SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
MARK ONE:

[X]    Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
       1934.
       For the Fiscal year ended December 31, 2003

[ ]    Transaction Report  Under Section 13 or 15 (d) of the Securities Exchange
       Act of 1934
       For the transition period from __________ to  _____________.

                         Commission file number 0-20726
                                                -------

                                  CORTECH, INC.
                                  -------------
                 (Name of small business issuer in its charter)

         DELAWARE                                               84-0894091
         --------                                               ----------
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                           Identification No.)

           376 Main Street, P.O. Box 74, Bedminster, New Jersey 07921
           ----------------------------------------------------------
             (Address of principal executive offices with Zip Code)

          Issuer's telephone number, including area code (908) 234-1881
                                                         --------------

         Securities registered under Section 12(b) of the Exchange Act:
         --------------------------------------------------------------

                                      NONE

              Securities registered under Section 12(g) of the Act:
              -----------------------------------------------------

                     Common Stock, par value $.002 per share

     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  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

     Yes  X      No
        -----      -----

     Check if there is no disclosure  of  delinquent  filers in response to item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

     Issuer's  revenues  for the  fiscal  year  ended  December  31,  2003  were
approximately $119,000.

     As of  February  27,  2004,  there were  3,595,780  shares of common  stock
outstanding.   The   aggregate   market  value  of  the  common  stock  held  by
non-affiliates  of the  issuer,  based  upon the  closing  price  on the  Nasdaq
SmallCap Market, was approximately $5 million.

     Traditional Small Business Disclosure Format    Yes      No  X
                                                        -----   -----

     Portions of the following  documents are  incorporated by reference in this
Report on Form 10-KSB:

     1.   Information required under Part III of this report is incorporated  by
          reference from the Registrants 2004 Proxy Statement.

<PAGE>

Item 1.  -  DESCRIPTION OF BUSINESS
-------     -----------------------

General

     Except  for  the  historical  information  contained  herein,  the  matters
discussed in this Annual  Report on Form 10-KSB are  forward-looking  statements
that involve risks and uncertainties.  For a discussion of certain factors which
may affect the outcome  projected in such statements,  see Item 6 ("Management's
Discussion and Analysis of Financial  Condition and Results of  Operations")  of
this  Annual  Report,  as well as  factors  noted in the  balance of this Item 1
("Description  of Business").  Actual results may differ  materially  from those
projected. These forward-looking statements represent the Company's judgement as
of the date of the filing of this Annual Report. The Company disclaims, however,
any intent or obligation to update these forward-looking statements.

Background
----------

     Cortech,  Inc.  ("Cortech" or the  "Company") was  incorporated  in 1982 in
Colorado and reincorporated in Delaware in August of 1991.

     Cortech is a  biopharmaceutical  company  whose  research  and  development
efforts  were  focused   primarily  on  protease   inhibitors   and   bradykinin
antagonists.  These  efforts  produced  a  technology  portfolio  which may have
therapeutic application across a broad range of medical conditions.

     Cortech's  strategy  is to use  collaborative  partners to conduct and fund
on-going  research and development on those components of its portfolio that had
not been  licensed  to  third  parties.  Cortecy  does  not  currently  have any
collaborative  partners.  In response to disappointing test results and its loss
of collaborative  partner funding for research,  Cortech implemented a series of
reductions  in  force  which  resulted  in the  Company  having  no  compensated
employees  since  February  1999,  and  effectively  discontinued  all  internal
research and development  activities.  In addition,  Cortech  decommissioned its
laboratories  and sold all of its  remaining  scientific,  technical  and office
equipment.

ONO Collaboration, Arbitrations, Settlement and Termination
-----------------------------------------------------------

Collaboration
-------------

     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  had been  collaborating
(the "1999 Agreement"). Elastase is a protein-degrading enzyme released from the
neutrophil  and is  considered  to play a major role in tissue  damage and organ
failure  in  severe  inflammatory  conditions.  The  Agreement  anticipated  the

                                      I-1

<PAGE>

development of an orally active elastase inhibitor as a new therapy for patients
with chronic inflammatory diseases.

     Prior to the 1999  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.  Were Ono's
studies  of the  technology  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  were not assured and in any event
could be expected only after  several more years of continued  evaluation of the
technology by Ono.

Arbitrations
------------

     Subsequent to March 31, 2001,  disagreements  arose between Cortech and Ono
as to the status of Ono's license rights under the 1999 Agreement.  On August 7,
2001,  Cortech  filed a Demand for  Arbitration  with the  American  Arbitration
Association  against Ono seeking  resolution  of the  dispute.  The  arbitration
concluded in August 2002,  purportedly  resolving any questions  concerning  the
ownership of Cortech's Intellectual Property and Ono's development rights.

     On November 1, 2002, the Company announced that Ono had advised it of Ono's
intention to discontinue the development of ONO-6818  because of potential liver
toxicity.  In a series of  subsequent  letters,  Ono sought to  renegotiate  its
rights to make compounds using Cortech's  technology.  When Cortech declined, on
February  7,  2003 Ono  admitted  that it had  been  developing  what it  called
"Improved  Compounds"  since  April of 2002 and that it had not  disclosed  this
development as required by the 1999 Agreement, assuming that these new compounds
met the Agreement's definition of "Improved Compounds". In further breach of the
1999 Agreement,  Ono refused to reveal the chemical structure of these so-called
"Improved  Compounds" and announced that Ono had filed a patent in Japan. Within
days,  Cortech  received a notice of  Arbitration  in which Ono claimed that its
rights to develop and designate compounds for development as commercial products
extended beyond the termination of the period provided in the 1999 Agreement for
designating Developed Compounds, as defined in such agreement.

Settlement and Termination
--------------------------

     On March 19, 2004 Cortech signed an Assignment,  Termination and Settlement
Agreement  with  Ono.   Under  the  Agreement,   Ono  assigned  to  Cortech  all
pharmaceutical  compounds  and  intellectual  property  rights that Ono acquired
under the 1999  Agreement,  including  all  technical  and clinical  information

                                      I-2

<PAGE>

related to the pharmaceutical compounds. Moreover, Ono agreed to pay outstanding
patent prosecution expenses.  Cortech and Ono settled the pending arbitration in
its entirety.  Both parties  terminated  the 1999  Agreement,  with all of Ono's
rights  under the 1999  Agreement  reverting to Cortech.  Ono's  confidentiality
obligations survived the termination of the 1999 Agreement.

     The Company  will  continue to seek other  partners to develop the elastase
technology,  although  there can be no  assurance  that it will  succeed in this
endeavor.

Cortech's Work with Protease Inhibitors
---------------------------------------

     Background.   Proteases  are  enzymes  that  cleave  peptide  bonds  within
proteins.  Since  proteins  are  one  of  the  fundamental  building  blocks  of
biological  systems,  proteases  are  among  the most  important  regulators  of
biological  activity  that have  been  described.  As a result  of an  increased
understanding  of the  causative  role  proteases  play in a number  of  disease
processes,  protease  inhibition  had  become  a very  important  area  of  drug
discovery.  Cortech's  work focused  primarily on the discovery and synthesis of
inhibitors of human neutrophil  elastase  ("HNE"),  a serine protease capable of
degrading a variety of connective tissue proteins, most notably elastin. Elastin
is found in the lungs,  vasculature and skin, and therapy  directed  against HNE
may  have   therapeutic   application   in  acute   and   chronic   respiratory,
cardiovascular  and skin disorders.  As a result of its research and development
efforts in this field, Cortech has developed proprietary technology which it has
demonstrated has the potential to be applied to the discovery and synthesis of a
broader range of therapeutically interesting protease inhibitors.

     Other Protease Targets. As part of its protease inhibitor research efforts,
Cortech  scientists  synthesized  and tested a number of  compounds.  Certain of
these compounds have been shown to have activity against other serine elastases,
such as proteinase-3  and endogenous  vascular  elastase.  Serine elastases have
been shown to play an important role in vascular  injury,  and Cortech  believes
that its  portfolio of compounds  may  potentially  provide  useful  therapeutic
interventions  for certain  acute and  chronic  vascular,  skin and  respiratory
diseases and certain viral  diseases.  Cortech has also  developed a proprietary
technology  which has the potential to be applied to the discovery and syntheses
of  inhibitors  of a broader  range of  therapeutically  interesting  serine and
cysteine  proteases  such as mast cell  tryptase  and picorna  virus  proteases,
interleuken-1 beta converting  enzyme,  other caspases involved in apoptosis and
cell death and cathepsins B, K, L and S.

     Notwithstanding these initial findings,  there can be no assurance that any
of these compounds will be proven safe and efficacious in clinical trials,  that

                                      I-3

<PAGE>

the  regulatory  approvals  necessary for their  commercialization  (if any such
compounds are ever advanced to this stage) would be obtained or that it could be
manufactured at acceptable  costs and with  appropriate  quantity.  Furthermore,
Cortech  does  not  intend  to  undertake  further  development  of any of these
compounds without a collaborative partner. Although Cortech is currently seeking
to secure such a partner or purchaser of Cortech's  related  technology  rights,
there  can be no  assurance  that  Cortech  will  be able  to  establish  such a
collaboration or effect any transaction involving a sale of technology rights on
favorable terms, if at all.

Elastase Inhibitors
-------------------

     During  inflamation,  neutrophils  are  activated  and  migrate to sites of
inflamation  to help kill  micro-organisms  and eliminate  inflammatory  debris.
Neutrophils release HNE which disrupts the lining of blood vessels (endothelium)
and allows the neutrophils to reach their target destination.  Because HNE is so
potent at digesting  protein and thereby damaging  tissue,  the body possesses a
number of defenses against  excessive HNE release,  limiting its effect in minor
inflammatory  states. In certain severe inflammatory  conditions,  however,  HNE
production   overwhelms  the  body's  natural  defenses,   resulting  in  tissue
destruction.  High levels of HNE release  have also been found in cases of organ
dysfunction,  such as those associated with acute respiratory  distress syndrome
("ARDS"). Further, HNE appears to play a significant role in a number of chronic
diseases marked by tissue destruction,  including cystic fibrosis and emphysema.
HNE also appears to be involved in less severe forms of tissue destruction, such
as rheumatoid arthritis, psoriasis and periodontal disease.

