-----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, MV6rSko6sbGddVXk0LPaoWAGqvk+1LE98tzd5rGG6K93F/EqgYk9uFE0WKwo7agg Vo/Gcs9o/m7VgVSyfU5Nww== 0000728478-02-000019.txt : 20020814 0000728478-02-000019.hdr.sgml : 20020814 20020814154822 ACCESSION NUMBER: 0000728478-02-000019 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02736206 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 crtq10q602.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: June 30, 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 July 31, 2002, the issuer had 3,625,980 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 JUNE 30, 2002 ($000 Omitted) (UNAUDITED) ASSETS - ------ Current assets: Cash and cash equivalents $ 12,483 Prepaid expenses and other 36 -------- Total assets $ 12,519 ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accrued liabilities $ 497 -------- Total liabilities 497 -------- Stockholders' equity: Preferred stock, $.002 par value, 2,000,000 shares authorized, none issued - Common stock, $.002 par value, 5,000,000 shares authorized, 3,634,680 shares issued and outstanding 7 Additional paid-in capital 99,557 Accumulated deficit ( 87,542) -------- Total stockholders' equity 12,022 -------- Total liabilities and stockholders' equity $ 12,519 ======== See accompanying notes to financial statements. 2 CORTECH, INC. STATEMENTS OF OPERATIONS ($000 Omitted, except per share data) (UNAUDITED) Three Months Ended June 30, ------------------ 2002 2001 -------- -------- Revenues: Interest income $ 56 $ 165 Expenses: General and administrative 702 225 ------- ------- Loss before income taxes ( 646) ( 60) Provision for income taxes - 4 ------- ------- Net loss ($ 646) ($ 64) ======= ======= Basic and fully diluted net loss per share ($ .18) ($ .02) ======= ======= Basic and diluted weighted average common shares outstanding (in 000's) 3,660 3,696 ======= ======= See accompanying notes to financial statements. 3 CORTECH, INC. STATEMENTS OF OPERATIONS ($000 Omitted, except per share data) (UNAUDITED) Six Months Ended June 30, -------------------- 2002 2001 -------- -------- Revenues: Interest income $ 112 $ 357 Expenses: General and administrative 1,176 349 ------- ------- Income (loss) before income taxes ( 1,064) 8 Provision for income taxes - 8 ------- ------- Net income (loss) ($ 1,064) $ - ======= ======= Basic and fully diluted net income (loss) per share ($ .29) $ - ======= ======= Basic weighted average common shares outstanding (in 000's) 3,674 3,705 ======= ======= Diluted weighted average common shares outstanding (in 000's) 3,674 3,726 ======= ======= See accompanying notes to financial statements. 4 CORTECH, INC. STATEMENTS OF CASH FLOWS ($000 Omitted) (UNAUDITED) Six Months Ended June 30, -------------------- 2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($ 1,064) $ - Adjustments: Change in other assets 2 ( 6) Change in accrued liabilities 318 ( 16) -------- -------- Net cash used in operating activities ( 744) ( 22) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments - - Maturities of short-term investments - 6,611 -------- -------- Net cash provided by investing activities - 6,611 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock - 175 Repurchase of common stock ( 221) ( 223) -------- -------- Net cash used in financing activities ( 221) ( 48) -------- -------- Net increase (decrease) in cash and cash equivalents ( 965) 6,541 Cash and cash equivalents, beginning of period 13,448 7,107 -------- -------- Cash and cash equivalents, end of period $ 12,483 $ 13,648 ======== ======== 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 June 30, 2002 and for the three and six months ended June 30, 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 year's 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, 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 ----------------- The arbitration previously disclosed, against Ono Pharmaceutical Co., Ltd ("Ono"), concluded in Agusut, 2002 resolving any questions concerning the ownership of Cortech's intellectual property. Ono and Cortech are parties to an agreement under which Ono paid for the right to use Cortech's intellectual property for a term of years, now expired, to develop compounds for the amelioration of Chronic Obstructive Pulmonary Disorder, referred to as "COPD." During the term of the agreement, Ono had designated ONO-6818 as a "Developed Compound," thereby giving Ono exclusive rights to