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, 2001

[ ]     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,  2001  were
approximately $551,000.

     As of  February  28,  2002,  there were  3,690,312  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
National Market, was approximately $7.9 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  set forth in Part III of this  report is  incorporated  by
         reference to the Registrants 2002 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.

Overview
--------

     Cortech,  Inc. ("Cortech" or the "Company") 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
have not been outlicensed.  At the same time, the Company is seeking to redeploy
its assets into an operating business.

     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 research and development activities.  In addition,
Cortech   decommissioned   its  laboratories  and  sold  all  of  its  remaining
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.

     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 have been  collaborating
(the "Agreement").  Prior to the Agreement, Ono's rights to this technology were
limited to the territories of Korea, Japan, China and Taiwan. In connection with
the expansion of Ono's rights to the technology,  Cortech  received a $2,000,000
payment less applicable  taxes both in the United States and Japan. Ono withheld
at the source $200,000 of withholding  taxes which they remitted directly to the
Japanese  taxing  authorities.  This  withholding  tax was expensed in 1999. The
Company  believed  it was not  liable  for this  withholding  and  appealed  the
withholding,  seeking  reimbursement from the Japanese taxing  authorities.  The
Company was  informed by the  Japanese  taxing  authorities  that its appeal was
denied.  If Ono's studies of the technology  are  favorable,  Cortech could also
receive milestone payments of up to $9.5 million. Ono also agreed to pay Cortech
a royalty on sales generated outside the original  territories on products using

                                      I-1

<PAGE>

Cortech's technology. Milestone payments or royalties are not assured and in any
event could be expected only after several more years of continued evaluation of
the technology by Ono. On August 7, 2001, Cortech filed a Demand for Arbitration
with the American  Arbitration  Association  against Ono seeking resolution of a
dispute regarding the  interpretation of the Agreement.  The Agreement  provides
for the development and commercialization of a pharmaceutical  product.  Cortech
and Ono disagree with respect to Article IV of the Agreement, which concerns the
scope of interpreting  Article IV of the Agreement and related  provisions,  and
the rights and obligations of the parties thereunder,  including a determination
of the payments to Cortech under Article VII of the  Agreement.  On December 20,
2001,  Ono filed its  Statement of Defense and  Counterclaims,  seeking an order
interpreting other provisions of the Agreement  including,  without  limitation,
certain  provisions  relating to the rights and  obligations of the parties with
respect to so-called "Improved Compounds," as defined in the Agreement.  Cortech
has no assurance  that it will be  successful in the  arbitration,  and, even if
successful,  the  arbitration  may require  Cortech to incur  significant  legal
costs,  impact  Cortech's  ability to conduct  business or take advantage of new
business opportunities,  lower the stock price, or divert management's attention
from Cortech's primary business activities in general.

     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.  Development of an orally active elastase inhibitor is
expected to bring a new therapy for patients with chronic inflammatory diseases.

     Although  efforts  to  sell or  establish  partnerships  for the  remaining
components of Cortech's technology portfolio continue, there can be no assurance
that any transaction will be completed.

     The Company was  incorporated  in 1982 in Colorado  and  reincorporated  in
Delaware in August 1991.

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.

                                      I-2

<PAGE>

     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 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
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.

     In June 1999,  the Company  finalized  an  Agreement  to license to Ono the
worldwide  rights  to the oral  elastase  inhibitor  program  on  which  the two
companies had been  collaborating  (the  "Agreement").  Prior to the  Agreement,
Ono's rights to this technology were limited to the territories of Korea, Japan,
China and  Taiwan.  In  connection  with the  expansion  of Ono's  rights to the
technology,  Cortech received a $2,000,000 payment less applicable taxes both in
the United States and Japan.  Ono withheld at the source $200,000 of withholding

                                      I-3

<PAGE>

taxes which they  remitted  directly to the Japanese  taxing  authorities.  This
withholding tax was expensed in 1999. The Company believed it was not liable for
this withholding and appealed the withholding,  seeking  reimbursement  from the
Japanese  taxing  authorities.  The Company was informed by the Japanese  taxing
authorities that its appeal was denied.