     CE-1037  -  HNE  Inhibitor  for  Parenteral  Administration.   CE-1037  was
developed and advanced into early Phase II clinical trials in collaboration with
Hoechst Marion Roussel,  Inc.  ("HMRI").  HMRI terminated that  collaboration in
December 1996 following  animal  experiments  which  suggested that the compound
might  have  genotoxic  effects  at high  concentrations.  A repeat  experiment,
sponsored by Cortech but conducted by an independent  outside  laboratory failed
to show any genotoxic  effect of the compound.  Subsequently,  in November 1998,
Cortech was successful in securing  United  Therapeutics  Corp.  ("UT") as a new
corporate partner for CE-1037. Under the exclusive worldwide product and license
agreement,  UT made an up-front  payment of  $250,000  and was to pay the future
costs of  developing  the  compound  for the  potential  treatment  of pulmonary
diseases.  The  agreement  was  terminated by UT in June 2000 and resulted in no
further revenues.

     HNE Inhibitors for Oral Administration. HNE has been implicated in a number
of chronic  diseases of the  respiratory  tract  including  chronic  obstructive
pulmonary  disease and emphysema.  Optimally,  these  conditions would require a

                                      I-4

<PAGE>

compound that could be administered orally for a prolonged period of time. Thus,
Cortech's  research  and  development  in the area of  elastase  inhibition  was
expanded to include compounds suitable for oral administration.

     In March 1995,  Cortech signed a three-year  research agreement with Ono to
develop an orally active HNE  inhibitor  using  technology  developed by Cortech
prior to initiation of the collaboration.  Under the terms of the agreement, Ono
substantially  funded  Cortech's  research  on oral  HNE  inhibitors  ultimately
providing a total of  approximately  $10 million in funding from 1995-1997.  The
agreement also granted Ono an exclusive,  royalty-free  license to make, use and
sell  a  resulting  product  in  Japan,   Korea,  Taiwan  and  China  (the  "Ono
Territory"), with Cortech retaining all rights outside of the Ono Territory. The
agreement was  subsequently  amended with the final  agreement  executed in June
1999. See above "Ono Collaboration, Arbitrations, Settlement and Termination".

Cortech's Work with Bradykinin Antagonists
------------------------------------------

     Background.  Inflammation  is the  body's  response  to injury of any kind,
including  injury caused by  infections,  immune  responses or physical  trauma.
Controlled  inflammation  is beneficial  because it facilitates the clearance of
pathogens  (disease-causing  agents) and the repair of damaged tissue.  However,
because  inflammation is a comprehensive  response involving numerous pathologic
mediators,  the  strength of the  response  often  converts  normal,  controlled
inflammation  into  an  abnormal,   destructive   process.   When  this  occurs,
inflammation  can cause acute or chronic  disease,  often  accompanied  by pain,
edema  (swelling)  or tissue  destruction  leading to organ failure and death in
severe cases.

     Bradykinin is generated  immediately  following tissue injury or infection.
It is a pivotal  inflammatory  mediator,  and its diverse  effects include pain,
edema,  vascular  leak,  and  hypotension or low blood pressure that can lead to
shock,  organ  dysfunction and death. The body normally  inactivates  bradykinin
within  seconds of its  generation.  However,  in  instances  of severe  injury,
bradykinin  production  outstrips the body's  capacity to inactivate it, thereby
generating sustained inflammation, pain and edema. Preclinical and clinical work
continues  to  support  the  role of  bradykinin  as an  important  mediator  of
inflammation, particularly in brain injury following trauma or acute ischemia.

     Bradycor  (TM)   (Deltibant  or  CP-0127).   Bradycor  is  Cortech's  lead,
first-generation  bradykinin  antagonist  which may potentially have therapeutic
application in the management of traumatic brain injury  ("TBI").  The rationale
for  its use in TBI is  based  on the  important  contribution  of  inflammatory
processes to the full expression of the injury.  A number of these  inflammatory
processes are mediated by bradykinin receptor  mechanisms,  including neutrophil

                                      I-5

<PAGE>

activation  and  migration,   stimulation  of  vascular  endothelial  cells  and
interactions  with neuronal and non-neuronal  cell populations  found within the
brain  parenchyma.  Following  brain  injury,  these  processes  result  in  the
production  of  inflammatory  cytokines,  endothelial  retraction,  blood  brain
barrier  disruption and neuronal death.  Thus,  compounds such as Bradycor which
can block these  bradykinin  mediated  effects may potentially be efficacious in
ameliorating the inflammatory aspects of TBI.

     Until mid-1995,  Cortech's work on Bradycor  concentrated  primarily on the
treatment  of sepsis,  but two Phase II clinical  trials,  completed in 1994 and
1995, failed to provide  sufficient  evidence of efficacy to warrant  additional
development in that indication. Concurrent with the sepsis studies, Cortech also
undertook a small,  pilot Phase II study in patients  with large focal  cerebral
contusions  (a type of injury that  represents a subset of the spectrum of TBI).
In that study,  Bradycor  had  significant  beneficial  effects,  compared  with
placebo,  on  intra  cranial  pressure,  neurological  status  and the  need for
surgical  intervention.  In addition,  Bradycor was well tolerated and showed no
clinically  significant adverse effects in these patients. In 1998, a manuscript
describing the results of that study was published in Acta Neurochirurgica.

     In November 1995, Cortech entered into a worldwide product  development and
license agreement with SmithKline Beecham ("SB") for the development of Bradycor
for the treatment of TBI and possibly stroke. Under the terms of this agreement,
SB  undertook a  multicenter,  placebo  controlled,  Phase II clinical  trial of
Bradycor  in  patients  with  severe TBI (the "TBI  Study").  Results of the TBI
Study,   which  became  available  in  March  1997,   failed  to  demonstrate  a
statistically  significant  benefit of Bradycor on intra cranial  pressure,  the
primary endpoint of the TBI Study. Based on these results, SB and Cortech agreed
to  discontinue  the  planned  development  of  Bradycor.  Moreover,  SB,  after
providing  Cortech with $4 million in funding for the  development  of Bradycor,
terminated its agreement with Cortech.

     Notwithstanding  the  initial  results of the TBI  Study,  an  analysis  of
long-term  functional outcome by the American Brain Injury Consortium  ("ABIC"),
which was completed during the third quarter of 1997,  showed positive trends in
functional  outcome for patients treated with Bradycor which were  statistically
significant in the most severely injured patients. In addition, patients treated
with Bradycor in the TBI Study showed modest (but not statistically significant)
positive  trends  in  intra  cranial  pressure  and the  requirement  for  other
interventions to control intra cranial pressure. In November 1999, the study and
the results generated by ABIC were published in the Journal of Neurotrauma.

                                      I-6

<PAGE>

     During the term of the agreement between SB and Cortech,  SB also conducted
a number of preclinical  and other early phase  clinical  studies to broaden the
profile of Bradycor.  One of SB's  preclinical  studies in rats yielded  adverse
findings  which were  inconsistent  with the  findings of  Cortech's  toxicology
program and not supported by the safety  profile  observed in the clinic.  These
adverse  findings  led to the  premature  suspension  of the TBI Study  with 133
patients  available for analysis rather than the 160 patients planned.  However,
repeat rat studies  failed to duplicate the initially  observed  mortality or to
provide an explanation  for the adverse  findings.  Furthermore,  these results,
when  considered in the context of the entire body of  preclinical  and clinical
data available on the compound, remain anomalous.

     Cortech  does not  intend to  undertake  further  development  of  Bradycor
without a collaborative  partner. There can be no assurance that Cortech will be
able to establish such a  collaboration  or effect any  transaction  involving a
sale of technology  rights on favorable terms, if at all. In the event that such
a partnership  is secured and  development  efforts with respect to Bradycor are
continued,  there can be no  assurance  that  Bradycor  would be proven safe and
efficacious in clinical trials, that the regulatory  approvals necessary for its
commercialization (if Bradycor is ever advanced to this stage) would be obtained
or that it  could be  manufactured  at  acceptable  costs  and with  appropriate
quantity.

     In February 1992,  Cortech entered into a series of agreements with CP-0127
Development   Corporation  ("CDC")  that  govern  the  development  of  products
utilizing Bradycor. See "CP-0127 Development Corporation".

     Second  Generation  Bradykinin   Antagonist  Research.   Cortech  has  also
developed a series of peptide bradykinin antagonists that are 100 to 1,000 times
more potent than  Bradycor.  Compared to Bradycor,  these  compounds have longer
durations of action in vivo and are  expected to be less costly to  manufacture.
Cortech has identified a lead compound, CP-0597, which has been targeted for the
treatment of acute ischemic stroke where inflammatory consequences of the injury
are felt to be similar  to those  following  traumatic  injury.  Acute  ischemic
stroke is the term applied when blood supply to the brain is acutely compromised
by  the  obstruction  of  an  artery.   This   obstruction   leads  to  ischemia
(insufficient blood flow and loss of oxygen) of the brain tissue. As a result of
the ischemia,  there is neuronal  death,  neurological  impairment  and death of
brain tissue. The microvasculature in the brain is acutely sensitive to ischemia
and reacts with  endothelial  swelling and changes in  microvascular  tone which
further compromise blood supply.  There is blood brain barrier disruption in the
ischemic  territory  and an  inflammatory  response  both  at the  vascular  and
neuronal levels.

                                      I-7

<PAGE>

     Results from  preclinical  experiments  demonstrating  the  neuroprotective
effects of CP-0597 were reported in the July 1997 issue of Stroke. These results
indicate  that  CP-0597  may  have  significant  therapeutic  potential  in  the
treatment of stroke.  Cortech  does not,  however,  intend to undertake  further
development  of  CP-0597  without  a  collaborative  partner.  There  can  be no
assurance  that Cortech will be able to establish  such a partnership  or effect
any transaction  involving a sale of technology rights on favorable terms, if at
all.  Furthermore,  there can be no assurance  that CP-0597 would be proven safe
and efficacious in clinical trials, that the regulatory  approvals necessary for
its  commercialization  (if it is ever advanced to this stage) would be obtained
or that it  could be  manufactured  at  acceptable  costs  and with  appropriate
quantity.

