal Accounting and Financial Officer) 12 -----END PRIVACY-ENHANCED MESSAGE-----