     If Ono's  development  efforts are  successful,  Cortech could also receive
milestone  payments  of up to $9.5  million.  Ono also  agreed to pay  Cortech a
royalty on sales  generated  outside the original  territories on products using
Cortech's technology. Milestone payments or royalties are not assured and in any
event could be expected only after several more years of continued evaluation of
the technology by Ono. On August 7, 2001, Cortech filed a Demand for Arbitration
with the American  Arbitration  Association  against Ono seeking resolution of a
dispute regarding the  interpretation of the Agreement.  The Agreement  provides
for the development and commercialization of a pharmaceutical  product.  Cortech
and Ono disagree with respect to Article IV of the Agreement, which concerns the
scope of interpreting  Article IV of the Agreement and related  provisions,  and
the rights and obligations of the parties thereunder,  including a determination
of the payments to Cortech under Article VII of the  Agreement.  On December 20,
2001,  Ono filed its  Statement of Defense and  Counterclaims,  seeking an order
interpreting other provisions of the Agreement  including,  without  limitation,
certain  provisions  relating to the rights and  obligations of the parties with
respect to so-called "Improved Compounds," as defined in the Agreement.  Cortech
has no assurance  that it will be  successful in the  arbitration,  and, even if
successful,  the  arbitration  may require  Cortech to incur  significant  legal
costs,  impact  Cortech's  ability to conduct  business or take advantage of new
business opportunities,  lower the stock price, or divert management's attention
from Cortech's primary business activities in general.

     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
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.

                                      I-4

<PAGE>

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
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.

                                      I-5

<PAGE>

     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.

     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


                                      I-6

<PAGE>

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.

     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


                                      I-7

<PAGE>

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.
Cortech  holds  nineteen  United States  patents and has numerous  United States
patent  applications  pending which concern protease  inhibitors.  Cortech holds
four United States  patents and has numerous  United States patent  applications
pending  which  concern  bradykinin  antagonists.  In  addition,  Cortech  holds
forty-eight  foreign patents and has numerous 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-8

<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
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.

                                      I-9

<PAGE>

     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
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

                                      I-10

<PAGE>

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.

     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

                                      I-11

<PAGE>

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
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 is 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.  Although Cortech believes
that its safety procedures for handling and disposing of such materials complied
with the  standards  prescribed  by state and federal  regulations,  the risk of
accidental  contamination  or injury from these  materials  cannot be completely
eliminated.

                                      I-12

<PAGE>

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

     On August 7, 2001, Cortech filed a Demand for Arbitration with the American
Arbitration  Association  against  Ono  Pharmaceuticals,  Inc.  ("Ono")  seeking
resolution  of a  dispute  regarding  the  interpretation  of a  June  28,  1999
Research,  Development and License  Agreement  ("Agreement")  with Ono (the "Ono
Arbitration").  The Agreement provides for the development and commercialization
of a pharmaceutical product. Cortech and Ono disagree with respect to Article IV
of the  Agreement,  which  concerns  the  scope of the  license  granted  to Ono
thereunder.  Cortech seeks an order interpreting Article IV of the Agreement and
related  provisions,  and the rights and obligations of the parties  thereunder,
including a  determination  of the payments to Cortech  under Article VII of the
Agreement.  On  December  20,  2001,  Ono filed its  Statement  of  Defense  and
Counterclaims,  seeking an order  interpreting other provisions of the Agreement

                                      I-13

<PAGE>

including,  without  limitation,  certain provisions  relating to the rights and
obligations  of the parties with respect to so-called  "Improved  Compounds," as
defined in the Agreement. Cortech has no assurance that it will be successful in
the arbitration, and, even if successful, the arbitration may require Cortech to
incur significant  legal costs,  impact Cortech's ability to conduct business or
take advantage of new business  opportunities,  lower the stock price, or divert
management's attention from Cortech's primary business activities in general.