Product Development Risks
-------------------------

     Cortech's compounds are in an early stage of research and development.  All
of the  compounds in Cortech's  portfolio  would  require  extensive  additional
research and development  prior to submission of any regulatory  application for
commercial  use.  At this  point,  Cortech's  compounds  could only be  advanced
through  collaborative  arrangements or sale of its technology.  There can be no
assurance that Cortech will be able to establish collaborative  arrangements for
the remaining components of its portfolio or to effect a transaction involving a
sale of technology rights on acceptable terms, if at all. Even if Cortech enters
into  collaborative   arrangements   and/or  receives  funds  for  research  and
development,  there can be no  assurance  that  research or product  development
efforts  would be  successfully  completed,  that  the  compounds  in  Cortech's
portfolio  would be proven to be safe and efficacious in clinical  trials,  that
required  regulatory  approvals  for  commercialization  (if  products  are ever
advanced to this stage) could be obtained,  that products could be  manufactured
at acceptable cost and with  appropriate  quality or that any approved  products
could be  successfully  marketed or would be accepted by  patients,  health care
providers and third-party payors.

Patents, Trade Secrets and Licenses
-----------------------------------

     Cortech believes that patents and other  proprietary  rights are crucial to
its  intellectual  property  portfolio.  It  is  Cortech's  policy  to  maintain
appropriate  patent protection of proprietary  technologies and compounds in its
portfolio.  The value of Cortech's  intellectual property will depend in part on
its ability to obtain  patents,  maintain  trade  secrets  and  operate  without
infringing on the proprietary rights of others in the United States and in other
countries.

     Cortech  has  patent   protection   related  to  the  following:   protease
inhibitors,  bradykinin  antagonists  and  immunology  vaccines and  treatments.

                                      I-8

<PAGE>

Cortech  holds  twenty-eight  United  States  patents and has five United States
patent applications pending which concern protease inhibitors. Cortech holds ten
United States patents which concern bradykinin antagonists. In addition, Cortech
holds  fifty-seven  foreign  patents and has forty-four  foreign patents pending
concerning protease inhibitors and bradykinin antagonists.

     The  patent  positions  of  pharmaceutical  and  biopharmaceutical   firms,
including  Cortech,  are uncertain and involve  complex  factual  questions.  In
addition,  the coverage  claimed in a patent  application  can be  significantly
reduced  before or after the  patent is  issued.  Consequently,  there can be no
assurance that any of Cortech's pending applications will result in the issuance
of patents or, if any patents are issued,  whether they will provide significant
proprietary  protection or will be  circumvented  or  invalidated.  Since patent
applications  in the United States are  maintained in secrecy until patent issue
and since  publication of  discoveries  in the  scientific or patent  literature
often lag behind actual  discoveries,  there can be no assurance that Cortech or
any  licensor  was the first  creator of  inventions  covered by pending  patent
applications  or that  Cortech  or such  licensor  was the first to file  patent
applications  for such  inventions.  There can be no  assurance  that  Cortech's
patents,  if issued,  would be held valid and  infringed by a court of competent
jurisdiction.  An adverse  outcome  with  regard to a third  party  claim  could
subject Cortech to significant  liabilities to third parties,  require  disputed
rights to be licensed from third parties or require  Cortech to cease using such
technology.

     A number of pharmaceutical and biopharmaceutical companies and research and
academic  institutions  have filed patent  applications  or received  patents in
Cortech's fields.  Some of these applications or patents may be competitive with
Cortech's  applications  or may  conflict in certain  respects  with claims made
under  Cortech's  applications.  Such  conflict  could  result in a  significant
reduction of coverage of Cortech's patents,  if issued. In addition,  if patents
are issued to other companies that contain competitive or conflicting claims and
such claims are  ultimately  determined  to be valid,  there can be no assurance
that Cortech  would be able to obtain  licenses to these patents at a reasonable
cost or be able to develop or obtain alternative technology.

     Cortech also seeks to protect unpatented trade secrets and improvements and
unpatented know-how. It is Cortech's policy to require its consultants,  members
of the Board of Directors,  outside scientific  collaborators and other advisors
to execute  confidentiality  agreements  upon the  commencement of employment or
consulting  relationships  with  Cortech.  These  agreements  provide  that  all
confidential  information  developed or made known to the individual  during the
course of the individual's  relationship with Cortech is to be kept confidential
and not disclosed to third parties except in scientific circumstances. There can
be no assurance,  however,  that these  agreements  will not be breached or will

                                      I-9

<PAGE>

provide meaningful  protection or adequate remedies in the event of unauthorized
use of Cortech's trade secrets or disclosure of such  information.  Cortech also
has taken  appropriate  physical  security  measures to protect its intellectual
property.  There can be no assurance,  however, that such security measures will
be adequate.

CP-0127 Development Corporation ("CDC")
---------------------------------------

     In February 1992, Cortech entered into a series of agreements with CDC that
govern the development of products utilizing Bradycor.  The agreements grant CDC
the right to  utilize  Bradycor  in the  United  States,  Canada  and Europe for
certain indications, while Cortech retained rights to Bradycor in other parts of
the world.  Cortech has the right to market,  sell and  license  the  technology
licensed  to CDC or to sell  products  derived  therefrom  and is  subject  to a
royalty obligation in favor of CDC.

Marketing Strategy
------------------

     Cortech's compounds are in the early stages of research and development. In
the event that any of Cortech's  compounds  are  approved  for  marketing in the
future,  Cortech will be entirely reliant upon its corporate  partners to market
those compounds.  Any revenues received by Cortech will, therefore, be dependent
on the efforts of third parties, and there can be no assurance that such efforts
will be successful.

Manufacturing
-------------

     The manufacture of sufficient  quantities of new drugs can be an expensive,
time-consuming  and complex  process and may require the use of  materials  with
limited  availability  or require  dependence on sole-source  suppliers.  In the
event that any of Cortech's  compounds reach the stage of development  involving
manufacturing,  Cortech will be solely dependent upon its corporate partners for
the manufacture of compounds.

Competition
-----------

     The pharmaceutical and biopharmaceutical  industries are engaged in intense
competition   involving  multiple   technologies  and  strategies  for  compound
identification  and  development.  Many companies are focused on research in the
same  areas  as  Cortech.  Cortech's  most  significant  competitors  are  fully
integrated   pharmaceutical   companies  and  more   established   biotechnology
companies.  Smaller  companies  may also  prove to be  significant  competitors,
particularly  through  collaborative   arrangements  with  large  pharmaceutical
companies.  In addition,  Cortech faces competition from academic  institutions,
governmental  agencies, and other public and private research organizations that
conduct  research,   seek  patent   protection,   and  establish   collaborative

                                      I-10

<PAGE>

arrangements for product and clinical development and marketing.

     Many  of  Cortech's   competitors  have  substantially  greater  financial,
technical  and  human  resources  than  Cortech  and have  significant  products
approved or in development.

     Any of Cortech's  products that successfully gain regulatory  approval must
then compete for market  acceptance  and market share.  For certain of Cortech's
potential products, an important competitive factor will be the timing of market
introduction.  Accordingly,  Cortech expects that important  competitive factors
will be the relative speed with which companies can develop  products,  complete
the clinical testing and approval processes and supply commercial  quantities of
the product to the market.  With respect to clinical  testing,  competition  may
delay  progress by limiting  the number of clinical  investigators  and patients
available to test Cortech's potential products.

     HNE inhibitors have been the target of research and development  efforts by
a number of large  pharmaceutical  companies.  While no company has succeeded in
developing  a small  molecular  weight HNE  inhibitor  to the point of filing an
application for marketing approval,  there can be no assurance that any of these
programs  will not  achieve  success in the  future.  In  addition,  alternative
approaches to the use of HNE inhibitors are being developed.

     At least four other companies have developed bradykinin antagonists and may
be engaged in product development activities.  Numerous companies are developing
alternative  strategies  to  treat  inflammation.  A  number  of  these  are  in
preclinical and clinical development. Any of these approaches could compete with
Cortech's HNE inhibitor programs.

Government Regulation
---------------------

     The Food and Drug  Administration  ("FDA") is the primary agency regulating
the  research,  development,  manufacturer,  sale and  marketing of drugs in the
United  States.  From the  time at which a  promising  compound  is  identified,
regulations  dictate its  development,  approval,  marketing  and sale.  Product
development  and approval  within this  regulatory  framework  takes a number of
years and involves the expenditure of substantial resources.  Many products that
initially  appear  promising are never approved  because they do not meet safety
and efficacy requirements of the FDA. Regulatory  requirements may change at any
stage  of  Cortech's  product  development  and may  affect  approval,  delay in
application,  or require  additional  expenditures  by  Cortech.  If approval is
obtained,  failure  to  comply  with  ongoing  regulatory  requirements,  or new
information that negatively  impacts the safety or effectiveness of the approved

                                      I-11

<PAGE>

drug, could cause the FDA to withdraw approval to market the product.

     The time period  between when a promising  new compound is  identified  and
when human  testing is  initiated is  generally  referred to as the  preclinical
development period. A series of pharmacologic  studies are also performed during
preclinical  development  to  identify  the  essential  characteristics  of  the
compound's  behavior.  In  addition,  both in vitro and in vivo animal  toxicity
studies are  required to  characterize  the  toxicity  profile of the  compound.
Preclinical  studies  are  regulated  by the FDA under a series  of  regulations
called  Good  Laboratory  Practice  ("GLP")  regulations.  Violations  of  these
regulations can, in come cases,  lead to invalidation of the studies,  requiring
those studies to be repeated. During this time, a manufacturing process which is
capable of producing the compound in an adequately  pure and well  characterized
form for human use is  developed.  Production  of compounds for use in humans is
governed by a series of FDA  regulations  known as Good  Manufacturing  Practice
("GMP") regulations, which regulate all aspects of the manufacturing process.

     The  entire  body  of  preclinical  development  work  is  summarized  in a
submission   to  the  FDA   called  a  Notice  of  Claimed   Exemption   for  an
Investigational New Drug ("IND"). FDA regulations allow human clinical trials to
begin 30 days  following  the  submission  of the IND,  unless the FDA  requests
additional  information,  clarification  or  additional  time to review the IND.
There is no  assurance  that the  submission  of an IND will  allow a company to
commence clinical trials.  Once trials have started,  the company or the FDA may
decide to stop the trials because of concerns about the safety of the product or
the adequacy of the trial design. Such action can substantially delay individual
trials, as well as the entire development  program for the compound and, in some
cases, may require abandonment of a product.

