-----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, EBnwueiFpP+4ihheuEF+WtFGygQcfcCqMQermKXho8pw2ZaEAdTtboOTEtMjdcIX Wdya8pILZ6KI8gkoH3gujQ== 0000728478-02-000016.txt : 20020506 0000728478-02-000016.hdr.sgml : 20020506 ACCESSION NUMBER: 0000728478-02-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020506 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: 02634782 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 crtq302.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: March 31, 2002 -------------- 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 April 30, 2002, the issuer had 3,670,162 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 MARCH 31, 2002 ($000 Omitted) (UNAUDITED) ASSETS - ------ Current assets: Cash and cash equivalents $ 13,187 Prepaid expenses and other 22 -------- Total assets $ 13,209 ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accrued liabilities $ 400 -------- Total liabilities 400 -------- Stockholders' equity: Preferred stock, $.002 par value, 2,000,000 shares authorized, none issued - Common stock, $.002 par value, 5,000,000 shares authorized, 3,674,212 shares issued and outstanding 7 Additional paid-in capital 99,699 Accumulated deficit ( 86,897) -------- Total stockholders' equity 12,809 -------- Total liabilities and stockholders' equity $ 13,209 ======== See accompanying notes to financial statements. 2 CORTECH, INC. STATEMENTS OF OPERATIONS ($000 Omitted, except per share data) (UNAUDITED) Three Months Ended March 31, ------------------------ 2002 2001 -------- -------- Revenues: Interest income $ 55 $ 192 Expenses: General and administrative 474 124 -------- -------- Income (loss) before income taxes ( 419) 68 Provision for income taxes - 4 -------- -------- Net income (loss) ($ 419) $ 64 ======== ======== Basic and diluted net income (loss) per share ($ .11) $ .02 ======== ======== Basic weighted average common shares outstanding (in 000's) 3,689 3,714 ======== ======== Diluted weighted average common shares outstanding (in 000's) 3,689 3,750 ======== ======== See accompanying notes to financial statements. 3 CORTECH, INC. STATEMENTS OF CASH FLOWS ($000 Omitted) (UNAUDITED) Three Months Ended March 31, ------------------------ 2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($ 419) $ 64 Adjustments: Change in accrued interest on short-term investments - ( 95) Change in prepaid expenses and other assets 16 7 Change in accrued liabilities 221 ( 32) -------- -------- Net cash used in operating activities ( 182) ( 56) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock - 175 Repurchase of common stock ( 79) ( 223) -------- -------- Net cash used in financing activities ( 79) ( 48) -------- -------- Net decrease in cash and cash equivalents ( 261) ( 104) Cash and cash equivalents at beginning of period 13,448 7,107 -------- -------- Cash and cash equivalents at end of period $ 13,187 $ 7,003 ======== ======== See accompanying notes to financial statements. 4 CORTECH, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. General ------- The accompanying unaudited financial statements of Cortech, Inc. ("Cortech" or the "Company") as of March 31, 2002 and for the three months ended March 31, 2002 and 2001 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, 2001 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 years' financial statements have been reclassified to conform to the current year's presentation. The results of operations for the three months ended March 31, 2002 and 2001 are not necessarily indicative of the results to be expected for the entire year or for any other period. 2. Legal Proceedings ----------------- On August 7, 2001, Cortech filed a Demand for Arbitration with the American Arbitration Association against Ono Pharmaceutical Co,. Ltd. ("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 5 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. On December 20, 2001, Ono filed its Statement of Defense and Counterclaims, seeking an order interpreting other provisions of the Agreement including, without limitation, certain provisions relating to the rights and obligations of the parties with respect to so-called "Improved Compounds," as defined in 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 -------------------------- A management fee of $15,000 per month is paid to Asset Value Fund Limited Partnership ("AVF") for management services performed for the Company. Management services include, among other things, SEC filings, negotiation, evaluating merger and acquisition proposals, licensing, accounting and shareholder relations. The Company believes that the management fee is materially less than the cost for the Company to perform these services. AVF is the beneficial owner of approximately 41% of the Company's Common Stock at March 31, 2002. 4. Stock Options ------------- In 2001, 25,000 non-qualified stock options which had been granted in 2000 were exercised for proceeds of $175,000. 