     On February 27, 1998, a complaint was filed in the Court of Chancery of the
State of Delaware,  naming the Company, the Company's then current directors and
BioStar as  defendants.  The  complaint,  filed by a stockholder of the Company,
claimed  to be on  behalf  of a class  of all  the  Company's  stockholders  and
contended  that  the  then  current  directors  of the  Company  breached  their
fiduciary duties to the Company's  stockholders  when they unanimously  approved
the proposed combination with BioStar. The complaint originally sought to enjoin
the proposed  combination with BioStar as well as the operation of the Company's
stockholder rights plan and sought an order rescinding the proposed  combination
with BioStar upon its  consummation as well as  compensatory  damages and costs.
The complaint was amended  following  termination of the proposed BioStar merger
to  seek  to  force  an  auction  of the  Company's  assets  and  other  relief.
Thereafter,  the parties negotiated a settlement of the claims.  Pursuant to the
terms of the settlement a payment in the amount of $235,000, was made to Cortech
on behalf of Defendants by Cortech's  directors and officers  insurance carrier.
On April 6, 2000,  the Court held a hearing  and  approved  the  settlement  and
ordered  Cortech to pay  $129,261.88  in  attorney's  fees and expenses from the
insurance  proceeds.  There were no objections to the  settlement and on May 11,
2000 Cortech  received the settlement  payment and paid the attorney's  fees and
expenses.


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

         None
















                                      I-14


<PAGE>
                                     PART II
                                     -------

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

     At February 28, 2002, the Company had  approximately  440  stockholders  of
record.  The  Company's  common stock  currently  trades on the NASDAQ  National
Market System under the symbol  "CRTQ".  On February 28, 2002, the closing price
per share of the common stock was $3.71.

     On May 14, 2001, the Company  announced a 100% stock  dividend.  The record
date and  distribution  date for the stock dividend was May 22, 2001 and June 1,
2001, respectively.

     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
Market  System.  All  closing  prices  have been  adjusted  to reflect the stock
dividend.

                                                  Low          High
                                                 -----        -------
       Calendar Quarter Ended:
       2001
       ----

              March 31                          $ 3.64        $ 4.25
              June 30                             3.75          5.30
              September 30                        3.75          4.12
              December 31                         3.90          4.15

       2000
       ----

              March 31                          $ 2.88        $ 5.25
              June 30                             3.53          5.63
              September 30                        3.50          4.34
              December 31                         3.13          6.38


     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  for the year ended  December 31, 2001 were  $551,000  compared to
revenues of $877,000 for the year ended December 31, 2000.

     Interest income  decreased from $781,000 in 2000 to $551,000 in 2001. Lower
yields on investment balances was the primary reason for this decrease.

     In 2000,  other income  relates to the  settlement  of a derivative  action
brought on behalf of the Company in which the Company  recovered  $96,000 net of
court ordered payments.  (For more information on the settlement,  see Note 7 of
Notes to Financial Statements.)

                                      II-2

<PAGE>

     General and  administrative  expenses  increased  from  $454,000 in 2000 to
$795,000  in 2001.  This  increase  was due  principally  to  higher  legal  and
consulting fees incurred in connection with the Company's  increased  efforts in
seeking a collaborative partner and the Ono Arbitration. For more information on
the Ono Arbitration see Item 3.-Legal Proceedings.

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

     At December 31, 2001,  the Company had cash and cash  equivalents  of $13.4
million.  Cash  equivalents  consisted  of U.S.  Treasury  Bills  with  original
maturities  of three  months or less and  yields  ranging  from 1.63% to 1.729%.
Working capital at December 31, 2001 was approximately $13.3 million. Management
believes its cash and cash equivalents are sufficient for its remaining business
activities and for the costs of seeking an acquisition of an operating business.

     Net  cash of  approximately  $222,000  was used in  operations  in 2001 due
primarily  to the net  loss of  $236,000.  In 2000,  net  cash of  approximately
$502,000  was  provided  by  operations,  due  primarily  to the net  income  of
$401,000.

     In 2001,  cash of $6.6 million was provided by investing  activities due to
the maturity of short-term  investments.  Net cash used in investing  activities
was  $43,000  in  2000,  due  to  the  purchase  and  maturities  of  short-term
investments.

     Net cash of $48,000 was used in financing  activities  in 2001,  due to the
issuance and 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,  particularly  legal
expenses associated with the Ono Arbitration (See Item 3. - Legal Proceedings).