     Clinical  testing of new compounds in humans is designed to establish  both
safety and efficacy in treating a specific  disease or condition.  These studies
are usually conducted in three phases of testing.  In Phase I, a small number of
healthy  subjects or patients  with the specific  condition  being  targeted are
given the new  compound  to  determine  the  pharmacokinetic  and  pharmacologic
actions of the drug in humans, the side effects associated with increasing doses
and if possible,  to gain early  evidence of  effectiveness.  In Phase II, small
numbers of patients with the targeted disease are given the compound to test its
efficacy in treating the targeted  disease,  to determine the common  short-term
side effects and risks associated with the drug, and to establish effective dose
levels.  Phase III studies are larger studies designed to confirm the compound's
efficacy  and safety for the targeted  disease and to provide an adequate  basis
for physician labeling.

                                      I-12

<PAGE>

     When a drug is  being  developed  for a  condition  that  is life or  organ
threatening,  or for which  there is no  alternative  therapy,  the FDA may,  in
certain  cases,  grant an accelerated  approval  process.  However,  there is no
assurance that any of Cortech's  products would be eligible for this accelerated
approval process.

     Once adequate data have been  obtained in clinical  testing to  demonstrate
that the compound is both safe and  effective  for the intended  use, all of the
data available is submitted to the FDA in a New Drug  Application  ("NDA").  The
FDA  reviews  this  application  and,  once it decides  that  adequate  data are
available which show that the new compound is both safe and effective,  approves
the drug for  marketing.  The approval  process may take several  years and is a
function of a number of variables  including the quality of the  submission  and
data  presented,  the  potential  contribution  that the  compound  will make in
improving the treatment of the disease in question,  and the extent of agreement
between  the  sponsor  and  the FDA on the  product  labeling.  There  can be no
assurance  that any new drug will  successfully  proceed  through this  approval
process or that it will be approved in any specific period of time.

     The FDA may, during its review of an NDA, ask for additional  data, and may
also require  postmarketing  testing,  including  potentially expensive Phase IV
studies.  In  addition,  postmarketing  surveillance  to monitor  the safety and
effectiveness  of the  drug  must be done  by the  sponsor.  The FDA may in some
circumstances impose additional  restrictions on the use and/or promotion of the
drug that may be difficult and expensive to administer.

     Before  marketing  approval  is  granted,  the  facility  in which the drug
product is  manufactured  must be inspected by the FDA and deemed to be adequate
for the manufacture,  holding and distribution of drugs in compliance with GMPs.
Manufacturers  must  continue  to expend  time,  money and effort in the area of
production,  and quality  control,  labeling,  advertising and promotion of drug
product to ensure full compliance with GMP requirements.  Failure to comply with
applicable  requirements  can lead to FDA demands that  production  and shipment
cease,  that products be recalled,  or to  enforcement  actions that can include
seizures, injunctions, or criminal prosecution. Such failures or new information
that  negatively  impact the safety and  effectiveness  of the drug that becomes
available  after  approval may lead to FDA  withdrawal of approval to market the
product.

     To  market  its  products  abroad,  Cortech  also must  satisfy  regulatory
requirements   implemented  by  foreign  regulatory  authorities.   The  foreign
regulatory  approval  process  includes  all of the  risks  associated  with FDA
approval set forth above,  and may introduce  additional  requirements of risks.
There is no  assurance  that a  foreign  regulatory  body will  accept  the data
developed  by  Cortech  for any of its  products.  Approval  by the FDA does not

                                      I-13

<PAGE>

ensure  approval in other  countries,  nor does  approval  by any other  country
ensure approval decisions by the FDA.

     In  Europe,  human   pharmaceutical   products  are  subject  to  extensive
regulations of testing, manufacture, safety, efficacy, labeling, storage, record
keeping,  advertising  and  promotion.  Effective in January 1995,  the European
Union enacted new regulations  providing for a centralized  licensing procedure,
which is mandatory for certain kinds of products,  and a decentralized  (country
by  country)  procedure  for all other  products.  A license  granted  under the
centralized  procedure  authorizes marketing of the product in all of the member
states of the  European  Union.  Under the  decentralized  procedure,  a license
granted in one member state can be extended to additional member states pursuant
to a simplified  application process. The assessment of products filed under the
centralized  procedure is coordinated by the European Medicine Evaluation Agency
("EMEA").

     In addition to regulations enforced by the FDA, Cortech was also subject to
regulation  under the  Occupational  Safety and Health  Act,  the  Environmental
Protection Act, the Toxic Substances Control Act, the Resource  Conservation and
Recovery  Act,  regulations  promulgated  by the  United  States  Department  of
Agriculture,  and other related federal,  state or local regulations.  Cortech's
research and  development  involved the controlled  use of hazardous  materials,
chemicals,  viruses and various radioactive compounds. Cortech believes that its
safety procedures for handling and disposing of such materials complied with the
standards prescribed by state and federal regulations.

Third-Party Reimbursement
-------------------------

     The business and financial  condition of  pharmaceutical  and biotechnology
companies  will  continue  to be  affected  by the  efforts  of  government  and
third-party  payors to contain or reduce the cost of health care through various
means.  For example,  in certain  foreign markets  pricing or  profitability  of
prescription  pharmaceuticals is subject to government  control.  In particular,
individual  pricing  negotiations  are often  required  in each  country  of the
European Union, even if approval to market the drug under the EMEA's centralized
procedure  is  obtained.  In the United  States,  there have been,  and  Cortech
expects that there will continue to be, a number of federal and state  proposals
to implement similar government control. In addition,  an increasing emphasis on
managed care in the United States will likely  continue to increase the pressure
on  pharmaceutical  pricing.  While  Cortech  cannot  predict  whether  any such
legislative  or  regulatory  proposals  will be  adopted,  the  announcement  or
adoption of such  proposals or efforts could have a material  adverse  effect on
pharmaceutical  companies that are prospective  corporate  partners for Cortech.
Therefore,  Cortech's ability to establish and maintain strategic  alliances may

                                      I-14

<PAGE>

be adversely affected. In addition, in the United States and elsewhere, sales of
prescription  pharmaceuticals  are  dependent  in  part on the  availability  of
reimbursement  to the consumer from third-party  payors,  such as government and
private insurance plans that mandate  predetermined  discounts from list prices.
In addition,  third-party payors are increasingly challenging the prices charged
for medical  products and services.  If Cortech succeeds in bringing one or more
products to the market,  there can be no assurance  that these  products will be
considered cost effective and reimbursement to the consumer will be available or
will be sufficient to allow Cortech to sell its products on a competitive basis.

Human Resources
---------------

     Currently, Cortech has no compensated employees.

ITEM 2.  -  DESCRIPTION OF PROPERTY
-------     -----------------------

     None

ITEM 3.  -  LEGAL PROCEEDINGS
-------     -----------------

Arbitrations
------------

     Subsequent to March 31, 2001,  disagreements  arose between Cortech and Ono
as to the status of Ono's license rights under the 1999 Agreement.  On August 7,
2001,  Cortech  filed a Demand for  Arbitration  with the  American  Arbitration
Association  against Ono seeking  resolution  of the  dispute.  The  arbitration
concluded in August 2002,  purportedly  resolving any questions  concerning  the
ownership of Cortech's Intellectual Property and Ono's development rights.

     On November 1, 2002, the Company announced that Ono had advised it of Ono's
intention to discontinue the development of ONO-6818  because of potential liver
toxicity.  In a series of  subsequent  letters,  Ono sought to  renegotiate  its
rights to make compounds using Cortech's  technology.  When Cortech declined, on
February  7,  2003 Ono  admitted  that it had  been  developing  what it  called
"Improved  Compounds"  since  April of 2002 and that it had not  disclosed  this
development as required by the 1999 Agreement, assuming that these new compounds
met the Agreement's definition of "Improved Compounds". In further breach of the
1999 Agreement,  Ono refused to reveal the chemical structure of these so-called
"Improved  Compounds" and announced that Ono had filed a patent in Japan. Within
days,  Cortech  received a notice of  Arbitration  in which Ono claimed that its
rights to develop and designate compounds for development as commercial products
extended beyond the termination of the period provided in the 1999 Agreement for

                                      I-15

<PAGE>

designating Developed Compounds, as defined in such agreement.

Settlement and Termination
--------------------------

     On March 19, 2004 Cortech signed an Assignment,  Termination and Settlement
Agreement  with  Ono.   Under  the  Agreement,   Ono  assigned  to  Cortech  all
pharmaceutical  compounds  and  intellectual  property  rights that Ono acquired
under the 1999  Agreement,  including  all  technical  and clinical  information
related to the pharmaceutical compounds. Moreover, Ono agreed to pay outstanding
patent prosecution expenses.  Cortech and Ono settled the pending arbitration in
its entirety.  Both parties  terminated  the 1999  Agreement,  with all of Ono's
rights  under the 1999  Agreement  reverting to Cortech.  Ono's  confidentiality
obligations survived the termination of the 1999 Agreement.

     The Company  will  continue to seek other  partners to develop the elastase
technology,  although  there can be no  assurance  that it will  succeed in this
endeavor.


ITEM 4.  -  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------     ---------------------------------------------------

     None
































                                      I-16

<PAGE>

                                     PART II
                                     -------

ITEM 5.  -  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-------     --------------------------------------------------------

     At February 29, 2004, the Company had  approximately  437  stockholders  of
record.  The  Company's  common stock  currently  trades on the Nasdaq  SmallCap
Market under the symbol  "CRTQ".  On February 27,  2004,  the closing  price per
share of the common stock was $2.99.

     On October 1, 2002 the  Company  announced  that the  Nasdaq  Stock  Market
approved  the  Company's  request to  transfer  its  common  stock to the Nasdaq
SmallCap Market from the Nasdaq National Market  effective  October 4, 2002. The
Company  requested  the transfer to the Nasdaq  SmallCap  Market  because it was
unable to meet the Minimum Market Value of Publicly Held Shares  requirement for
continued listing on the Nasdaq National Market as set forth in Marketplace Rule
4450(e)(1).