5. Common Stock ------------ On May 14, 2001, the Company announced a 100% stock dividend with a record date and distribution date of May 22, 2001 and June 1, 2001, respectively. 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 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. As of March 31, 2002, 80,208 shares of Common Stock were repurchased for approximately $302,000. All shares repurchased were returned to the status of authorized but unissued shares. 6 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 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 (loss) per share and diluted earnings (loss) per share are reconciled below (in 000's). Three Months Ended March 31, ------------------------ 2002 2001 -------- -------- Average shares outstanding for basic earnings (loss) per share 3,689 3,714 Dilutive effect of stock options - 36 ------ ------ Average shares outstanding for dilutive earnings (loss) per share 3,689 3,750 ====== ====== Excluded from the calculation of earnings (loss) per share for the quarter ended March 31, 2002 are 330,000 common stock options which, if included, would have an antidilutive effect. 7 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's 2001 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 - --------------------- Revenues - -------- Cortech had a net loss of $419,000 or $.11 basic and fully diluted loss per share for the three months ended March 31, 2002, compared to net income of $64,000 or $.02 basic and fully diluted earnings per share for the same period of 2001. Interest income was $55,000 and $192,000 for the three months ended March 31, 2002 and 2001, respectively, a decrease of $137,000. Lower invested balances and lower yields on investments was the reason for the decrease. 8 Expenses - -------- General and administrative expenses increased from $124,000 in the three months ended March 31, 2001 to $474,000 in the three months ended March 31, 2002. This increase was due principally to higher legal fees incurred in connection with the Company's on-going arbitration with Ono Pharmaceutical Co., Ltd. (the "Ono Arbitration") The Company anticipates significant legal expenses in the second quarter of 2002 in connection with this arbitration. For more information on the Ono Arbitration, see Part II - Other Information, Item 1. Legal Proceedings. Liquidity and Capital Resources - ------------------------------- At March 31, 2002, the Company had cash and cash equivalents of approximately $13.2 million. Cash equivalents of $13.2 million consisted of U.S. Treasury Bills with an original maturity of three months or less with yields ranging between 1.77% and 1.84%. 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 $182,000 was used in operations for the quarter ended March 31, 2002, compared to net cash used in operations of $56,000 for the quarter ended March 31, 2001. In 2002, cash flows from the net loss of $419,000 offset by the increase in accrued liabilities of $221,000 were the primary reasons for the cash used in operations. In 2001, cash flows from net income of $64,000 offset by the increase in accrued interest on short-term investments of $95,000 and the decrease in accrued liabilities of $32,000 were the primary reasons for the cash used in operations. Net cash of $79,000 was used in financing activities in the first quarter of 2002 due to the repurchase of common stock. Net cash of $48,000 was used in financing activities in the first quarter of 2001 due to the issuance and repurchase of common stock of $175,000 and $223,000, respectively. Factors Which May Affect Future Results - --------------------------------------- Future earnings of the Company are dependent on interest rates earned on the Company's invested balances and expenses incurred, particularly legal expenses associated with the Ono Arbitration. 9 Other Disclosures - Related Party Transactions - ---------------------------------------------- A management fee of $15,000 per month is paid to Asset Value Fund Limited Partnership ("AVF") for management services performed for the Company. Management services include, among other things, SEC filings, negotiation, evaluating merger and acquisition proposals, licensing, accounting and shareholder relations. The Company believes that the management fee is materially less than the cost for the Company to perform these services. AVF is the beneficial owner of approximately 41% of the Company's Common Stock at March 31, 2002. 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 Pharmaceutical Co., Ltd. ("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. On December 20, 2001, Ono filed its Statement of Defense and Counterclaims, seeking an order interpreting other provisions of the Agreement including, without limitation, certain provisions relating to the rights and obligations of the parties with respect to so-called "Improved Compounds," as defined in 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: May 6, 2002 /s/ Sue Ann Itzel --------------------------- Sue Ann Itzel Treasurer (Principal Accounting and Financial Officer) 12 -----END PRIVACY-ENHANCED MESSAGE-----