this compound. In the arbitration, among 6 other things, Ono argued that it had the right to name 42 other compounds as "Developed Compounds" giving it the same rights with respect to theses compounds as it had with respect to ONO-6818. Cortech argued that Ono was entitled to designate only one of the 42 compounds as a back-up to Ono-6818. The arbitration panel concurred with Cortech and provided Ono with 20 days to name one compound as the back-up. Ono also argued that 15 other compounds were "Improved Compounds" to which Ono was entitled to exclusive rights for oral uses. The Arbitration Panel determined that Ono had these exclusive rights. However, with respect to non-oral uses of these 15 and other "Improved Compounds" that may be developed in the future, the Panel agreed with Cortech that Cortech and Ono share non-exclusive rights throughout the world, but that Ono may develop these compounds only to the extent such development does not infringe any Cortech patent. Cortech does not know whether Ono intends to appeal the decision of the arbitration panel. 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 43% of the Company's Common Stock at June 30, 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. 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 7 of June 30, 2002, 119,740 shares of Common Stock have been repurchased under this plan for approximately $444,000. 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 earnings (loss) per share and diluted earnings (loss) per share are reconciled below (in 000's). Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2002 2001 2002 2001 ---- ---- ---- ---- Average shares outstanding for basic earnings (loss) per share 3,660 3,696 3,674 3,705 Dilutive effect of stock options - - - 21 ----- ----- ----- ----- Average shares outstanding for dilutive earnings (loss) per share 3,660 3,696 3,674 3,726 ===== ===== ===== =====
Excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2002 are 310,000 common stock options which, if included, would have an antidilutive effect. Excluded from the calculation of diluted loss per share for the three months ended June 30, 2001 are 23,482 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") 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 $646,000 or $.18 basic and fully diluted loss per share for the quarter ended June 30, 2002 compared to a net loss of $64,000 or $.02 basic and fully diluted loss per share for the same period in 2001. There was no net income for the six months ended June 30, 2001, compared to a net loss of $1,064,000 or $.29 basic and fully diluted loss per share for the same period in 2002. Interest income was $56,000 and $112,000 in the three and six months ended June 30, 2002, respectively, compared to $165,000 and $357,000 for the same periods in 2001, a decrease of $109,000 and $245,000 in the three and six month periods, respectively. Lower yields on investments and lower invested balances were the primary reasons for this decrease. 9 Expenses - -------- General and administrative expenses were $702,000 and $1,176,000 in the three and six months ended June 30, 2002, respectively, and $225,000 and $349,000 in the same periods in 2001, respectively, an increase of $477,000 and $827,000. The increase was due principally to legal fees incurred in connection with the Company's on-going arbitration with Ono Pharmaceutical Co., Ltd (the "Ono Arbitration"). The Company anticipates continued legal expenses in the third 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 June 30, 2002, the Company had cash and cash equivalents of approximately $12.5 million. Cash equivalents of $11.9 million consisted of U.S. Treasury Bills with an original maturity of three months or less with yields ranging between 1.65% and 1.73%. 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 $744,000 was used by operating activities for the six months ended June 30, 2002 compared to net cash used by operating activities of $22,000 for the same period in 2001. In 2002, cash flows caused by the net loss of $1,064,000 offset by an increase in accrued liabilities were the primary reasons for the cash used in operating activities. In 2001, changes in other assets and accrued liabilities were the reasons for the cash used. Net cash of $6.6 million was provided by investing activities in the six months ended June 30, 2001, due to the maturities of short-term investments. Net cash of $221,000 was used in financing activities in the six months ended June 30, 2002 due to the repurchase of common stock. Net cash of $48,000 was used in financing activities in the six months ended June 30, 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. 