     The  following  table  sets forth the high and low  closing  prices for the
common  stock for the periods  indicated,  as reported by Nasdaq on the National
and SmallCap Market Systems.

                                                   Low               High
                                                   ---               ----
     Calendar Quarter Ended:

     2003
              March 31                            $ 2.50           $ 2.65
              June 30                               2.60             3.01
              September 30                          2.56             3.20
              December 31                           2.61             2.98
     2002

              March 31                            $ 3.58           $ 4.10
              June 30                               3.23             4.00
              September 30                          2.75             3.40
              December 31                           2.28             2.75

     The Company has not paid any cash  dividends  on its Common Stock since its
inception  and does not  intend  to pay any cash  dividends  in the  foreseeable
future.










                                      II-1

<PAGE>

ITEM 6.  -  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 Financial Statements and Notes thereto included elsewhere in this Form
10-KSB. 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 and include,  but are not limited to, the risks  discussed
below,  the  risks  discussed  in the  section  of  this  Form  10-KSB  entitled
"Description of Business" and risks discussed elsewhere in this Form 10-KSB.

General
-------

     Cortech is a  biopharmaceutical  company  whose  primary focus has been the
discovery  and   development  of  novel   therapeutics   for  the  treatment  of
inflammatory  disorders.  Specifically,  Cortech had  directed  its research and
development  efforts  principally  toward  protease  inhibitors  and  bradykinin
antagonists.  These efforts produced certain intellectual  property rights. (See
Item 1. - Description  of Business - "Cortech's  Work with Protease  Inhibitors"
and "Cortech's Work with Bradykinin Antagonists.")

     In response to  disappointing  test  results and its loss of  collaborative
partner  support,  Cortech  implemented  a series of  reductions  in force which
resulted in the Company having no compensated employees since February 1999, and
effectively  discontinued all internal research and development  activities.  In
addition,  Cortech  decommissioned  its  laboratories,  and sold all scientific,
technical and office equipment. As a result of these actions,  Cortech no longer
has the staff or operative  facilities  required to recommence internal research
and development activities. Cortech's strategy is to seek collaborative partners
to conduct and fund future  research and  development  on the  components of its
portfolio or to sell the rights to certain of the  compounds in the portfolio to
third  parties  interested in funding  future  research and  development,  while
conserving  the Company's  cash.  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
--------

     Revenues,  consisting of interest income were $119,000 and $209,000 for the
years ended  December  31, 2003 and 2002,  respectively.  Lower  yields on lower
invested balances was the primary reason for this decrease.

                                      II-2

<PAGE>

     General and  administrative  expenses  decreased from $1,306,000 in 2002 to
$447,000 in 2003. This decrease was due principally to lower legal fees incurred
in  connection  with  the Ono  Arbitrations. (For  more  information  on the Ono
Arbitrations see Item 3.-Legal Proceedings.)

Liquidity and Capital Resources
-------------------------------

     At December 31, 2003,  the Company had cash and cash  equivalents  of $11.7
million.  Cash  equivalents  consisted  of U.S.  Treasury  Bills  with  original
maturities of three months or less and yields ranging from .80% to .90%. Working
capital  at  December  31,  2003 was  approximately  $11.6  million.  Management
believes its cash and cash equivalents are sufficient for its remaining business
activities  for the  next  twelve  months  and  for  the  costs  of  seeking  an
acquisition of an operating business.

     Net  cash of  approximately  $364,000  was used in  operations  in 2003 due
primarily  to the net  loss of  $330,000.  In 2002,  net  cash of  approximately
$1,056,000 was used in operations, due primarily to the net loss of $1,097,000.

     Net cash of $332,000  was used in financing  activities  in 2002 due to the
repurchase of common stock.

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.

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  46% of the  Company's  Common Stock at
December 31, 2003.







                                      II-3

<PAGE>

Other Matters
-------------

     Net Operating Loss Carryforwards and Tax Credits:  As of December 31, 2003,
Cortech  had  approximately  $86  million of net  operating  loss  carryforwards
("NOL") for income tax  purposes.  In  addition,  Cortech has  approximately  $3
million of  research  and  development  and  foreign  tax  credit  carryforwards
available  to offset  future  federal  income tax,  subject to  limitations  for
alternative  minimum tax. The NOL's and credit  carryforwards  expire in various
years from 2005 through 2023.  Cortech's use of operating loss carryforwards and
tax  credit  carryforwards  is subject to  limitations  imposed by the  Internal
Revenue Code.

     Management  believes the deferred tax assets as of December 31, 2003 do not
satisfy the  realization  criteria  set forth in SFAS No. 109 and has recorded a
valuation  allowance  for the entire net tax asset.  By  recording  a  valuation
allowance  for the entire  amount of future tax  benefits,  the  Company has not
recognized  a  deferred  tax  benefit  for  income  taxes in its  statements  of
operations.





























                                      II-4

<PAGE>

ITEM 7.  -  FINANCIAL STATEMENTS
-------     --------------------

     The financial statements filed with this item are listed below:

     Report of Independent Auditors

     Financial Statements:

           Balance Sheet as of December 31, 2003

           Statements of Operations for the Years ended December 31, 2003
           and 2002

           Statements of Stockholders' Equity for the Years ended
           December 31, 2003 and 2002

           Statements of Cash Flows for the Years ended December 31, 2003
           and 2002

           Notes to Financial Statements




























                                      II-5

<PAGE>

                                                      PricewaterhouseCoopers LLP
                                                                400 Campus Drive
                                                                    P.O. Box 988
                                                          Florham Park, NJ 07932
                                                        Telephone (973) 236 4000
                                                        Facsimile (973) 236 5000


                         REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Directors of
Cortech, Inc.:

In our  opinion,  the  accompanying  balance  sheet and  related  statements  of
operations,  of  stockholders'  equity and of cash flows present fairly,  in all
material respects,  the financial position of Cortech, Inc. at December 31, 2003
and 2002,  and the results of its  operations and its cash flows for each of the
two years in the period ended  December 31, 2003 in conformity  with  accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP

February 6, 2004, except for the last two
paragraphs of Note 3 and 6 and Note 8,
for which the date is March 19, 2004








                                      F-1

<PAGE>

                                  CORTECH, INC.
                                  BALANCE SHEET
                                December 31, 2003
                                   (in 000's)



ASSETS
------

Current assets:
  Cash and cash equivalents                                        $  11,696
  Other assets                                                             8
                                                                   ---------
    Total assets                                                   $  11,704
                                                                   =========


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Accrued liabilities                                              $     156
                                                                   ---------
    Total liabilities                                                    156
                                                                   ---------

Commitments and contingencies (Note 6)


Stockholders' equity (Note 4):

  Preferred stock, $.002 par value 2,000,000 shares
    authorized, none issued                                                -
  Common stock, par value $.002;
    5,000,000 shares authorized;
    3,596,280 shares issued and outstanding                                7
  Additional paid-in capital                                          99,446
  Accumulated deficit                                             (   87,905)
                                                                   ---------
    Total stockholders' equity                                        11,548
                                                                   ---------
    Total liabilities and stockholders' equity                     $  11,704
                                                                   =========







                 See accompanying notes to financial statements.

                                      F-2

<PAGE>
                                  CORTECH, INC.
                            STATEMENTS OF OPERATIONS
                      (in 000's, except per share amounts)



                                                     Year Ended December 31,
                                                  -----------------------------
                                                    2003                 2002
                                                  --------             --------

Revenues:
  Interest                                        $    119             $    209
Expenses:
  General and administrative                           447                1,306
                                                  --------             --------

Loss before income taxes                         (     328)           (   1,097)
Provision for income taxes                               2                    -
                                                  --------             --------
Net loss                                         ($    330)           ($  1,097)
                                                  ========             ========

Basic and diluted net loss per share             ($    .09)           ($    .30)
                                                  ========             ========

Weighted average common shares
 outstanding                                         3,596                3,644
                                                  ========             ========




















                 See accompanying notes to financial statements.

                                      F-3

<PAGE>

                                  CORTECH, INC.
                   STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 4)
                                   (in 000's)


<TABLE>
<S>                            <C>          <C>        <C>            <C>             <C>


                                  Common Stock         Additional
                                  ------------           Paid-In      Accumulated
                               Shares       Amount       Capital        Deficit       Total
                               ------       ------       -------        -------       -----


Balance, December 31, 2001      3,696       $    7       $ 99,778     ($ 86,478)    $ 13,307

Repurchase of common stock     (  100)           -      (     332)            -    (     332)

Net loss                            -            -              -     (   1,097)   (   1,097)
                                -----       ------       --------      --------     --------

Balance, December 31, 2002      3,596            7         99,446     (  87,575)      11,878

Net loss                            -            -              -     (     330)   (     330)
                                -----       ------       --------      --------     --------

Balance, December 31, 2003      3,596       $    7       $ 99,446     ($ 87,905)    $ 11,548
                                =====       ======       ========      ========     ========

</TABLE>














                 See accompanying notes to financial statements.

                                      F-4

<PAGE>
                                  CORTECH, INC.
                            STATEMENTS OF CASH FLOWS
                                   (in 000's)


                                                       Year Ended December 31,
                                                       -----------------------
                                                        2003             2002
                                                       ------           ------

Cash flows from operating activities:
  Net loss                                           ($    330)      ($  1,097)
    Adjustments:
      Change in other assets                         (       1)             31
      Change in accrued liabilities                  (      33)             10
                                                      --------        --------
      Net cash used in operating activities          (     364)      (   1,056)
                                                      --------        --------

Cash flows from financing activities-
  Repurchase of common stock                                 -       (     332)
                                                      --------        --------
      Net cash used in financing activities                  -       (     332)
                                                      --------        --------

Net decrease in cash and cash equivalents            (     364)      (   1,388)
Cash and cash equivalents at beginning of period        12,060          13,448
                                                      --------        --------
Cash and cash equivalents at end of period            $ 11,696        $ 12,060
                                                      ========        ========

Supplemental disclosure cash flow information:
  Cash paid for taxes                                 $      2        $      -
                                                      ========        ========

















                 See accompanying notes to financial statements.