Other Disclosures - Related Party Transactions
----------------------------------------------

     A  management  fee of $15,000 per month is paid to Asset Value Fund Limited
Partnership for management  services  performed for the Company.  These services
include corporate governance, financial management, and accounting services.

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

     Net Operating Loss Carryforwards and Tax Credits:  As of December 31, 2001,
Cortech had approximately $85 million of net operating loss carryforwards("NOL")
for income tax purposes. In addition,  Cortech has approximately $3.1 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  2021.  Cortech's  use of operating  loss  carryforwards  and tax credit
carryforwards is subject to limitations imposed by the Internal Revenue Code.

                                      II-3



<PAGE>

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

         The financial statements filed with this item are listed below:

         Report of Independent Accountants

         Financial Statements:

                  Balance Sheet as of December 31, 2001

                  Statements of Operations for the Years ended December 31, 2001
                  and 2000

                  Statements of Stockholders' Equity for the Years ended
                  December 31, 2001 and 2000

                  Statements of Cash Flows for the Years ended December 31, 2001
                  and 2000

                  Notes to Financial Statements





















                                      II-4
<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 Accountants


To Shareholders and Directors of
Cortech, Inc.:

In  our  opinion,  the  accompanying  balance  sheet and  the 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, 2001,
and the results of its operations and its cash flows for each of the years ended
December 31, 2001 and 2000 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 28, 2002







                                      F-1


<PAGE>


                                  CORTECH, INC.
                                  BALANCE SHEET
                                December 31, 2001
                                   (in 000's)



ASSETS
------

Current assets:
    Cash and cash equivalents                                      $  13,448
    Other assets                                                          38
                                                                   ---------
         Total assets                                              $  13,486
                                                                   =========


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

Current liabilities:
    Accrued liabilities                                            $     179
                                                                   ---------
         Total liabilities                                               179
                                                                   ---------

Commitments and contingencies (Note 7)


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;
      3,695,620 shares issued and outstanding                              7
    Additional paid-in capital                                        99,778
    Accumulated deficit                                           (   86,478)
                                                                   ---------
         Total stockholders' equity                                   13,307
                                                                   ---------
         Total liabilities and stockholders' equity                $  13,486
                                                                   =========











                 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,
                                                   --------------------------
                                                     2001              2000
                                                    ------            ------

Revenues:
   Interest income                                 $   551           $   781
   Other income                                          -                96
                                                   -------           -------
       Total revenues                                  551               877

Expenses:
   General and administrative                          795               454
                                                   -------           -------

Income (loss) before income taxes                 (    244)              423
Provision (benefit) for income taxes              (      8)               22
                                                   -------           -------
Net income (loss)                                 ($   236)          $   401
                                                   =======           =======

Basic and diluted net income (loss) per share     ($   .06)          $   .11
                                                   =======           =======

Weighted average common shares
  outstanding                                        3,700             3,704
                                                   =======           =======










                 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, 1999          3,704      $     7        $99,827       ($86,643)       $13,191

Net income                              -            -              -            401            401
                                  -------      -------        -------        -------        -------

Balance, December 31, 2000          3,704            7         99,827       ( 86,242)        13,592

Issuance of common stock               50            -            175              -            175

Repurchase of common stock       (     58)           -       (    223)             -       (    223)

Net loss                                -            -              -       (    236)      (    236)

Effect of stock dividend                -            -       (      1)             -       (      1)
                                  -------      -------        -------        -------        -------

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

</TABLE>
















                 See accompanying notes to financial statements.