10 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 43% of the Company's Common Stock at June 30, 2002. 11 PART II - OTHER INFORMATION - ------- ----------------- ITEM 1. - LEGAL PROCEEDINGS - ------- ----------------- The arbitration previously disclosed, against Ono Pharmaceutical Co., Ltd ("Ono"), concluded in Agusut, 2002 resolving any questions concerning the ownership of Cortech's intellectual property. Ono and Cortech are parties to an agreement under which Ono paid for the right to use Cortech's intellectual property for a term of years, now expired, to develop compounds for the amelioration of Chronic Obstructive Pulmonary Disorder, referred to as "COPD." During the term of the agreement, Ono had designated ONO-6818 as a "Developed Compound," thereby giving Ono exclusive rights to this compound. In the arbitration, among other things, Ono argued that it had the right to name 42 other compounds as "Developed Compounds" giving it the same rights with respect to theses compounds as it had with respect to ONO-6818. Cortech argued that Ono was entitled to designate only one of the 42 compounds as a back-up to Ono-6818. The arbitration panel concurred with Cortech and provided Ono with 20 days to name one compound as the back-up. Ono also argued that 15 other compounds were "Improved Compounds" to which Ono was entitled to exclusive rights for oral uses. The Arbitration Panel determined that Ono had these exclusive rights. However, with respect to non-oral uses of these 15 and other "Improved Compounds" that may be developed in the future, the Panel agreed with Cortech that Cortech and Ono share non-exclusive rights throughout the world, but that Ono may develop these compounds only to the extent such development does not infringe any Cortech patent. Cortech does not know whether Ono intends to appeal the decision of the arbitration panel. ITEM 4. - Submissions of Matters to a Vote of Security Holders - ------- ---------------------------------------------------- The Company held its Annual Meeting of Stockholders on May 16, 2002. The Shareholders voted to adopt and approve an amendment to the Company's Certificate of Incorporation that would declassify the Board of Directors so that each director would stand for re-election on an annual basis. The following is the vote tabulation: FOR AGAINST WITHHELD NOT VOTED --- ------- -------- --------- 2,499,502 5,508 38,354 910,488 12 Six Directors were elected. The following is a vote tabulation for the nominees: NOMINEE FOR WITHHELD ------- --- -------- Paul O. Koether 3,446,248 7,604 James L. Bicksler 3,446,248 7,604 John W. Galuchie, Jr. 3,446,248 7,604 Sheri Perge Stettner 3,446,248 7,604 Leonard M. Tannenbaum 3,446,248 7,604 Qun Yi Zheng 3,446,248 7,604 The shareholders also voted to ratify the selection of PricewaterhouseCoopers LLP as Independent Auditors of the Company for the year ended December 31, 2002. The following is a vote tabulation for the ratification. FOR AGAINST WITHHELD --- ------- -------- 3,451,558 1,188 1,106 ITEM 6. - Exhibits and Reports on Form 8-K - ------- -------------------------------- a. Exhibits 99.1 - Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is being filed. 13 SIGNATURES Pursuant to the requirements of the Securities and 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 14, 2002 /s/ Sue Ann Itzel -------------------------------- Sue Ann Itzel Treasurer (Principal Accounting and Financial Officer) 14 EX-99 3 exhib99.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. 1350, as adopted), Paul O. Koether, the Chairman of Cortech, Inc., (the "Company"), and Sue Ann Itzel, the Chief Financial Officer, Treasurer and Secretary of the Company each hereby certifies that, to the best of their knowledge: 1. The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 2002, to which this Certification is attached as Exhibit 99.1 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report. Dated: August 14, 2002 /s/ Paul O. Koether - ------------------------------------ Paul O. Koether Chairman /s/ Sue Ann Itzel - ------------------------------------- Sue Ann Itzel Chief Financial Officer, Treasurer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----