                                      F-5

<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

1.   Organization
     ------------


          Cortech,  Inc.  ("Cortech" or the  "Company")  is a  biopharmaceutical
     company whose primary  focus was the  discovery  and  development  of novel
     therapeutics  for the treatment of  inflammatory  disorders.  Specifically,
     Cortech directed its research and development  efforts  principally  toward
     protease  inhibitors and  bradykinin  antagonists.  These efforts  produced
     certain intellectual property rights.

          In  response   to   disappointing   test   results  and  its  loss  of
     collaborative  partner support,  Cortech implemented a series of reductions
     in force  which  resulted in the Company  having no  compensated  employees
     since February 1999, and effectively discontinued all internal research and
     development   activities.   In   addition,   Cortech   decommissioned   its
     laboratories,  and sold its  scientific,  technical  office  equipment  and
     leasehold improvements. As a result of these actions, Cortech no longer has
     the staff or operative  facilities required to recommence internal research
     and development  activities.  Cortech's  strategy is to seek  collaborative
     partners  to  conduct  and fund  future  research  and  development  on the
     components  of its  portfolio  or to sell  the  rights  to  certain  of the
     compounds in the  portfolio to third parties  interested in funding  future
     research and  development,  while  conserving the Company's cash,  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.

2.   Significant Accounting Policies
     -------------------------------

     Use of Estimates
     ----------------

          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 revenue and expenses during the reporting period. Actual results
     could differ from those estimates.




                                      F-6

<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002


     Cash and Cash Equivalents
     -------------------------

          Cash and cash equivalents  consist of cash in banks and U.S.  Treasury
     Bills purchased with an original maturity of three months or less.

     Basic and Diluted Net Income (Loss) Per Share
     ---------------------------------------------

          Basic  earnings  (loss) per common  share are computed by dividing net
     income (loss) by the weighted-average  number of common shares outstanding.
     Diluted  earnings  (loss) per share are  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 common share and diluted
     earnings per common share are reconciled below.

                                                         (Shares in Thousands)
                                                           2003         2002
                                                           ----         ----
              Average shares outstanding for basic
                loss per share                            3,596         3,644

              Dilutive effect of stock options                -             -
                                                          -----         -----
              Average shares outstanding for diluted
                loss per share                            3,596         3,644
                                                          =====         =====

          Excluded from the  calculation  of diluted income (loss) per share for
     the years ended December 31, 2003 and 2002 are 478,036 Common Stock options
     which, if included, would have an antidilutive effect.












                                      F-7

<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

     Income Taxes
     ------------

          The Company recognizes  deferred tax assets and liabilities related to
     the expected future tax consequences of events that have been recognized in
     the Company's financial statements and tax returns.  However, if it is more
     likely  than not that some  portion or all of the net  deferred  tax assets
     will not be  realized,  a valuation  allowance is  established  and the tax
     benefit is not recognized in the statements of operations.

3.   Sponsored Research and Development
     ----------------------------------

     ONO Collaboration, Arbitrations, Settlement and Termination
     -----------------------------------------------------------

     Collaboration
     -------------

          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  had been
     collaborating  (the  "1999  Agreement").  Elastase  is a  protein-degrading
     enzyme  released from the neutrophil and is considered to play a major role
     in tissue damage and organ failure in severe inflammatory  conditions.  The
     Agreement   anticipated  the  development  of  an  orally  active  elastase
     inhibitor as a new therapy for patients with chronic inflammatory diseases.

          Prior to the 1999  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. Were Ono's studies of the technology  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 were
     not  assured and in any event could be  expected  only after  several  more
     years of continued evaluation of the technology by Ono.

     Arbitrations
     ------------

          Subsequent to March 31, 2001,  disagreements arose between Cortech and
     Ono as to the status of Ono's license rights under the 1999  Agreement.  On

                                      F-8

<PAGE>
                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

     August 7, 2001,  Cortech filed a Demand for  Arbitration  with the American
     Arbitration  Association against Ono seeking resolution of the dispute. The
     arbitration  concluded in August 2002,  purportedly resolving any questions
     concerning  the  ownership  of  Cortech's  Intellectual  Property and Ono's
     development rights.

          On November 1, 2002, the Company  announced that Ono had advised it of
     Ono's  intention to  discontinue  the  development  of ONO-6818  because of
     potential liver toxicity.  In a series of subsequent letters, Ono sought to
     renegotiate its rights to make compounds using Cortech's  technology.  When
     Cortech  declined,  on  February  7,  2003  Ono  admitted  that it had been
     developing what it called "Improved Compounds" since April of 2002 and that
     it had not disclosed this  development  as required by the 1999  Agreement,
     assuming  that  these  new  compounds  met the  Agreement's  definition  of
     "Improved Compounds".  In further breach of the 1999 Agreement, Ono refused
     to reveal the chemical  structure of these so-called  "Improved  Compounds"
     and announced  that Ono had filed a patent in Japan.  Within days,  Cortech
     received a notice of  Arbitration  in which Ono claimed  that its rights to
     develop and designate  compounds  for  development  as commercial  products
     extended  beyond  the  termination  of the  period  provided  in  the  1999
     Agreement  for  designating   Developed  Compounds,   as  defined  in  such
     agreement.

     Settlement and Termination
     --------------------------

          On March 19,  2004  Cortech  signed  an  Assignment,  Termination  and
     Settlement Agreement with Ono. Under the Agreement, Ono assigned to Cortech
     all  pharmaceutical  compounds and  intellectual  property  rights that Ono
     acquired  under the 1999  Agreement,  including  all technical and clinical
     information related to the pharmaceutical  compounds.  Moreover, Ono agreed
     to pay outstanding patent prosecution expenses. Cortech and Ono settled the
     pending  arbitration  in its  entirety.  Both parties  terminated  the 1999
     Agreement,  with all of Ono's rights under the 1999 Agreement  reverting to
     Cortech. Ono's confidentiality  obligations survived the termination of the
     1999 Agreement.

          The  Company  will  continue  to seek other  partners  to develop  the
     elastase  technology,  although  there  can be no  assurance  that  it will
     succeed in this endeavor.

                                      F-9

<PAGE>
                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

4.   Stockholders' Equity
     --------------------

     Preferred Stock
     ---------------

          The Company is authorized to issue 2,000,000 shares of $.002 par value
     preferred  stock  which may be  issued  with  various  terms in one or more
     series, as the Board of Directors may determine.

     Common Stock
     ------------

          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 December 31, 2003,  158,140 shares of Common Stock were  repurchased for
     approximately  $555,000. All shares repurchased were returned to the status
     of authorized but unissued shares.

     Stock Option Plans
     ------------------

          In October  1995,  the  Financial  Accounting  Standards  Board issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 123, "Accounting
     for Stock-Based  Compensation".  This new standard encouraged,  but did not
     require,  companies to recognize  compensation expense for grants of stock,
     stock options and other equity  instruments based on a fair-value method of
     accounting.

          Companies that do not adopt the new expense  recognition rules of SFAS
     No. 123 will continue to apply the existing  rules  contained in Accounting
     Principles  Board  ("APB")  Opinion No. 25, but will be required to provide
     proforma  disclosures  of the  compensation  expense  determined  under the
     fair-value provisions of SFAS No. 123, if material.  APB No. 25 requires no
     recognition of compensation  expense for most of the  stock-based  employee
     compensation  arrangements  provided  by the  Company,  namely  broad-based
     employee  stock option grants and stock  purchase  plans where the exercise
     price is equal to the market price at the date of grant.


                                      F-10

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          The  Company  applies  APB  No.  25  and  related  Interpretations  in
     accounting  for its plans.  Had  compensation  cost for the Company's  four
     stock-based  compensation  plans been determined based on the fair value at
     the grant dates for awards under those plans  consistent with the method of
     SFAS No. 123, the  Company's net income and net income per share would have
     been decreased to the pro forma amounts indicated below:

                                                    2003                 2002
                                                    ----                 ----
     Net loss
       As reported (in $000's)                   ($   330)            ($ 1,097)
       Pro forma (in $000's)                     ($   456)            ($ 1,223)

     Basic net loss per share:
       As reported                               ($   .09)            ($   .30)
       Pro forma                                 ($   .13)            ($   .34)

     Diluted net loss per share:
       As reported                               ($   .09)            ($   .30)
       Pro forma                                 ($   .13)            ($   .34)

          All options granted to date have an exercise price equal to the market
     price of the Company's stock on the grant date. For purposes of calculating
     the compensation cost consistent with FASB Statement 123, the fair value of
     each option grant was  estimated on the grant date using the  Black-Scholes
     option-pricing  model with the  following  assumptions  used:  no  dividend
     yield;  expected volatility of 113.85 percent;  risk free interest rates of
     5.00 percent;  and weighted  average expected lives of 10 years. No options
     were granted in 2003 or 2002.

          The  Company's  1986 Stock Option Plan ("1986  Plan")  authorizes  the
     grant of stock options to officers and employees of the Company to purchase
     an aggregate of 300,000 shares of common stock. Although 81,420 shares were
     available  under the 1986 Plan as of December  19,  1997,  on such date the
     Board of Directors effectively suspended future grants of options under the
     1986 Plan to the  extent  that any such  grant  would  increase  the shares
     subject to outstanding grants above the figure as of such date. On June 19,
     2000, the Board of Directors restored the 1986 Plan. In 2000, 230,000 stock
     options  were issued  under the 1986 Plan at prices  ranging  from $3.50 to
     $3.6875,  the  approximate  fair  market  values at the time of  grant.  No
     options were granted in 2003 or 2002.

                                      F-11

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          The Company's 1993 Equity  Incentive  Plan ("1993 Plan"),  approved by
     the stockholders on May 10, 1994, authorizes the issuance of 340,000 shares
     through the grant of options to purchase common stock,  stock bonuses,  and
     rights to purchase restricted stock. The options outstanding as of December
     31, 2003 generally  become  exercisable in varying amounts over a five-year
     period from the date of grant.  Although 74,170 shares were available under
     the 1993 Plan as of December 19, 1997,  on such date the Board of Directors
     effectively  suspended further grants of options under the 1993 Plan to the
     extent that any such grant would increase the shares subject to outstanding
     grants above the figures as of such date.  On June 19,  2000,  the Board of
     Directors  restored  the 1993 Plan.  In 2000,  150,000  stock  options were
     issued  under this plan at $3.50 per share,  the  approximate  fair  market
     value at the time of grant. No options were granted in 2003 or 2002.