                                      F-4

<PAGE>


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

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

                                                                      Year Ended December 31,
                                                                    ---------------------------
                                                                       2001              2000
                                                                      ------            ------

Cash flows from operating activities:
  Net income (loss)                                                 ($   236)          $   401
    Adjustments:
      Decrease in other assets                                            43                74
      Increase (decrease) in accrued liabilities and other          (     29)               27
                                                                     -------           -------
      Net cash provided by (used in) operating activities           (    222)              502
                                                                     -------           -------

Cash flows from investing activities:
  Purchases of short-term investments                                      -          ( 13,097)
  Maturities of short-term investments                                 6,611            13,054
                                                                     -------           -------
      Net cash provided by (used in) investing activities              6,611          (     43)
                                                                     -------           -------

Cash flows from financing activities:
  Issuance of common stock                                               175                 -
  Repurchase of common stock                                        (    223)                -
                                                                     -------           -------
      Net cash used in financing activities                         (     48)                -
                                                                     -------           -------

Net increase in cash and cash equivalents                              6,341               459
Cash and cash equivalents at beginning of period                       7,107             6,648
                                                                     -------           -------
Cash and cash equivalents at end of period                           $13,448           $ 7,107
                                                                     =======           =======

Supplemental disclosure cash flow information:
  Cash paid for taxes                                                $     -           $    24
                                                                     =======           =======

</TABLE>







                 See accompanying notes to financial statements.

                                      F-5


<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000

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.

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

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

                                      F-6


<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000

       Short-Term Investments
       ----------------------

            Short-term  investments  consist  of  U.S. Treasury  Bills purchased
       with an original maturity of six months  and  are  valued  at  cost  plus
       accrued interest, which approximates the fair market value.  The  company
       had no short-term investments at December 31, 2001.

       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.

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

                                                                   (Shares in Thousands)
                                                                  2001               2000
                                                                  ----               ----
            Basic earnings (loss) per common share:
               Average shares outstanding for basic
                  earnings (loss) per share                       3,700              3,704
                                                                  =====              =====

           Diluted earnings (loss) per common share:
               Average shares outstanding for basic
                  earnings (loss) per share                       3,700              3,704
               Dilutive effect of stock options                       -                 44
                                                                  -----              -----
               Average shares outstanding for diluted
                  earnings (loss) per share                       3,700              3,748
                                                                  =====              =====

</TABLE>

            Excluded from the calculation of earnings (loss) per  share in  2001
      are  330,000  common  stock  options  which,  if  included  would  have an
      antidilutive effect.


       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.

                                      F-7


<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000

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

       Ono Pharmaceutical Co., Ltd. ("Ono")
       ------------------------------------

            In  March 1995,  Cortech entered into  a research agreement with Ono
       to develop an orally active  human neutrophil  elastase  inhibitor  using
       Cortech's protease inhibitor  research  capabilities.  Upon entering into
       the agreement, Ono  paid the  Company $500,000  for  research  previously
       conducted by the  Company.  Under  the agreement  as amended in 1996, Ono
       paid $4.3 million in 1996 and an additional $1.5 million in 1997 for work
       that was performed in the second and third quarters  of  1997.  Under the
       terms of the agreement, as  amended  in  April,  1997,  Ono  assumed  all
       responsibilities for research activities  during  the final six months of
       the collaborative project, which terminated  on  March  14,  1998.  As  a
       result  of  this  reallocation  of  responsibilities,  Ono was  no longer
       required to pay the Company the last scheduled $1.5 million  in  research
       funding previously provided  for  under  the  agreement to offset certain
       costs that the Company would otherwise have incurred under the agreement.
       Cortech expects no further payments from Ono  under  the agreement. Under
       the terms of the agreement, Ono had an exclusive, royalty-free license to
       make, use and sell a resulting product in Japan, Korea, Taiwan and China.