          The stock  options  granted  from either plan may be  incentive  stock
     options  ("ISO")  or  nonstatutory  stock  options  ("NSO").  The  Board of
     Directors  may set  the  rate at  which  the  options  expire,  subject  to
     limitations discussed below. However, no options shall be exercisable after
     the tenth  anniversary of the date of grant or, in the case of ISOs,  three
     months  following  termination of  employment,  except in cases of death or
     disability,  for which the time or exercisability is extended. In the event
     of a dissolution,  liquidation or other corporate reorganization, all stock
     options  outstanding  under the 1986 Plan and the 1993  Plan  would  become
     exercisable in full.

          ISOs may not be  granted  at an  exercise  price of less than the fair
     market value of the common stock at the date of grant. If an ISO is granted
     to an employee who owns more than 10% of the Company's  total voting stock,
     such  exercise  price  shall be at least 110% of fair  market  value of the
     common stock,  and the ISO shall not be exercisable  until after five years
     from the date of grant. The exercise price of each NSO may not be less than
     85% of the fair market value of the common stock at the date of grant.  The
     ISOs outstanding as of December 31, 2003,  generally become  exercisable in
     varying amounts over a two-to-five year period from the date of grant. NSOs
     also generally become exercisable over a two-to-five year period.


                                      F-12

<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          Each of these plans also provides for stock appreciation rights, which
     may be granted  with  respect to any stock  option.  No stock  appreciation
     rights have been granted as of December 31, 2003.

          During 1991, a Non-employee  Directors' Stock Option Plan was approved
     which authorized the grant of stock options to purchase up to 30,000 shares
     of common stock to the non-employee  directors of the Company. The exercise
     price of the options is equal to the fair market value of the shares on the
     date of grant,  which is generally  the later of  initiation of the plan or
     the date of election to the Board of Directors. In March 1993, the Board of
     Directors  suspended further grants under this plan. Vesting of the options
     occurred  upon the  participation  by a  director  in a Board  meeting.  No
     options were granted in 2003 or 2002.  The Company  recorded the difference
     between  the fair  market  value of the  underlying  common  stock  and the
     exercise price as compensation expense over the vesting period.

          The  Company's  1992   Non-employee   Directors'   Stock  Option  Plan
     authorizes  the  granting  of options to  purchase  up to 80,000  shares of
     common stock to the  non-employee  directors  of the Company.  The plan was
     originally  approved by the  stockholders on May 17, 1993, and an amendment
     to the plan was approved by the  stockholders  on May 10, 1994.  No options
     were granted during 2003 or 2002.

          A summary of the  status of the  Company's  1986  Plan,  1993 Plan and
     non-employee directors' stock option plans as of December 31, 2003 and 2002
     and changes during the years ended on those dates is presented below:

                                   2003                           2002
                       ---------------------------     -------------------------
                                  Weighted-Average              Weighted-Average
                        Shares     Exercise Price      Shares    Exercise Price
                        ------    ----------------     ------   ----------------

Options outstanding
 at beginning of year   465,202        $  5.62         485,952        $ 5.59
Forfeited/canceled            -              -        ( 20,750)         4.95
Exercised                     -              -               -             -
                        -------                        -------
Outstanding at
 year end               465,202           5.62         465,202          5.62
                        =======                        =======
Options exercisable
 at year end            465,202           5.62         465,202          5.62
                        =======                        =======

                                      F-13

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          The  Company   granted   other   options  to  certain   directors  and
     consultants:
                                   2003                           2002
                       ---------------------------     -------------------------
                                  Weighted-Average              Weighted-Average
                        Shares     Exercise Price      Shares    Exercise Price
                        ------    ----------------     ------   ----------------

Options outstanding
 at beginning of year    12,834        $  7.50          21,002        $ 20.139
Forfeited/canceled            -              -         ( 8,168)          40.00
                         ------                         ------
Outstanding at
 year end                12,834           7.50          12,834            7.50
                         ======                         ======
Options exercisable
 at year end             12,834           7.50          12,834            7.50
                         ======                         ======

          For options  outstanding  and  exercisable  at December 31, 2003,  the
     exercise price ranges are:


<TABLE>
 <S>               <C>                <C>              <C>              <C>                 <C>                <C>


                            Options Outstanding                                    Options Exercisable
                 ----------------------------------------------         -----------------------------------------------

                        Number        Weighted-Average   Weighted-           Number         Weighted-Average     Weighted-
    Range of        Outstanding at     Remaining Life     Average        Outstanding at      Remaining Life       Average
 Exercise Prices   December 31, 2003     (in years)    Exercise Price   December 31, 2003      (in years)      Exercise Price
 ---------------   -----------------     ----------    --------------   -----------------      ----------      --------------

 $3.50-$10.00           433,801             5.01          $ 4.94             433,801               5.01           $ 4.94
  10.01-20.00            44,235             1.83           12.92              44,235               2.83            12.92
                        -------                                              -------
                        478,036                                              478,036
                        =======                                              =======

</TABLE>


















                                      F-14

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002


5.   Income Taxes
     ------------

          As of December 31, 2003, the Company has  approximately $86 million of
     net  operating  loss  carryforwards  ("NOL")  for income tax  purposes  and
     approximately $3 million of research and development and foreign tax credit
     carryforwards  available to offset future  federal  income tax,  subject to
     limitations for alternative minimum tax. The NOL's and credit carryforwards
     are subject to  examination  by the tax  authorities  and expire in various
     years from 2005 through 2023.

          The components of income tax expense are as follows (in 000's):

                                                  2003        2002
                                                  ----        ----

                       Federal-current            $  -        $  -
                       State-current                 2           -
                       Foreign-current               -           -
                                                  ----        ----
                                                  $  2        $  -
                                                  ====        ====

          The income tax expense for the year ended  December  31, 2003 and 2002
     is different from the amount computed by multiplying  total earnings before
     income taxes by the statutory  Federal  income tax rate of 34%. The reasons
     for this difference and the related tax effect are as follows (in 000's):

                                                   2003         2002
                                                   ----         ----

     Loss before income taxes                   ($   330)    ($ 1,097)
     Statutory federal income tax rate                34%          34%
                                                 -------      -------
     Expected income tax benefit                (    112)    (    373)
     Change in valuation allowance
       of operating losses                           112          373
     Other, net                                        2            -
                                                 -------      -------
     Provision for income tax                    $     2      $     -
                                                 =======      =======

          Deferred  income  taxes  reflect  the  net  effects  of (a)  temporary
     differences  between the  carrying  amounts of assets and  liabilities  for
     financial  statement purposes and the amounts used for income tax purposes,
     and (b) operating loss and tax credit carryforwards.




                                      F-15

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          The tax effect of  significant  items  comprising  the  Company's  net
     deferred tax asset as of December 31, 2003 are as follows (in 000's):

          Net operating loss carryforwards                      $ 29,252
          Research and development and other credits               3,060
                                                                --------
                                                                  32,312
          Valuation allowance                                  (  32,312)
                                                                --------
          Net deferred tax asset                                $      -
                                                                ========

          Management believes the deferred tax assets as of December 31, 2003 do
     not  satisfy  the  realization  criteria  set forth in SFAS No. 109 and has
     recorded a valuation allowance for the entire net tax asset. By recording a
     valuation  allowance  for the  entire  amount of future tax  benefits,  the
     Company has not  recognized  a deferred tax benefit for income taxes in its
     statements of operations.

          Included in the net operating loss carryforward is approximately  $1.7
     million  related to income tax  deductions  for the Company's  stock option
     plans.  The tax benefit of such  deductions will be recorded as an increase
     in additional paid-in capital when realized.

          The Tax Reform Act of 1986 contains  provisions that may limit the NOL
     and credit  carryforwards  available  to be used in any given year upon the
     occurrence of certain events, including significant changes in ownership of
     a company of greater than 50% within a three-year  period which  results in
     an annual  limitation on the Company's  ability to utilize its NOLs and tax
     credit carryforwards from tax periods prior to the ownership change.

6.   Legal Proceedings
     -----------------

     Arbitrations
     ------------

          Subsequent to March 31, 2001,  disagreements arose between Cortech and
     Ono as to the status of Ono's license rights under the 1999  Agreement.  On
     August 7, 2001,  Cortech filed a Demand for  Arbitration  with the American
     Arbitration  Association against Ono seeking resolution of the dispute. The
     arbitration  concluded in August 2002,  purportedly resolving any questions
     concerning  the  ownership  of  Cortech's  Intellectual  Property and Ono's
     development rights.


                                      F-16

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002

          On November 1, 2002, the Company  announced that Ono had advised it of
     Ono's  intention to  discontinue  the  development  of ONO-6818  because of
     potential liver toxicity.  In a series of subsequent letters, Ono sought to
     renegotiate its rights to make compounds using Cortech's  technology.  When
     Cortech  declined,  on  February  7,  2003  Ono  admitted  that it had been
     developing what it called "Improved Compounds" since April of 2002 and that
     it had not disclosed this  development  as required by the 1999  Agreement,
     assuming  that  these  new  compounds  met the  Agreement's  definition  of
     "Improved Compounds".  In further breach of the 1999 Agreement, Ono refused
     to reveal the chemical  structure of these so-called  "Improved  Compounds"
     and announced  that Ono had filed a patent in Japan.  Within days,  Cortech
     received a notice of  Arbitration  in which Ono claimed  that its rights to
     develop and designate  compounds  for  development  as commercial  products
     extended  beyond  the  termination  of the  period  provided  in  the  1999
     Agreement  for  designating   Developed  Compounds,   as  defined  in  such
     agreement.