            In  June 1999, the Company  finalized an agreement to license to Ono
       the worldwide rights to the oral  elastase inhibitor program on which the
       two companies had been collaborating  (the  "Agreement").  In  connection
       with the expansion of Ono's rights to the technology, Cortech  received a
       $2,000,000 payment less applicable taxes  both in the  United  States and
       Japan. Ono withheld  at  the source $200,000  of withholding taxes  which
       they  remitted  directly  to   the  Japanese  taxing   authorities.  This
       withholding tax was expensed  in 1999. If Ono's studies of the technology
       are favorable, Cortech could  also  receive  milestone  payments of up to
       $9.5 million. Ono also agreed to pay Cortech a royalty on sales generated
       outside the original territories on products using Cortech's  technology.
       Milestone payments or royalties are not assured and in any event could be
       expected only after several  more years  of continued  evaluation  of the
       technology  by  Ono.  On  August  7,  2001,  Cortech  filed  a Demand for
       Arbitration with the American Arbitration Association against Ono seeking
       resolution  of  a dispute regarding the interpretation of the  Agreement.
       The Agreement  provides  for the  development  and commercialization of a
       pharmaceutical product. Cortech and Ono disagree  with respect to Article
       IV of the Agreement, which concerns the scope of  interpreting Article IV
       of the Agreement and related provisions, and the  rights  and obligations
       of the parties thereunder,  including a determination of the  payments to
       Cortech under Article VII of  the  Agreement.  On December  20, 2001, Ono
       filed its  Statement of  Defense  and  Counterclaims,  seeking  an  order
       interpreting  other  provisions  of   the  Agreement  including,  without
       limitation, certain provisions  relating to the rights and obligations of


                                      F-8

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000

       the parties with respect to so-called "Improved Compounds," as defined in
       the Agreement. Cortech has no assurance that it will be successful in the
       arbitration, and, even if successful, the arbitration may require Cortech
       to  incur significant  legal  costs, impact  Cortech's ability to conduct
       business or take advantage of new business opportunities, lower the stock
       price, or divert management's attention from  Cortech's  primary business
       activities in general.

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  May 14,  2001, the Company announced  a 100% stock dividend. The
       record date for the stock dividend was May 22,  2001 and the distribution
       date was June 1, 2001. Accordingly, all common share information has been
       restated to reflect this stock dividend.

            On  October  30,  2000, the Board  of  Directors  approved  a  stock
       repurchase program authorizing  the  Company  to repurchase up to 320,000
       shares of its Common Stock at prices deemed favorable  from  time to time
       in the open market  or  in  privately negotiated  transactions subject to
       market   conditions,   the   Company's  financial   position   and  other
       considerations. As of December 31, 2001, 58,800  shares  of  Common Stock
       were repurchased for approximately $223,000. All shares  repurchased were
       returned to the status of authorized but unissued shares.

       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

                                      F-9

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


       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.

            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:

                                                      2001              2000
                                                      ----              ----
         Net income (loss)
            As reported (in $000's)                  ($ 236)            $ 401
            Pro forma (in $000's)                    ($ 361)            $ 339

         Basic net income (loss) per share:
            As reported                              ($ .06)            $ .11
            Pro forma                                ($ .10)            $ .09

         Diluted net income (loss) per share:
            As reported                              ($ .06)            $ .11
            Pro forma                                ($ .10)            $ .09


            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  in  2000;  risk
       free interest rates of 5.00 percent; and weighted average expected  lives
       of 10 years. No options were granted in 2001.

            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

                                      F-10

<PAGE>

                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


       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.

            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, 1999  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.

            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,  2001,
       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-11



<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


            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, 2001.

            During  1991,  a  Nonemployee  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  nonemployee  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 2001 or 2000. 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   Nonemployee  Directors'  Stock   Option  Plan
       authorizes the granting of  options  to  purchase up  to 80,000 shares of
       common stock to the nonemployee 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  2001  or  2000.



















                                      F-12


<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000

            A  summary of  the status  of the Company's 1986 Plan, 1993 Plan and
       nonemployee directors' stock option  plans  as  of  December 31, 2001 and
       2000  and changes  during  the  years  ended  on those dates is presented
       below:

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

                                          2001                                  2000
                              ---------------------------            ----------------------------
                                         Weighted-Average                      Weighted-Average
                              Shares      Exercise Price             Shares     Exercise Price
                              ------    -----------------            ------    ------------------

Options outstanding
 at beginning of year        554,552          $  5.65               174,552           $10.29
Granted                            -                -               380,000             3.51
Forfeited/canceled          ( 18,600)           13.00                     -                -
Exercised                   ( 50,000)            3.50                     -                -
                             -------                                -------
Outstanding at
 year end                    485,952             5.59               554,552             5.65
                             =======                                =======
Options exercisable
 at year end                 359,286             6.32               301,216             7.44
                             =======                                =======
</TABLE>



            The  Company  granted   other  options  to   certain  directors  and
       consultants:

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

                                          2001                                  2000
                              ---------------------------            ----------------------------
                                         Weighted-Average                      Weighted-Average
                              Shares      Exercise Price             Shares     Exercise Price
                              ------    -----------------            ------    ------------------

Options outstanding
 at beginning of year         21,602           $20.18                21,602           $20.18
Forfeited/cancelled          (   600)           13.00                     -                -
                              ------                                 ------
Outstanding at
 year end                     21,002            20.39                21,602            20.18
                              ======                                 ======
Options exercisable
 at year end                  21,002            20.39                21,602            20.18
                              ======                                 ======

</TABLE>


            For  options outstanding  and  exercisable at December 31, 2001, 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, 2001      (in years)      Exercise Price    December 31, 2001     (in years)      Exercise Price
-----------------------------------------------------------------------    ----------------------------------------------------

  $3.50-$10.00        453,801               7.08            $ 4.87              327,135             6.51            $ 5.40
   10.01-20.00         44,236               3.83             12.92               44,236             3.83             12.92
   40.00-43.75          8,917                .31             40.31                8,917              .31             40.31
                      -------                                                   -------
                      506,954                                                   380,288
                      =======                                                   =======

</TABLE>


                                      F-13



<PAGE>


                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


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

            As  of December  31, 2001, the Company has approximately $85 million
       of net operating loss  carryforwards  ("NOL") for income tax purposes and
       approximately $3.1 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 2021.

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

                                                         2001        2000
                                                         ----        ----

                          Federal-current               ($  8)      $   9
                          State-current                     -          13
                          Foreign-current                   -           -
                                                         ----       -----
                                                        ($  8)      $  22
                                                         ====       =====

            The  income  tax  expense (benefit)  for the year ended December 31,
       2001 and 2000 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):

                                                        2001             2000
                                                        ----             ----

       Income (loss) before income taxes               ($ 244)          $  423
       Statutory federal income tax rate                  34%              34%
                                                        -----           ------
       Expected income tax expense (benefit)           (   83)             144
       State tax                                            -                9
       Change in valuation allowance
         of operating losses                               83           (  142)
       Expiring research credit carryforwards               -                7
       Other, net                                      (    8)               4
                                                        -----           ------
       Provision (benefit) for income tax              ($   8)          $   22
                                                        =====           ======

            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-14


<PAGE>


                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


            The  tax  effect of  significant items  comprising the Company's net
       deferred tax asset as of December 31, 2001 are as follows (in 000's):

            Net operating loss carryforwards                         $ 28,767
            Research and development and other credits                  3,060
                                                                     --------
                                                                       31,827
            Valuation allowance                                     (  31,827)
                                                                     --------
            Net deferred tax asset                                   $      -
                                                                     ========

            Management  believes  the  deferred  tax  assets  as of December 31,
       2001 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
       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.


                                      F-15



<PAGE>

                                  CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


6.     Employee Retirement Plan
       ------------------------

            The  Company  provided  a   defined  contribution  401(k)  plan  for
       eligible  employees which  was  discontinued effective December 31, 2000.
       Employee contributions to the  plan  were voluntary.

7.     Legal Proceedings
       -----------------

            On  August  7, 2001, Cortech filed a Demand for Arbitration with the
       American  Arbitration  Association  against  Ono   Pharmaceuticals,  Inc.
       ("Ono") seeking resolution of a dispute regarding the interpretation of a
       June   28,   1999   Research,   Development    and    License   Agreement
       ("Agreement") with Ono. The  Agreement  provides  for the development and
       commercialization of a pharmaceutical product.  Cortech  and Ono disagree
       with respect to Article IV of the Agreement, which concerns  the scope of
       the  license  granted  to  Ono   thereunder.  Cortech   seeks   an  order
       interpreting Article IV of the  Agreement and related provisions, and the
       rights  and  obligations  of   the   parties   thereunder,   including  a
       determination  of  the  payments  to  Cortech  under Article  VII  of the
       Agreement. On December 20, 2001, Ono filed its  Statement of Defense  and
       Counterclaims, seeking an order  interpreting  other  provisions  of  the
       Agreement  including, without  limitation, certain provisions relating to
       the rights and obligations of  the  parties  with  respect  to  so-called
       "Improved  Compounds,"  as  defined  in  the  Agreement.  Cortech  has no
       assurance  that it  will be  successful in the  arbitration, and, even if
       successful, the arbitration may  require  Cortech  to  incur  significant
       legal costs,  impact  Cortech's  ability  to  conduct  business  or  take
       advantage of new business opportunities, lower the stock price, or divert
       management's  attention  from  Cortech's  primary  business activities in
       general.