     Settlement and Termination
     --------------------------

          On March 19,  2004  Cortech  signed  an  Assignment,  Termination  and
     Settlement Agreement with Ono. Under the Agreement, Ono assigned to Cortech
     all  pharmaceutical  compounds and  intellectual  property  rights that Ono
     acquired  under the 1999  Agreement,  including  all technical and clinical
     information related to the pharmaceutical  compounds.  Moreover, Ono agreed
     to pay outstanding patent prosecution expenses. Cortech and Ono settled the
     pending  arbitration  in its  entirety.  Both parties  terminated  the 1999
     Agreement,  with all of Ono's rights under the 1999 Agreement  reverting to
     Cortech. Ono's confidentiality  obligations survived the termination of the
     1999 Agreement.

          The  Company  will  continue  to seek other  partners  to develop  the
     elastase  technology,  although  there  can be no  assurance  that  it will
     succeed in this endeavor.











                                      F-17

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2003 and 2002


7.   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  46% of the
     Company's Common Stock at December 31, 2003.

8.   Subsequent Events
     -----------------

          On March 19,  2004,  Cortech  signed  an  Assignment, Termination  and
     Settlement  Agreement  with Ono. See Note 6 for a full  description  of the
     agreement.
















                                      F-18

<PAGE>

Item 8.  -  CHANGES  IN  AND DISAGREEMENTS  WITH  ACCOUNTANTS ON  ACCOUNTING AND
-------     --------------------------------------------------------------------
            FINANCIAL DISCLOSURE
            --------------------

     None

Item 8A. -  CONTROLS AND PROCDURES
--------    ----------------------

     As of the end of the period covered by this report,  based on an evaluation
of the  Company's  disclosure  controls  and  procedures  (as  defined  in Rules
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934),  the Chief
Executive  Officer and Chief  Financial  Officer of  the Company have  concluded
that the Company's  disclosure  controls and  procedures are effective to ensure
that  information  required to be  disclosed  by the Company in its Exchange Act
reports is recorded,  processed,  summarized and reported  within the applicable
time periods specified by the SEC's rules and forms.

     There were no significant  changes in the Company's internal controls or in
any other factors that could  significantly  affect those controls subsequent to
the date of the most recent evaluation of the Company's internal controls by the
Company,  including  any  corrective  actions  with  regard  to any  significant
deficiencies or material weaknesses.
















                                      F-19

<PAGE>

                                    PART III
                                    --------

ITEM 9.  -  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------     --------------------------------------------------

     The information  required under this item is incorporated by reference from
Cortech's 2004 Proxy Statement.

ITEM 10.  -  EXECUTIVE COMPENSATION
--------     ----------------------

     The information  required under this item is incorporated by reference from
Cortech's 2004 Proxy Statement.

ITEM 11.  -  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------     ---------------------------------------------------------------

     The information  required under this item is incorporated by reference from
Cortech's 2004 Proxy Statement.

ITEM 12.  -  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------     ----------------------------------------------

     The information  required under this item is incorporated by reference from
Cortech's 2004 Proxy Statement.

ITEM 14.  -  PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------     --------------------------------------

     The information  required under this item is incorporated by reference from
Cortech's 2004 Proxy Statement.



































                                     III-1

<PAGE>

                                     PART IV
                                     -------

ITEM 13.  -  EXHIBITS AND REPORTS ON FORM 8-K
--------     --------------------------------

The following exhibits are filed as part of this report:
--------------------------------------------------------

Exhibit
Number            Description of Document
------            -----------------------


3.1      (a)      Certificate of Incorporation of Cortech, Inc. as
                  amended.(1)
         (b)      Certificate of Amendment of Certificate of
                  Incorporated of Cortech, Inc.(11)

3.3               Certificate of Designation for Series A Junior
                  Participating Preferred Stock.(6)

3.4               Amended and Restated ByLaws of Cortech, Inc.(9)

4.1               Reference is made to Exhibits 3.3 and 10.30(9)

4.2               Specimen certificate for the Common Stock of
                  Cortech, Inc.(1)

10.28             Sponsored Research and License Agreement,
                  dated February 13, 1987, between The John
                  Hopkins University and the Company (1)

10.29             License Agreement, dated June 30, 1997
                  between The Research Foundation of the
                  State University of New York and the Company.(1)

10.30             Stock Purchase Agreement dated July 8, 1994,
                  between the Company and the Research
                  Foundation of State University of New York.(5)

10.31             Royalty Buyout Agreement dated July 8, 1994,
                  between the Company and the Research
                  Foundation of State University of New York.(5)

10.39             Amended and Restated 1986 Incentive Stock Option
                  Plan of the Company.(1)**

10.40             1991 Non-employee Directors' Stock Option Plan
                  of the Company.(2)**


                                      IV-1

<PAGE>


Exhibit
Number            Description of Document
------            -----------------------


10.41             Amended and Restated 1992 Non-employee Directors'
                  Stock Option Plan of the Company.(4)**

10.42             1993 Employee Stock Purchase Plan of the Company,
                  as amended.(3)**

10.43             1993 Equity Incentive Plan of the Company,
                  as amended.(10)**

10.47             Executive Officers' Severance Benefit Plan.(7)**

10.55             Amendment No. 1 To Executive Officers' Severance
                  Benefit Plan.(7)**

10.57             Second Amendment of the Research, Development
                  and License Agreement dated April 23, 1997,
                  between Ono and the Company.(8)*

10.94             Executive Compensation Benefits Continuation
                  Agreement between the Company and Kenneth R. Lynn,
                  dated October 14, 1997, as amended February 12,
                  1998.(9)**

10.97             Form of Option Agreement for Directors' Non-Plan
                  Options.(10)**

10.98             Termination Agreement between the Company and
                  Diarmuid Boran dated January 29, 1999.(11)**

31.1              Certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002***

31.2              Certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002***

32                Certification pursuant to Section 906 of the
                  Sarbanes Oxley Act of 2002 ***

Reports on Form 8-K
-------------------

     None


                                      IV-2

<PAGE>

--------------------------

(1)  Filed as an exhibit to the  Company's  Registration  Statement of Form S-1,
     filed October 13, 1992,  file number  33-53244,  or amendments  thereto and
     incorporated herein by reference.

(2)  Filed as an exhibit  to the  Company's  annual  report on Form 10-K for the
     year ended December 31, 1992, and incorporated herein by reference.

(3)  Filed as an exhibit to the  Company's  Registration  Statement on Form S-8,
     filed March 29,  1993,  file number  33-60242,  or  amendments  thereto and
     incorporated herein by reference.

(4)  Filed as an exhibit  to the  Company's  annual  report on Form 10-K for the
     year ended December 31, 1993, and incorporated herein by reference.

(5)  Filed as an exhibit to the Company's  quarterly report on Form 10-Q for the
     quarter ended September 30, 1994, and incorporated herein by reference.

(6)  Filed as an exhibit to Cortech  Inc.'s  annual  report on Form 10-K for the
     year ended December 31, 1995, and incorporated herein by reference.

(7)  Filed as an exhibit to Cortech,  Inc.'s  annual report on Form 10-K for the
     year ended December 31, 1996, and incorporated herein by reference.

(8)  Filed as an exhibit to Cortech,  Inc.'s  quarterly  report on Form 10-Q for
     the quarter ended June 30, 1997, and incorporated herein by reference.

(9)  Filed as an exhibit to the  Company's  Registration  Statement on Form S-4,
     filed February 17, 1998,  file number 33-46445 and  incorporated  herein by
     reference.

(10) Filed as an exhibit to Cortech,  Inc.'s  annual report on Form 10-K for the
     year ended December 31, 1997, and incorporated herein by reference.

(11) Filed as an exhibit to Cortech, Inc.'s annual report on Form 10-KSB for the
     year ended December 31, 1998, and incorporated herein by reference.

*    Subject to Confidential  Treatment  Order.
**   Compensatory  Plan.
***  Filed herewith


                                      IV-3

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

          March 26, 2004                            By: /s/ Paul O. Koether
                                                        ------------------------
                                                        Paul O. Koether
                                                        Chairman, President and
                                                        Chief Executive Officer



          March 26, 2004                            By: /s/ Sue Ann Merrill
                                                        ------------------------
                                                        Sue Ann Merrill
                                                        Chief Financial Officer,
                                                        Treasurer and Secretary
                                                        (Principal Financial and
                                                        Accounting Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the  following  persons in the  capacities  and on the
dates indicated.

         Signature                          Capacity                  Date
---------------------------         ------------------------    ----------------


/s/ Paul O. Koether                 Chairman and Director       March 26, 2004
---------------------------         (Principal Executive
Paul O. Koether                     Officer)



/s/ Diarmuid Boran                  Director                    March 26, 2004
---------------------------
Diarmuid Boran


/s/ James L. Bicksler               Director                    March 26, 2004
---------------------------
James L. Bicksler



/s/ Sheri Perge Stettner            Director                    March 26, 2004
------------------------
Sheri Perge Stettner



/s/ Qun Yi Zheng                    Director                    March 26, 2004
---------------------------
Qun Yi Zheng



                                      IV-4

<PAGE>
                                                                    EXHIBIT 31.1
                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002
I, Paul O. Koether, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Cortech, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     c)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     d)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

March 26, 2004                                        /s/ PAUL O. KOETHER
                                                      --------------------------
                                                      Paul O. Koether
                                                      Chairman, President and
                                                      Chief Executive Officer

<PAGE>

                                                                    EXHIBIT 31.2
                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002
I, Sue Ann Merrill, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Cortech, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     c)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     d)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

March 26, 2004                                         /s/ Sue Ann Merrill
                                                       -------------------------
                                                       Sue Ann Merrill
                                                      (Principal Accounting and
                                                      Financial Officer)

<PAGE>

                                                                      Exhibit 32

     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,   President  and  Chief  Executive  Officer  of  Cortech,  Inc.,  (the
"Company"),  and Sue Ann Merrill,  the Chief  Financial  Officer,  Treasurer and
Secretary  of the  Company  each  hereby  certifies  that,  to the best of their
knowledge:

     1.   The  Company's  Annual  Report on Form  10-KSB  for the  period  ended
          December 31, 2003, to which this  Certification is attached as Exhibit
          32 (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:   March 26, 2004


/s/ Paul O. Koether
------------------------------------
Paul O. Koether
Chairman, President and
  Chief Executive Officer



/s/ Sue Ann Merrill
------------------------------------
Sue Ann Merrill
Chief Financial Officer,
  Treasurer and Secretary