            On February 27, 1998, a complaint was filed in the Court of Chancery
       of the State of Delaware, naming the Company, the Company's then  current
       directors  and  BioStar  as   defendants.  The   complaint,  filed  by  a
       stockholder of the Company, claimed to be on behalf of a class of all the
       Company's  stockholders and  contended that the then current directors of
       the Company breached their fiduciary duties to the Company's stockholders
       when they unanimously approved the proposed combination with BioStar. The
       complaint originally  sought to  enjoin  the  proposed  combination  with
       BioStar as well as the operation of the Company's stockholder rights plan
       and sought an order rescinding the proposed combination with BioStar upon
       its consummation as well as compensatory damages and costs. The complaint
       was amended following  termination of the proposed BioStar merger to seek
       to force an auction of the Company's assets and other relief. Thereafter,
       the parties  negotiated a settlement of the claims. Pursuant to the terms


                                      F-16

<PAGE>
                                 CORTECH, INC.
                          NOTES TO FINANCIAL STATEMENTS

                     Years Ended December 31, 2001 and 2000


       of the  settlement a payment  in the  amount of  $235,000,  was  made  to
       Cortech  on  behalf  of  Defendants  by  Cortech's directors and officers
       insurance  carrier.  On  April  6,  2000,  the  Court  held a hearing and
       approved  the  settlement  and  ordered  Cortech to  pay  $129,261.88  in
       attorney's fees and  expenses from  the insurance proceeds. There were no
       objections  to  the  settlement  and  on  May  11,  2000 Cortech received
       the settlement payment and paid the attorney's fees and expenses.

8.     Related Party Transactions
       --------------------------

            Commencing  in  2000,  a management fee of $15,000 per month is paid
       to AVF for management services  performed for the Company. These services
       include  corporate  governance,  financial  management,   and  accounting
       services.























                                      F-17


<PAGE>


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

          None



















                                      II-5



<PAGE>

                                    PART III
                                    --------

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

        The information required under this item is incorporated by reference to
     Cortech's 2002 Proxy Statement.

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

        The information required under this item is incorporated by reference to
     Cortech's 2002 Proxy Statement.

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

        The information required under this item is incorporated by reference to
     Cortech's 2002 Proxy Statement.

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

        The information required under this item is incorporated by reference to
     Cortech's 2002 Proxy Statement.























                                     III-1

<PAGE>

                                     PART IV
                                     -------

ITEM 13. -    EXHIBITS
--------      --------

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)**


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.



                                      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, 2002                          By: /s/ Paul O. Koether
                                                     --------------------
                                                     Paul O. Koether
                                                     Chairman and Chief
                                                     Executive Officer


         March 26, 2002                          By: /s/ Sue Ann Itzel
                                                     ------------------
                                                     Sue Ann Itzel
                                                     Treasurer
                                                     (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, 2002
-------------------           (Principal Executive
Paul O. Koether               Officer)


/s/ John W. Galuchie, Jr.     President and Director          March 26, 2002
-------------------------
John W. Galuchie, Jr.


/s/ James L. Bicksler         Director                        March 26, 2002
---------------------
James L. Bicksler


/s/ Sheri Perge Stettner      Director                        March 26, 2002
------------------------
Sheri Perge Stettner


/s/ Leonard M. Tannenbaum     Director                        March 26, 2002
-------------------------
Leonard M. Tannenbaum


/s/ Qun Yi Zheng              Director                        March 26, 2002
----------------
Qun Yi Zheng


                                      IV-4